EUROPEAN COMMUNITIES AND CERTAIN MEMBER STATES – MEASURES AFFECTING TRADE IN LARGE CIVIL AIRCRAFT RECOURSE TO ARTICLE 21.5 OF THE DSU BY THE UNITED STATES AB-2016-6
Document: Report of the Appellate Body BCI redacted, as marked [BCI]
Date: 15 May 2018
Document codes: WT/DS316/AB/RW
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
RECOURSE TO ARTICLE 21.5 OF THE DSU BY THE UNITED STATES
AB-2016-6
Report of the Appellate Body

BCI redacted, as marked [BCI]

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ABBREVIATIONS USED IN THIS REPORT
Abbreviation Description
A350XWB Business
Case Presentation
"Presentation to the EADS Board", [BCI] and "A350XWB Business
Case: Assumptions, Sensitivities and Limitations, Presentation to
EADS BoD – status", 2 November 2006
A350XWB Chief
Engineering Rebuttal
Statement by Gordon McConnell, Michel Lacabanne, Chantal Fualdes,
François Cerbelaud and Burkhard Domke, A350XWB Chief
Engineering, 13 December 2012 (Panel Exhibit EU-128 (BCI/HSBI))
A350XWB Chief
Engineering Statement
Airbus, A350XWB Chief Engineering and Future Projects Office,
"A350XWB Chief Engineering Statement", 3 July 2012
(Panel Exhibit EU-18 (BCI/HSBI))
A350XWB Production
Statement
A350XWB Production Statement by Philippe Launay, 14 January 2013
(Panel Exhibit EU-129 (BCI/HSBI))
Aérospatiale French aerospace manufacturer, Aérospatiale Société Nationale
Industrielle
BAE Systems British Aerospace Systems
Bair Declaration Declaration of Michael Bair: Products and Competition in the LCA
Industry (16 August 2012) (Panel Exhibit USA-339 (BCI))
BCI business confidential information
Compliance
Communication
Communication from the European Union dated 1 December 2011,

DARE Develop And Ramp-up Excellence
Deutsche Airbus German aerospace manufacturer, Deutsche Airbus GmbH
Dorman Report Gary J. Dorman, NERA, The Effect of Launch Aid on the Economics of
Commercial Airline Programs, 6 November 2006
(Original Panel Exhibit US-70 (BCI))
DSB Dispute Settlement Body
DSU Understanding on Rules and Procedures Governing the Settlement
of Disputes
EADS European Aeronautic Defence and Space Company N.V.
EBIT earnings before interest and taxes
GATT 1994 General Agreement on Tariffs and Trade 1994
HSBI highly sensitive business information
IRR internal rate of return
Jordan Reply Dr James Jordan, NERA Economic Consulting, "Reply to Professor
Whitelaw's Response to Jordan Report", 20 May 2013
(Panel Exhibit USA-505 (BCI/HSBI))
Jordan Report Dr James Jordan, NERA Economic Consulting, "Comparison of A350
XWB LA/MSF Interest Rates with Market Benchmarks",
18 October 2012 (Panel Exhibit USA-475 (BCI/HSBI))
JRP Jordan Risk Premium
LA/MSF "launch aid" or "member State financing"
LCA large civil aircraft
Mourey Statement Christophe Mourey, Senior Vice President Contracts, Airbus,
"Statement on Current Competitive Conditions in the LCA Industry",
4 July 2012 (Panel Exhibit EU-8 (BCI))

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Abbreviation Description
MTN medium-term note
original panel panel in the original proceedings
original panel report /
Original Panel Report
Panel Report, European Communities and Certain Member States –
Measures Affecting Trade in Large Civil Aircraft, WT/DS316/R
Panel The Panel in these Article 21.5 compliance proceedings
Panel Report Panel Report, European Communities and Certain Member States –
Measures Affecting Trade in Large Civil Aircraft – Recourse to
Article 21.5 of the DSU by the United States, WT/DS316/RW
PwC Amortization Report PricewaterhouseCoopers, "Analysis of the expected life of subsidies
to Airbus conferred by Member State Financing Loans, Capital
contributions and regional development grants as found in the
WTO dispute DS316", 29 November 2011 and 2 July 2012
(Panel ExhibitEU-5 (BCI/HSBI))
R&D research and development
R&TD research and technological development
ROCE return on capital employed
SCM Agreement Agreement on Subsidies and Countervailing Measures
Schneider Declaration Declaration of Larry Schneider, Senior Vice President of Product
Development, Boeing Commercial Aircraft, "The Relevance of Prior
Commercial Experience to Existing Model Improvements and
New Aircraft Developments", 17 October 2012
(Panel Exhibit USA-354 (BCI))
SSNIP Small but Significant Non-Transitory Increase in Prices
Supplemental Mourey
Statement
Christophe Mourey, Senior Vice President, Contracts, Airbus,
"Supplemental statement on current competitive conditions in the
LCA industry", 12 December 2012 (Panel Exhibit EU-124 (BCI/HSBI))
UK Appraisal a written assessment by the UK Government of the merits of Airbus'
request for A350XWB LA/MSF
United States' compliance
panel request
Request for the Establishment of a Panel by the United States
pursuant to Article 21.5 of the DSU, WT/DS316/23
USDOC United States Department of Commerce
VLA very large aircraft
Whitelaw Response
to Jordan
Professor Robert Whitelaw, "Response to Dr Jordan's report on the
benefits of MSF", 13 December 2012
(Panel Exhibit EU-121 (BCI/HSBI))
Williams Statement Statement by Tom Williams, Executive Vice President, Programmes,
Airbus SAS, 17 May 2013 (Panel Exhibit EU-354 (BCI))
Working Procedures Working Procedures for Appellate Review, WT/AB/WP/6,
16 August 2010
WRP Whitelaw Risk Premium
WTO World Trade Organization
YTM yield to maturity

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CASES CITED IN THIS REPORT
Short Title Full Case Title and Citation
Australia – Salmon Appellate Body Report, Australia – Measures Affecting Importation of Salmon,
WT/DS18/AB/R, adopted 6 November 1998, DSR 1998:VIII, p. 3327
Brazil – Retreaded Tyres Appellate Body Report, Brazil – Measures Affecting Imports of Retreaded
Tyres, WT/DS332/AB/R, adopted 17 December 2007, DSR 2007:IV, p. 1527
Canada – Aircraft Appellate Body Report, Canada – Measures Affecting the Export of Civilian
Aircraft, WT/DS70/AB/R, adopted 20 August 1999, DSR 1999:III, p. 1377
Canada – Aircraft
(Article 21.5 – Brazil)
Appellate Body Report, Canada – Measures Affecting the Export of Civilian
Aircraft – Recourse by Brazil to Article 21.5 of the DSU, WT/DS70/AB/RW,
adopted 4 August 2000, DSR 2000:IX, p. 4299
Canada – Autos Appellate Body Report, Canada – Certain Measures Affecting the Automotive
Industry, WT/DS139/AB/R, WT/DS142/AB/R, adopted 19 June 2000,
DSR 2000:VI, p. 2985
Canada – Continued
Suspension
Appellate Body Report, Canada – Continued Suspension of Obligations in the
EC – Hormones Dispute, WT/DS321/AB/R, adopted 14 November 2008,
DSR 2008:XIV, p. 5373
Canada – Renewable Energy
/ Canada – Feed-in Tariff
Program
Appellate Body Reports, Canada – Certain Measures Affecting the Renewable
Energy Generation Sector / Canada – Measures Relating to the Feed-in Tariff
Program, WT/DS412/AB/R / WT/DS426/AB/R, adopted 24 May 2013,
DSR 2013:I, p. 7
Canada – Wheat Exports and
Grain Imports
Appellate Body Report, Canada – Measures Relating to Exports of Wheat and
Treatment of Imported Grain, WT/DS276/AB/R, adopted 27 September 2004,
DSR 2004:VI, p. 2739
Chile – Price Band System
(Article 21.5 – Argentina)
Appellate Body Report, Chile – Price Band System and Safeguard Measures
Relating to Certain Agricultural Products – Recourse to Article 21.5 of the DSU
by Argentina, WT/DS207/AB/RW, adopted 22 May 2007, DSR 2007:II, p. 513
China – Auto Parts Appellate Body Reports, China – Measures Affecting Imports of Automobile
Parts, WT/DS339/AB/R / WT/DS340/AB/R / WT/DS342/AB/R, adopted
12 January 2009, DSR 2009:I, p. 3
China – HP-SSST (Japan) /
China – HP-SSST (EU)
Appellate Body Reports, China – Measures Imposing Anti-Dumping Duties on
High-Performance Stainless Steel Seamless Tubes ("HP-SSST") from Japan /
China – Measures Imposing Anti-Dumping Duties on High-Performance
Stainless Steel Seamless Tubes ("HP-SSST") from the European Union,
WT/DS454/AB/R and Add.1 / WT/DS460/AB/R and Add.1, adopted
28 October 2015
China – Publications and
Audiovisual Products
Appellate Body Report, China – Measures Affecting Trading Rights and
Distribution Services for Certain Publications and Audiovisual Entertainment
Products, WT/DS363/AB/R, adopted 19 January 2010, DSR 2010:I, p. 3
China – Rare Earths Appellate Body Reports, China – Measures Related to the Exportation of Rare
Earths, Tungsten, and Molybdenum, WT/DS431/AB/R / WT/DS432/AB/R /
WT/DS433/AB/R, adopted 29 August 2014, DSR 2014:III, p. 805
China – Rare Earths Panel Reports, China – Measures Related to the Exportation of Rare Earths,
Tungsten, and Molybdenum, WT/DS431/R and Add.1 / WT/DS432/R and Add.1
/ WT/DS433/R and Add.1, adopted 29 August 2014, upheld by Appellate Body
Reports WT/DS431/AB/R / WT/DS432/AB/R / WT/DS433/AB/R, DSR 2014:IV,
p. 1127
China – Raw Materials Appellate Body Reports, China – Measures Related to the Exportation of
Various Raw Materials, WT/DS394/AB/R / WT/DS395/AB/R / WT/DS398/AB/R,
adopted 22 February 2012, DSR 2012:VII, p. 3295
Dominican Republic – Import
and Sale of Cigarettes
Appellate Body Report, Dominican Republic – Measures Affecting the
Importation and Internal Sale of Cigarettes, WT/DS302/AB/R, adopted
19 May 2005, DSR 2005:XV, p. 7367
EC – Asbestos Appellate Body Report, European Communities – Measures Affecting Asbestos
and Asbestos-Containing Products, WT/DS135/AB/R, adopted 5 April 2001,
DSR 2001:VII, p. 3243

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Short Title Full Case Title and Citation
EC – Bed Linen
(Article 21.5 – India)
Appellate Body Report, European Communities – Anti-Dumping Duties on
Imports of Cotton-Type Bed Linen from India – Recourse to Article 21.5 of the
DSU by India, WT/DS141/AB/RW, adopted 24 April 2003, DSR 2003:III,
p. 965
EC – Commercial Vessels Panel Report, European Communities – Measures Affecting Trade in
Commercial Vessels, WT/DS301/R, adopted 20 June 2005, DSR 2005:XV,
p. 7713
EC – Export Subsidies on
Sugar
Appellate Body Report, European Communities – Export Subsidies on Sugar,
WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R, adopted 19 May 2005,
DSR 2005:XIII, p. 6365
EC – Fasteners (China) Appellate Body Report, European Communities – Definitive Anti-Dumping
Measures on Certain Iron or Steel Fasteners from China, WT/DS397/AB/R,
adopted 28 July 2011, DSR 2011:VII, p. 3995
EC – Hormones Appellate Body Report, EC Measures Concerning Meat and Meat Products
(Hormones), WT/DS26/AB/R, WT/DS48/AB/R, adopted 13 February 1998,
DSR 1998:I, p. 135
EC – Poultry Appellate Body Report, European Communities – Measures Affecting the
Importation of Certain Poultry Products, WT/DS69/AB/R, adopted
23 July 1998, DSR 1998:V, p. 2031
EC – Sardines Appellate Body Report, European Communities – Trade Description of
Sardines, WT/DS231/AB/R, adopted 23 October 2002, DSR 2002:VIII, p. 3359
EC – Selected Customs
Matters
Appellate Body Report, European Communities – Selected Customs Matters,
WT/DS315/AB/R, adopted 11 December 2006, DSR 2006:IX, p. 3791
EC – Tariff Preferences Appellate Body Report, European Communities – Conditions for the Granting of
Tariff Preferences to Developing Countries, WT/DS246/AB/R,
adopted 20 April 2004, DSR 2004:III, p. 925
EC – Tube or Pipe Fittings Appellate Body Report, European Communities – Anti-Dumping Duties on
Malleable Cast Iron Tube or Pipe Fittings from Brazil, WT/DS219/AB/R,
adopted 18 August 2003, DSR 2003:VI, p. 2613
EC and certain member
States – Large Civil Aircraft
Appellate Body Report, European Communities and Certain Member States –
Measures Affecting Trade in Large Civil Aircraft, WT/DS316/AB/R, adopted
1 June 2011, DSR 2011:I, p. 7
EC and certain member
States – Large Civil Aircraft
Panel Report, European Communities and Certain Member States – Measures
Affecting Trade in Large Civil Aircraft, WT/DS316/R, adopted 1 June 2011,
as modified by Appellate Body Report WT/DS316/AB/R, DSR 2011:II, p. 685
EC and certain member
States – Large Civil Aircraft
(Article 21.5 – US)
Panel Report, European Communities and Certain Member States – Measures
Affecting Trade in Large Civil Aircraft – Recourse to Article 21.5 of the DSU by
the United States, WT/DS316/RW and Add.1, circulated to WTO Members
22 September 2016
Guatemala – Cement I Appellate Body Report, Guatemala – Anti-Dumping Investigation Regarding
Portland Cement from Mexico, WT/DS60/AB/R, adopted 25 November 1998,
DSR 1998:IX, p. 3767
Indonesia – Autos Panel Report, Indonesia – Certain Measures Affecting the Automobile Industry,
WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R, Corr.1 and Corr.2,
adopted 23 July 1998, and Corr.3 and Corr.4, DSR 1998:VI, p. 2201
Japan – Agricultural
Products II
Appellate Body Report, Japan – Measures Affecting Agricultural Products,
WT/DS76/AB/R, adopted 19 March 1999, DSR 1999:I, p. 277
Japan – Apples Appellate Body Report, Japan – Measures Affecting the Importation of Apples,
WT/DS245/AB/R, adopted 10 December 2003, DSR 2003:IX, p. 4391
Korea – Alcoholic Beverages Appellate Body Report, Korea – Taxes on Alcoholic Beverages, WT/DS75/AB/R,
WT/DS84/AB/R, adopted 17 February 1999, DSR 1999:I, p. 3
Korea – Dairy Appellate Body Report, Korea – Definitive Safeguard Measure on Imports of
Certain Dairy Products, WT/DS98/AB/R, adopted 12 January 2000,
DSR 2000:I, p. 3

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Short Title Full Case Title and Citation
Mexico – Corn Syrup
(Article 21.5 – US)
Appellate Body Report, Mexico – Anti-Dumping Investigation of High Fructose
Corn Syrup (HFCS) from the United States – Recourse to Article 21.5 of the
DSU by the United States, WT/DS132/AB/RW, adopted 21 November 2001,
DSR 2001:XIII, p. 6675
Mexico – Taxes on Soft
Drinks
Appellate Body Report, Mexico – Tax Measures on Soft Drinks and Other
Beverages, WT/DS308/AB/R, adopted 24 March 2006, DSR 2006:I, p. 3
Peru – Agricultural Products Appellate Body Report, Peru – Additional Duty on Imports of Certain
Agricultural Products, WT/DS457/AB/R and Add.1, adopted 31 July 2015
US – Anti-Dumping and
Countervailing Duties (China)
Appellate Body Report, United States – Definitive Anti-Dumping and
Countervailing Duties on Certain Products from China, WT/DS379/AB/R,
adopted 25 March 2011, DSR 2011:V, p. 2869
US – Carbon Steel Appellate Body Report, United States – Countervailing Duties on Certain
Corrosion-Resistant Carbon Steel Flat Products from Germany,
WT/DS213/AB/R and Corr.1, adopted 19 December 2002, DSR 2002:IX,
p. 3779
US – Carbon Steel (India) Appellate Body Report, United States – Countervailing Measures on Certain
Hot-Rolled Carbon Steel Flat Products from India, WT/DS436/AB/R, adopted
19 December 2014, DSR 2014:V, p. 1727
US – Continued Suspension Appellate Body Report, United States – Continued Suspension of Obligations in
the EC – Hormones Dispute, WT/DS320/AB/R, adopted 14 November 2008,
DSR 2008:X, p. 3507
US – Continued Zeroing Appellate Body Report, United States – Continued Existence and Application of
Zeroing Methodology, WT/DS350/AB/R, adopted 19 February 2009,
DSR 2009:III, p. 1291
US – COOL
(Article 21.5 ‒ Canada
and Mexico)
Appellate Body Reports, United States – Certain Country of Origin Labelling
(COOL) Requirements – Recourse to Article 21.5 of the DSU by Canada and
Mexico, WT/DS384/AB/RW / WT/DS386/AB/RW, adopted 29 May 2015
US – Cotton Yarn Panel Report, United States – Transitional Safeguard Measure on Combed
Cotton Yarn from Pakistan, WT/DS192/R, adopted 5 November 2001, as
modified by Appellate Body Report WT/DS192/AB/R, DSR 2001:XII, p. 6067
US – Countervailing and
Anti-Dumping Measures
(China)
Appellate Body Report, United States – Countervailing and Anti-Dumping
Measures on Certain Products from China, WT/DS449/AB/R and Corr.1,
adopted 22 July 2014, DSR 2014:VIII, p. 3027
US – Countervailing and
Anti-Dumping Measures
(China)
Panel Report, United States – Countervailing and Anti-Dumping Measures on
Certain Products from China, WT/DS449/R and Add.1, adopted 22 July 2014,
as modified by Appellate Body Report WT/DS449/AB/R, DSR 2014:VIII,
p. 3175
US – Countervailing Duty
Investigation on DRAMS
Appellate Body Report, United States – Countervailing Duty Investigation on
Dynamic Random Access Memory Semiconductors (DRAMS) from Korea,
WT/DS296/AB/R, adopted 20 July 2005, DSR 2005:XVI, p. 8131
US – FSC Appellate Body Report, United States – Tax Treatment for "Foreign Sales
Corporations", WT/DS108/AB/R, adopted 20 March 2000, DSR 2000:III,
p. 1619
US – FSC
(Article 21.5 ‒ EC II)
Appellate Body Report, United States – Tax Treatment for "Foreign Sales
Corporations" – Recourse to Article 21.5 of the DSU by the European
Communities, WT/DS108/AB/RW, adopted 29 January 2002, DSR 2002:I,
p. 55
US – Gambling Appellate Body Report, United States – Measures Affecting the Cross-Border
Supply of Gambling and Betting Services, WT/DS285/AB/R,
adopted 20 April 2005, DSR 2005:XII, p. 5663 (and Corr.1, DSR 2006:XII,
p. 5475)
US – Hot-Rolled Steel Appellate Body Report, United States – Anti-Dumping Measures on Certain
Hot-Rolled Steel Products from Japan, WT/DS184/AB/R, adopted
23 August 2001, DSR 2001:X, p. 4697

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Short Title Full Case Title and Citation
US – Large Civil Aircraft
(2nd complaint)
Appellate Body Report, United States – Measures Affecting Trade in Large Civil
Aircraft (Second Complaint), WT/DS353/AB/R, adopted 23 March 2012,
DSR 2012:I, p. 7
US – Large Civil Aircraft
(2nd complaint)
(Article 21.5 – EU)
Panel Report, United States – Measures Affecting Trade in Large Civil Aircraft
(Second Complaint) – Recourse to Article 21.5 of the DSU by the
European Union, WT/DS353/RW and Add.1, circulated to WTO Members
9 June 2017
US – Offset Act
(Byrd Amendment)
Appellate Body Report, United States – Continued Dumping and Subsidy Offset
Act of 2000, WT/DS217/AB/R, WT/DS234/AB/R, adopted 27 January 2003,
DSR 2003:I, p. 375
US – Oil Country Tubular
Goods Sunset Reviews
Appellate Body Report, United States – Sunset Reviews of Anti-Dumping
Measures on Oil Country Tubular Goods from Argentina, WT/DS268/AB/R,
adopted 17 December 2004, DSR 2004:VII, p. 3257
US – Oil Country Tubular
Goods Sunset Reviews
(Article 21.5 – Argentina)
Appellate Body Report, United States – Sunset Reviews of Anti-Dumping
Measures on Oil Country Tubular Goods from Argentina – Recourse to
Article 21.5 of the DSU by Argentina, WT/DS268/AB/RW, adopted
11 May 2007, DSR 2007:IX, p. 3523
US – Softwood Lumber IV Appellate Body Report, United States – Final Countervailing Duty
Determination with Respect to Certain Softwood Lumber from Canada,
WT/DS257/AB/R, adopted 17 February 2004, DSR 2004:II, p. 571
US – Softwood Lumber VI
(Article 21.5 – Canada)
Appellate Body Report, United States – Investigation of the International Trade
Commission in Softwood Lumber from Canada – Recourse to Article 21.5 of
the DSU by Canada, WT/DS277/AB/RW, adopted 9 May 2006, and Corr.1,
DSR 2006:XI, p. 4865
US – Stainless Steel (Mexico) Appellate Body Report, United States – Final Anti-Dumping Measures on
Stainless Steel from Mexico, WT/DS344/AB/R, adopted 20 May 2008,
DSR 2008:II, p. 513
US – Steel Safeguards Appellate Body Report, United States – Definitive Safeguard Measures on
Imports of Certain Steel Products, WT/DS248/AB/R, WT/DS249/AB/R,
WT/DS251/AB/R, WT/DS252/AB/R, WT/DS253/AB/R, WT/DS254/AB/R,
WT/DS258/AB/R, WT/DS259/AB/R, adopted 10 December 2003, DSR
2003:VII, p. 3117
US – Tax Incentives Appellate Body Report, United States – Conditional Tax Incentives for Large
Civil Aircraft, WT/DS487/AB/R and Add.1, adopted 22 September 2017
US – Tax Incentives Panel Report, United States – Conditional Tax Incentives for Large Civil
Aircraft, WT/DS487/R and Add.1, adopted 22 September 2017, as modified by
Appellate Body Report WT/DS487/AB/R
US – Upland Cotton Appellate Body Report, United States – Subsidies on Upland Cotton,
WT/DS267/AB/R, adopted 21 March 2005, DSR 2005:I, p. 3
US – Upland Cotton Panel Report, United States – Subsidies on Upland Cotton, WT/DS267/R,
Add.1 to Add.3 and Corr.1, adopted 21 March 2005, as modified by
Appellate Body Report WT/DS267/AB/R, DSR 2005:II, p. 299
US – Upland Cotton
(Article 21.5 – Brazil)
Appellate Body Report, United States – Subsidies on Upland Cotton – Recourse
to Article 21.5 of the DSU by Brazil, WT/DS267/AB/RW,
adopted 20 June 2008, DSR 2008:III, p. 809
US – Wheat Gluten Appellate Body Report, United States – Definitive Safeguard Measures on
Imports of Wheat Gluten from the European Communities, WT/DS166/AB/R,
adopted 19 January 2001, DSR 2001:II, p. 717
US – Zeroing (EC) Appellate Body Report, United States – Laws, Regulations and Methodology for
Calculating Dumping Margins ("Zeroing"), WT/DS294/AB/R, adopted
9 May 2006, and Corr.1, DSR 2006:II, p. 417
US – Zeroing (EC)
(Article 21.5 – EC)
Appellate Body Report, United States – Laws, Regulations and Methodology for
Calculating Dumping Margins ("Zeroing") – Recourse to Article 21.5 of the DSU
by the European Communities, WT/DS294/AB/RW and Corr.1, adopted
11 June 2009, DSR 2009:VII, p. 2911

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APPELLATE BODY

European Communities and Certain
Member States – Measures Affecting Trade
in Large Civil Aircraft – Recourse to
Article 21.5 of the DSU by the
United States

European Union, 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-2016-6

Appellate Body Division:

Ramírez-Hernández, Presiding Member
Bhatia, Member
Van den Bossche, Member

1 INTRODUCTION
1.1. 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
States ‒ Measures Affecting Trade in Large Civil Aircraft – Recourse to Article 21.5 of the DSU by
the United States1 (Panel Report). The Panel was established on 13 April 2012 pursuant to
Article 21.5 of the Understanding on Rules and Procedures Governing the Settlement of Disputes
(DSU) to consider a complaint by the United States2 regarding the alleged failure on the part of
the European Union3 and certain of its member States to implement the recommendations and
rulings of the Dispute Settlement Body (DSB) in the original proceedings in EC and certain
member States ‒ Large Civil Aircraft.4
1.1 Original proceedings
1.2. In the original proceedings in thi s dispute, the United States claimed that the
European Communities and certain of its member States – namely, France, Germany, Spain, and
the United Kingdom – had caused, through the use of specific subsidies, adverse effects to the
United States' interest s in the form of serious prejudice under Articles 5(c) and 6.3 of the
Agreement on Subsidies and Countervailing Measures (SCM Agreement).5 Each of those measures
related to the design and development by Airbus of large civil aircraft (LCA), which is the product
at issue throughout this dispute.6

1 WT/DS316/RW, 22 September 2016.
2 Request for the Establishment of a Panel by the United States pursuant to Article 21.5 of the DSU,
WT/DS316/23 (United States' compliance panel request).
3 The European Union replaced and succeeded the European Communities as of 1 December 2009.
Accordingly, we only refer to the European Communities in this Report in relation to events that took place
during the original panel proceedings. In all other circumstances, we refer to the European Union.
4 The recommendations and rulings of the DSB resulted from the adoption on 1 June 2011, by the DSB,
of the Appellate Body report, WT/DS316/AB/R, and the panel report, WT/DS316/R, in EC and certain member
States – Large Civil Aircraft. In this Report, we refer to the panel that considered the original complaint
brought by the United States as the "original panel" and to its report as the "original panel report" or
"Original Panel Report".
5 Original Panel Report, paras. 2.5 and 3.1-3.3.
6 The product at issue is the same in both the original and the compliance proceedings. The original
panel and the Panel have distinguished LCA from smaller (regional) aircraft or military aircraft, and defined
LCA as follows:
{L}arge (weighing over 15,000 kg) "tube and wing" aircraft, with turbofan engines carried under
low-set wings, designed for subsonic flight. LCA are designed for transporting 100 or more

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1.3. The original panel, established on 20 July 2005, found that the following specific subsidies,
related to the production and development of LCA, were inconsistent with Articles 5(c) and 6.3(a),
(b), and (c) of the SCM Agreement: (i) "launch aid" or "member State financing" (LA/MSF) for the
A300, A310, A320, A330, A330 -200, A340, A340 -500/600, and A380 models of Airbus LCA 7;
(ii) French and German government "equity infusions" provided in connection with the corporat e
restructuring of French and German aerospace manufacturer s, Aérospatiale Société
Nationale Industrielle (Aérospatiale) and Deutsche Airbus GmbH (Deutsche Airbus)8; (iii) certain
infrastructure and infrastructure-related measures provided by German and Spanish authorities to
Airbus in the form of, inter alia , regional development grants 9; and (iv) certain research and
technological development (R&TD) funding provided to Airbus for LCA -related R&TD projects in
which Airbus participated.10
1.4. In addition, the original panel found that the United States had established that the German,
Spanish, and UK LA/MSF for the A380 constituted prohibited export subsidies within the meaning
of Article 3.1(a) and footnote 4 thereto of the SCM Agreement.11
1.5. On appeal, t he Appellate Body reversed the original panel's finding that the German,
Spanish, and UK A380 LA/MSF contracts constituted prohibited export subsidies under
Article 3.1(a) of the SCM Agreement; however, it was unable to complete the legal analysis with
regard to Article 3.1(a) due to insufficient factual findings or undisputed facts on the panel
record.12 The Appellate Body also reversed or modified several other aspects of the original panel
findings13, and completed the legal analysis where it had sufficient factua l findings or undisputed
facts on the record to do so. With regard to issues of subsidization and adverse effects, the
Appellate Body completed the legal analysis and ultimately concluded that: (i) the use of the
challenged LA/MSF measures had caused adver se effects to the United States' interests ; and
(ii) the equity infusions and infrastructure measures (but not the R&TD subsidies) that were found
by the original panel to constitute specific subsidies "complemented and supplemented" the effects
1.6. The Appellate Body upheld the original panel's recommendation pursuant to Article 7.8 of the
SCM Agreement, and recommended that the DSB request the European Union to bring its
measures that were found to be inconsistent with the SCM Agreement into conformity with its
obligations under that Agreement.15
1.7. On 1 June 2011, the DSB adopted the Appellate Body report and the original panel report,
as modified by the Appellate Body report.16

passengers and/or a proportionate amount of cargo across a range of distances serviced by
airlines and air freight carriers. LCA are covered by tariff classification heading 8802.40 of the
Harmonized System ("Airplanes and other aircraft, of an unladen weight exceeding 15,000 kg").
7 Panel Report, para. 1.2 (referring to Original Panel Report, paras. 7.290(a)(i)-(vii), 7.482-7.496,
and 8.1(a)(i)).
8 Panel Report, para. 1.2 (referring to Original Panel Report, paras. 7.1245-7.1249, 7.1302,
7.1323-7.1326, 7.1380-7.1384, 7.1414, and 8.1(c) and (d)).
9 Panel Report, para. 1.2 (referring to Original Panel Report, paras. 7.1049-7.1053, 7.1097,
7.1100-7.1101, 7.1134, 7.1137-7.1139, 7.1191, 7.1205-7.1211, 7.1244, and 8.1(b)(i)-(iv)).
10 Panel Report, para. 1.2 (referring to Original Panel Report, paras. 7.1427-7.1456, 7.1459-1480,
7.1608, and 8.1(e)).
11 Panel Report, para. 1.3 (referring to Original Panel Report, paras. 7.689 and 8.1(a)(ii)).
12 Panel Report, para. 1.7 (referring to Appellate Body Report, EC and certain member States – Large
Civil Aircraft, paras. 1414(j) and 1415(b)).
13 Panel Report, para. 1.7 (referring to Appellate Body Report, EC and certain member States – Large
Civil Aircraft, paras. 1414(a), (c), (d)(i)-(ii), (e)(ii), (g), (i), (j), (k), and (s), and 1415(b)).
14 Panel Report, para. 1.7 (referring to Appellate Body Report, EC and certain member States – Large
Civil Aircraft, para. 1414(e)(iv), (g), (l), (m), (p), (q), and (r)). See also Appellate Body Report, EC and certain
member States – Large Civil Aircraft, para. 1414(s).
15 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1416 and 1418.
16 Minutes of the DSB Meeting held on 1 June 2011, WT/DSB/M/297.

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1.2 Compliance proceedings
1.2.1 Panel proceedings
1.8. Subsequent to the adoption of the original panel report and the Appellate Body report, the
European Union informed the DSB on 1 December 2011 in a Compliance Communication that it
had "taken appropriate steps" to bring its measure s into conformity with its
World Trade Organization (WTO) obligations, thereby ensuring "full implementation of the DSB's
recommendations and rulings ".17 The European Union referred to, inter alia: "(a) the repayment
and/or termination of LA/MSF; (b) the imposition of increased fees and lease payments on
infrastructure support in accordance with market principles; and (c) ensuring that capital
contributions and regional aid subsidies ha{d} … 'come to an end' and {were} no longer capable
of causing adverse effects". 18 The European Union provided further details regarding the steps it
had taken and the intervening market events it considered to have enabled it to achieve
compliance, in a two-page document comprising 36 numbered paragraphs , attached to its
Compliance Communication.19
1.9. On 9 December 2011, the United States requested to hold consultations with the
European Union and the four member States, alleging that the European Union had failed to
comply with the recommendations and rulings of the DSB.20 On 30 March 2012, the United States
requested for the establishment of a panel pursuant to Article 21.5 of the DSU with standard terms
of reference.21 The Panel was established by the DSB on 13 April 2012.22
1.10. Before the Panel, the United States argued that the relevant subsidies found to have caused
adverse effects in the original proceedings continue to cause adverse effects and that, by agreeing
to provide Airbus with LA/MSF for the A350XWB family of aircraft23, the four member States have
"continued and even expanded" the subsidization of Airbus' LCA activities, thereby causing
"additional adverse effects" within the meaning of Articles 5(c) and 6.3 of the SCM Agreement.24
On this basis, the United States submitted that the European Union and the four member States
have failed to "take appropriate steps to remove the adverse effects" or "withdraw the subsidy"
within the meaning of Article 7.8 of the SCM Agreement. The United States also claimed that the
A350XWB and A380 LA/MSF measures are prohibited export and/or import substitution subsidies
within the meaning of Articles 3.1 and 3.2 of the SCM Agreement.
1.11. The Panel circulated its Report to Members of the WTO on 22 September 2016. The factual
aspects of the Panel proceedings are summarized in detail at para graphs 1.17 through 1.32 of
the Panel Report.
1.12. The Panel made the following findings in its Report:
a. Only two out of the 36 "alleged compliance 'steps'" notified by the European Union in its
Compliance Communication (steps 28 and 29) constitute "actions" concerning the degree
of ongoing subsidization of Airbus LCA. The 34 remaining "steps" constitute " assertion of

17 Communication from the European Union dated 1 December 2011, WT/DS316/17 (Compliance
Communication), para. 5.
19 Panel Report, para. 6.6 (quoting Compliance Communication, para. 4). The 36 "steps" identified by
the European Union are described and explained in more detail at paragraphs 6.8-6.42 of the Panel Report.
20 WT/DS316/19 and Corr. 1.
21 WT/DS316/23.
22 Panel Report, para. 1.13.
23 For a detailed description of the A350XWB LA/MSF measures, see Panel Report, paras. 6.225-6.267.
The A350XWB LA/MSF measures are not covered by the DSB's recommendations and rulings. Before the
original panel, the United States had challenged the alleged provision of LA/MSF for the original A350 model,
but the original panel considered that, as at July 2005, the examined evidence suggested that there were no
clear commitments from the four member State governments to provide LA/MSF for the A350 on back-loaded,
success-dependent, and below-market interest rate repayment terms. (Original Panel Report, para. 7.314)
24 Panel Report, para. 6.3 (quoting United States' first written submission to the Panel, para. 1).

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facts or the presentation of arguments for the purpose of supporting the
European Union's theory of compliance".25
b. The French, German, Spanish, and UK A350XWB LA/MSF measures, as well as the
United States' prohibited subsidy claims against t he French, German, Spanish,
and UK A380 LA/MSF measures under Article 3.1(a) of the SCM Agreement, and the
United States' claims of "threat of displacement and impedance" of imports under
Article 6.3(a) of the SCM Agreement fall within the scope of these compliance
proceedings. The United States' prohibited subsidy claims against the French, German,
Spanish, and UK A380 LA/MSF measures under Article 3.1(b) of the SCM Agreement are
outside the scope of these compliance proceedings.26
c. The United States demonstrated that the French, German, Spanish, and
UK A350XWB LA/MSF measures are specific subsidies within the meaning of Articles 1
and 2 of the SCM Agreement.27
d. The United States failed to demonstrate that the French, German, Spanish,
and UK A350XWB LA/MSF subsidies are prohibited export and/or import substitution
subsidies within the meaning of Articles 3.1 and 3.2 of the SCM Agreement, and that the
French, German, Spanish, and UK A380 LA/MSF subsidies are prohibited export subsidies
within the meaning of Articles 3.1(a) and 3.2 of the SCM Agreement.28
e. With regard to Article 7.8 of the SCM Agreement, the European Union demonstrated that
the ex ante "lives" of (i) the French, German, and Spanish LA/MSF subsidies for the
A300B/B2/B4, A300-600, A310, A320, and A330/A340; (ii) the UK LA/MSF subsidies for
the A320 and A330/A340; and (iii) the capital contribution subsidies " expired" before
1 June 2011. The ex ante "lives" of the French LA/MSF subsidies for the A330 -200 and
the French and Spanish LA/MSF subsidies for the A340 -500/600 "expired", respectively,
in [BCI] and [BCI]. The ex ante "lives" of five of the regional devel opment grant
subsidies will not "expire" until sometime between 2054 and 2058, while the other
two "expired" around 2014.29
f. The European Union failed to demonstrate that "the alleged partial privatization of
Aérospatiale in 1999, the transactions leading to the creation of { European Aeronautic
Defence and Space Company N.V. (EADS)} in 2000, and {British Aerospace Systems'
(BAE Systems) } 2006 sale of its 20% ownership stake in Airbus SAS to EADS, were
'intervening events' that resulted in the 'extinction' of the benefit of all of the subsidies
at issue in this proceeding that were granted prior to those transactions".30
g. The relevant subsidies identified in subparagraph e above have "expired" because "the
total period of time over which their 'projected value' w as expected to 'materialize' has
transpired in the absence of any 'intervening event'".31
h. With regard to Article 7.8 of the SCM Agreement, the fact that the ex ante "lives" of
certain subsidies "passively 'expired'" before the end of the implementation period does
not amount to "withdrawal" of those subsidies for the purpose of Article 7.8.

25 Panel Report, para. 7.1.a.i-ii. (emphasis original)
26 Panel Report, para. 7.1.b.i-iv.
28 Panel Report, para. 7.1.c.ii-iii.
29 The Panel found that the fact that one or more of the subsidies challenged in these compliance
proceedings may have ceased to exist prior to 1 June 2011 does not ipso facto mean that the European Union
and the four member States do not have a compliance obligation under the terms of Article 7.8 of the
SCM Agreement in relation to these subsidies. The Panel further rejected the European Union's arguments on
"extraction" of subsidies, which had been rejected by the original panel and the Appellate Body in the original
proceedings. (Panel Report, para. 7.1.d.i-v)

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The European Union therefore "failed to comply with the obligation to 'withdraw the
subsidy' for the purpose of Article 7.8".32
i. The European Union failed to establish that the United States' claims under Article 6.3(b)
and (c) of the SCM Agreement should be rejected on the ground that the United States'
"like" product is not "unsubsidized" within the meaning of Articles 6 .4 and 6.5 of the
SCM Agreement.33
j. The United States brought its adverse effects claims with respect to "appropriately
defined product markets for LCA", namely, the global markets for: (i) single-aisle LCA;
(ii) twin-aisle LCA; and (iii) very large aircraft (VLA).34
k. The " direct and indirect effects of the aggregated pre -A350XWB LA/MSF subsidies
continue to be a 'genuine and substantial' cause of the current market presence of the
A320, A330 and A380 … using either the 'plausible' or 'unlikely' counterfactual scenarios
adopted in the original proceeding in relation to the effects of the same subsidies in
the 2001 to 2006 period as the starting point of the analysis". 35 With the exception of
the A300 and A310 LA/MSF subsidies, the " direct and indirect effects of the aggregated
LA/MSF subsidies" are a "'genuine and substantial' cause of the current market presence
of the A350XWB family … using either the 'plausible' or 'unlikely' counterfactual
scenarios adopted in the original proceeding in relation to the effects of the
pre-A350XWB LA/MSF subsidies in the 2001 to 2006 peri od as the starting point of
the analysis".36
l. With regard to Articles 6.3 and 5(c) of the SCM Agreement, the "product" effects of
LA/MSF subsidies, as identified in subparagraph k above, are a "'genuine and substantial'
cause of displacement and/or impedance" of imports of a "like" product of the
United States into the markets for single -aisle LCA, twin -aisle LCA, and VLA in the
European Union, within the meaning of Article 6.3(a), constituting seri ous prejudice
under Article 5(c). These "product" effects are also a "'genuine and substantial' cause of
displacement and/or impedance of exports" from the markets for (i) single -aisle LCA in
Australia, China, and India; (ii) twin-aisle LCA in China, Korea , and Singapore; and
(iii) VLA in Australia, China, Korea, Singapore, and the United Arab Emirates, within the
meaning of Article 6.3(b), constituting serious prejudice under Article 5(c). Further,
these "product" effects are a "genuine and substantial" cause of significant lost sales in
the global markets for single -aisle LCA, twin-aisle LCA, and VLA, within the meaning of
Article 6.3(c), constituting serious prejudice within the meaning of Article 5(c).37
m. The effects of the aggregated non -LA/MSF subsidies (i.e. capital contribution subsidies
and certain regional development grants) "'complement and supplement' the 'product'
effects of the aggregated LA/MSF subsidies and, therefore, are a 'genuine' cause of
serious prejudice to the interests of the United States within the meaning of
Article 5(c)". The United States failed to demonstrate that the Spanish regional
development grants used for Airbus' military aircraft activities benefit Airbus' LCA
activities, and thus failed to establish that these subsidies "complement and supplement"
the "product" effects of the LA/MSF subsidies.38
1.13. Having found that the challenged subsidies have caused present serious prejudice to the
United States' interests within the meaning of Article 5(c) of the SCM Agreement, the Panel made
no findings with respect to the United States' conditional claim that the challenged subsidies
threaten to cause serious prejudice to its interests.39

32 Panel Report, para. 7.1.d.viii-ix. (emphasis original)
35 Panel Report, para. 7.1.d.xii. (emphasis original)
36 Panel Report, para. 7.1.d.xiii. (emphasis original)
37 Panel Report, para. 7.1.d.xiv-xvi.
38 Panel Report, para. 7.1.d.xvii-xviii.

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1.2.2 Appellate proceedings and procedural issues
1.14. On 13 October 2016, the European Union notified the DSB, pursuant to Articles 16.4 and 17
of the DSU, of its intention to appeal certain issues of law covered in the Panel Report and certain
legal interpretations developed by the Panel , and filed a Notice of Appeal 40 pursuant to Rule 20 of
the Working Procedures for Appellate Review41 (Working Procedures).
1.15. Also on 13 October 2016, the Chair of the Appellate Body received a joint letter from the
participants, the European Union and the United States, requesting the Division hearing this
appeal to adopt additional procedures to protect business confidential information (BCI) and highly
sensitive business information (HSBI) in these appellate pr oceedings. In their letter,
the European Union and the United States argued, inter alia , that disclosure of certain sensitive
information on the Panel record would be severely prejudicial to the LCA manufacturers concerned
and possibly to their customers and suppliers. The participants suggested that the additiona l
procedures adopted by the Appellate Body in the appeal in US – Large Civil Aircraft (2nd complaint)
(DS353), with certain modifications, form the basis for any procedural ruling on confidentiality in
these appellate proceedings.
1.16. On the same day, the Chair of the Appellate Body sent a lette r to the participants and
third parties indicating that the Division hearing this appeal had decided, pursuant to Rule 16(1) of
the Working Procedures, to suspend the deadlines for the filing of written submissions and other
documents in this appeal. The third parties were invited to comment in writing on the participants'
joint request by 19 October 2016. Comments were received from Australia, Brazil, and Canada.
While none of the third parties o bjected to the adoption of additional procedures for the protection
of BCI and HSBI, Canada suggested that the additional procedures provide for a designated
reading room at the embassy and/or other diplomatic mission of the European Union and the
United States in each of the third participants' capitals .42 On 24 October 2016, Australia,
the European Union, and the United States each commented on Canada's proposal. Australia
supported Canada's request. The European Union and the United States opposed it, noting that it
would require a total of 12 designated reading rooms in the third participants' respective capitals,
in addition to the designated reading room on the WTO premises, and emphasized that this would
impose a significant burden on t he participants. The United States also considered that there
would be little benefit to third participants, because the only difference under the proposed
adjustment would be to shift the burden of reviewing BCI from Geneva -based officials to
capital-based officials.
1.17. Taking into account the arguments made by the participants and the third parties'
comments, the Chair of the Appellate Body, on behalf of the Division hearing this appeal, issued a
Procedural Ruling on 25 October 201643 adopting additional pro cedures to protect the
confidentiality of BCI and HSBI in these appellate proceedings. The Division did not adopt the
adjustment proposed by Canada, noting the burden it would involve and that the interests of
third participants mainly concerned the correc t legal interpretation of relevant provisions of the
covered agreements, rather than factual questions. 44 The Division also noted that
third participants' rights would be taken into account in these appellate proceedings, including in
setting the Working Schedule for this appeal.
1.18. Pursuant to the Procedural Ruling of 25 October 2016, the participants communicated their
lists of BCI - and HSBI -Approved Persons on 27 October 2016. On 31 October 2016, the
United States "provisionally" objected to the inclusion of one of the European Union's BCI - and
HSBI-Approved Persons, and request ed further information on this individual . On 2 and

40 WT/DS316/29.
41 WT/AB/WP/6, 16 August 2010.
42 Australia and Brazil did not object to the joint request by the participants, but requested that the
Appellate Body ensure that the rights of third participants are taken into account in setting the working
schedule for this appeal.
43 The Procedural Ruling of 25 October 2016 and Additional Procedures to Protect Sensitive Information
are contained in Annex D-1 of the Addendum to this Report, WT/DS316/AB/RW/Add.1. The composition of the
Division was communicated to the participants and third parties on 14 November 2016.
44 See Appellate Body Report, EC and certain member States – Large Civil Aircraft, Annex III, Procedural
Ruling and Additional Procedures to Protect Sensitive Information, para. 11.

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18 November 2016 respectively , the European Union provided additional information on the
individual concerned, and confirmed that he had been retained by an outside advisor who is
subject to an enforceable code of professional ethics and assumes responsibility for compli ance
with the additional BCI/HSBI procedures adopted by the Appellate Body in these proceedi ngs.
The Division issued a Procedural Ruling on 21 November 2016, recalling that , pursuant to the
Procedural Ruling of 25 October 2016, it would reject a request fo r designation of an outside
advisor as a BCI- or HSBI-Approved Person only upon a showing of compelling reasons. In the
circumstances of this case , the Division considered it appropriate for the European Union to keep
the individual concerned on its BCI- and HSBI-Approved Persons list.
1.19. On 1 November 2016, the Division provided the participants and third parties with a
Working Schedule for Appeal, setting out the dates for the filing of the appellant's submission and
an eventual Notice of Other Appeal and other appellant's submission. On 3 November 2016,
the European Union filed an appellant's submission pursuant to Rule 21 of the Working Procedures.
1.20. On 10 November 2016, the United States notified the DSB, pursuant to Articles 16.4 and 17
of the DSU, of it s intention to appeal certain issues of law covered in the Panel Report and certain
legal interpretations developed by the Panel , and filed a Notice of Other Appeal and other
appellant's submission 45 pursuant to Rule 23 of the Working Procedures. The United States
requested an extension until Friday, 11 November 2016, and subsequently until Monday,
14 November 2016, to file the HSBI appendix to its submission, which was being transferred to
Geneva by means of an expedited international courier service. In ac cepting the United States'
request, the Division noted that the European Union did not object to the late filing of the
appendix, and that the late filing did not adversely affect the Appellate Body's consideration of this
appeal. The Division nevertheless emphasized the importance of adhering to the time -limits for
filing documents in the interests of fairness and the orderly conduct of the appellate proceedings.
1.21. On 14 November 2016, the Division received a letter from the European Union requesting
that c ertain text in the United States' other appellant's submi ssion be designated as BCI.
The United States responded in writing on 16 November 2016, indicating that it did not object to
the BCI designations proposed by the European Union in paragraphs 36, 52, 64, and 69 of its
other appellant's submission, but objected to the proposed BCI designations in paragraphs 35, 37,
41, 43, 45, 47, 49, 51, 53, 55, and 60 because the information at issue could already be derived
from information on the Panel record that w as not designated as BCI or HSBI . The Division
reviewed the changes proposed, taking into account the risks associated with the disclosure of the
relevant information and the rights and duties established in the DSU and the other covered
agreements. In a P rocedural Ruling dated 21 November 2016, the Division decided to proceed on
the basis of the BCI designations proposed by the European Union and requested the United States
to submit revised copies of the BCI and non -BCI versions of its other appellant's s ubmission
by 23 November 2016.
1.22. On 22 November 2016, the Division provided the participants and third parties with a
revised Working Schedule for Appeal, setting out the dates for the filing of the appellees' and third
participants' submissions. The Divisi on added that the dates for the oral hearing would be
communicated to them in due course.
1.23. On 5 December 2016, the Appellate Body received a letter from the European Union
referring to this ongoing appeal, and to the then anticipated appeals in US – Large Civil Aircraft
(2nd complaint) ( Article 21.5 – EU) (DS353) and US – Tax Incentives (DS487). Referring to
Rules 16(1) and 16(2) of the Working Procedures and Article 9 of the DSU, the European Union
requested that the schedules for these three appeals be harmonized to the greatest extent
possible and that the hearings be sufficiently proximate in time, so that a particular matter would
not be effectively disposed of in one appeal before the related m atter is heard in one of the other
appeals. The Chair of the Appellate Body invited the United States and the third parties to submit
comments on the European Union's request by 9 December 2016. The United States argued that
the European Union's request was not supported by the DSU or the Working Procedures and would
result in delays in the proceedings . The United States stated that it remained open to proposals to
set deadlines for written submissions and dates for oral hearings in a way that would allow t he

45 WT/DS316/30.

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participants and third participants in each dispute to advocate effectively their positions on appeal
and for the Appellate Body to consider fully the issues raised. 46 The participants and third parties
were invited to submit additional comments by 16 December 2016. The European Union reiterated
its request that any oral hearings in these appeals be sufficiently proximate in time, but noted that
it was content to leave it to the Appellate Body to determine what that would mean in practice. 47
By letter date d 22 December 2016, the Appellate Body indicated that it would bear in mind the
European Union's request, as well as the comments received, during the appellate proceedings in
these three disputes.48
1.24. On 19 December 2016, the United States sent a letter referring to the Working Schedule
drawn up by the Division informing that it would have significant difficulties participating in the
oral hearing if it were to be scheduled during the weeks of 6 and 13 March 2017 due to the
unavailability o f key members of its delegation during those periods. On the same day,
the European Union sent a letter informing the Division that, for the same reason as that given by
the United States, the European Union would have difficulties participating in the ora l hearing if it
were scheduled between 9 and 22 February 2017. Both participants requested the Division to be
cognizant of this constraint when setting the dates for the oral hearing in these proceedings.
1.25. By letter dated 21 December 2016, the Chair of the Appellate Body notified the Chair of the
DSB that the Appellate Body would not be able to circulate its Report in this appeal within the
60-day period pursuant to Article 17.5 of the DSU, or within the 90 -day period pursuant to the
same provision. 49 The Ch air indicated that this was due to a number of factors, including the
number and complexity of the issues raised in these compliance proceedings, the substantial
workload of the Appellate Body, the overlap in the composition of the Divisions hearing severa l
concurrent appeals, and the shortage of staff in the Appellate Body Secretariat. On 4 May 2018,
the Chair of the Appellate Body informed the Chair of the DSB that the Appellate Body Report in
these proceedings would be circulated no later than 15 May 2018.50
1.26. On 6 January 2017, the Appellate Body received a communication from the European Union
requesting that the Division modify the deadline for the filing of the appellees' submissions from
13 January to 20 January 2017. The Division invited the United States and the third parties to
comment on the European Union's request by 10 January 2017. Written comments were received
from the United States, Australia, and Canada. The United States opposed the request for an
extension. While Australia and Canada d id not object to the extension, they requested that the
Division also extend the deadline for the filing of the third participants' submissions if it were to
decide to grant the European Union's request. Taking into account the length of the United States'
other appellant's submission and the extended Working Schedule adopted for these appellate
proceedings, the Division took the view that declining the extension would not result in manifest
unfairness and thus rejected the European Union's request.
1.27. On 13 January 2017, the European Union and the United States each filed an appellee's
submission.51 On 31 January 2017, Brazil, Canada, China, and Japan each filed a third participant's
submission.52 On the same day, Australia notified its intention to appear at th e oral hearing as a
third participant.53 On 26 April 2017, Korea also notified its intention to appear at the oral hearing
as a third participant.54

46 Comments were also received from Canada, China, and Japan.
47 Comments were also received from the United States and Australia.
48 See also Appellate Body Report, US – Tax Incentives, para. 1.5.
49 WT/DS316/31.
50 WT/DS316/32.
51 Pursuant to Rules 22 and 23(4) of the Working Procedures.
52 Pursuant to Rule 24(1) of the Working Procedures.
53 Australia notified in writing that it would not be filing a third participant's submission. For purposes of
this appeal, we have interpreted Australia's action to be a notification expressing its intention to attend the oral
hearing pursuant to Rule 24(2) of the Working Procedures.
54 Korea submitted its delegation list for the oral hearing. For purposes of this appeal, we have
interpreted Korea's action to be a notification expressing its intention to attend the oral hearing pursuant to
Rule 24(4) of the Working Procedures.

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1.28. By letter dated 26 January 2017, the participants and third participants were informed that
the first session of the oral hearing would take place from 2 to 5 May 2017.55 By letter dated
4 April 2017, the Division invited the participants to indicate by 11 April 2017 whether they wished
to request the sessions of the oral hearing in this appeal to be open to publi c observation, and if
so, to propose specific modalities in this respect. The Division also invited the third participants to
provide comments by 13 April 2017 on any request or proposal made by the participants.
1.29. On 11 April 2017, the participants request ed in a joint letter that the oral hearing in this
appeal be opened to public observation, subject to proposed additional procedures for the
protection of BCI and HSBI similar to those in US – Large Civil Aircraft (2nd complaint). Regarding
the segments of the oral hearing that would be open to public observation, the participants
suggested that the opening and closing statements of the participan ts and third participants
(that agreed to public observation) be videotaped, reviewed by the participants for any inadvertent
inclusion of BCI/HSBI, and transmitted to the public at a later date. 56 On 13 April 2017, Canada
and China submitted comments on the participants' joint request . Canada supported the joint
proposal. While recognizing the need for the protectio n of BCI/H SBI in these proceedings,
China queried whether a complete exclusion of third participants' non -BCI-Approved Persons from
segments of the oral hearing dedicated to questions and answe rs was required. Instead,
China suggested that sessions dedicat ed to legal interpretat ive issues be open to all
third participants and that they be kept separate from sessions requiring reference to BCI/HSBI.
1.30. On 19 April 2017, the Division issued a Procedural Ruling57 authorizing the participants'
request to open the sessions dedicated to the delivery of opening and closing statements to public
observation, subject to additional procedures for the conduct of all sessions of the oral hearing.
Regarding China's request, the Division considered that it would be difficult to accommodate given
the amount of BCI/HSBI involved in this dispute. The Division also recalled in this regard that third
participants were allowed to designate up to eight individuals as BCI -Approved Persons, and
considered this sufficient to allow the third participants to be meani ngfully represented at the
oral hearing.
1.31. By letter dated 16 May 2017, the Division informed the participants and third participants
that the second session of the hearing would be held from 26 to 29 September 2017. By letter
dated 22 June 2017, the Division notified to the participants and third participants that the second
session of the oral hearing would have to take place one week earl ier than initially planned.
The Division indicated that this was because no meeting room would be available at the WTO due
to the WTO Public Forum. On the same day, the United States objected to this scheduling change
due to, inter alia, conflict with religious holidays and emphasized that, from its perspective, the
WTO's organization of a pub lic forum could not supersede the WTO's timely administration of its
dispute settlement system, a core function of the organization. The United States suggested that
the second session of the oral hearing take place on the initially scheduled week in an alternative
venue if no meeting room could be made available at the WTO . The United States stated that,
alternatively, it could participate in a session scheduled for the week of 2 October 2017,
if absolutely necessary. By l etter dated 26 June 2017, the European Union also stated its
preference for the second session of the oral hearing to take place on the initially planned dates in
premises outside the WTO if necessary, due to , inter alia , the professional and personal
commitments of members of the European Union's delegation. The European Union further
indicated that it would have a strong preference not to reschedule the second session for the week
of 2 October 2017, and inst ead suggested moving it to the week of 9 October 2017, should it be
impossible to maintain the dates initially planned.
1.32. On 7 July 2017, the Division invited the third participants to comment on the arguments
and proposals of the European Union and the United States. No comments were received from the

55 The first session of the oral hearing was held from 2 to 5 May 2017 as scheduled and covered the
following topics: (i) the Mühlenberger Loch and Bremen Airport measures; (ii) import substitution subsidies;
(iii) withdrawal of subsidies/removal of adverse effects; (iv) the European Union's and the United States'
conditional appeals regarding the expiry of pre-A350XWB LA/MSF; and (v) benefit.
56 The participants requested that any potential disagreement as to whether BCI/HSBI was inadvertently
included in the oral statements be resolved by the Division.
57 The Procedural Ruling of 19 April 2017 and Additional Procedures on the Conduct of the Oral Hearing
are contained in Annex D-2 of the Addendum to this Report, WT/DS316/AB/RW/Add.1.

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third participants. Following confirmation by the WTO Administration that there would be no room
available to the Appellate Body during the week of the WTO Public Forum, and taking into account
the participants' preference for the initially planned dates, the Division explored alternat ive venues
and made arrangements for the second session of the oral hearing to take place on the initially
planned dates, 26-29 September 2017, at the World Meteorological Organization.
1.33. The participants and third participants did not refer to BCI or HSBI in their opening or
closing statements in either session of the oral hearing. 58 Pursuant to the Procedural Ruling of
19 April 2017, public observation of the first session of the oral hearing was limited to the opening
statements of the participants and the third participants (with the exception of China). This was
done by means of a delayed transmission of a video recording of such statements, after the
participants had been given an opportunity to review the recording to confirm that no BCI or HSBI
had been inadvertently uttered.59 Due to the fact that the second session of the hearing took place
outside the WTO premises, public observation took place via delayed audio playback of the
recording of the opening and closing statements.60
1.34. During the two sessions of the oral hearing, the participants and third participants
responded to questions posed by Members of the Division hearing the appeal. At the
second session, the Division distributed written questions to the participants and third participants
related t o the United States' request for completion of the legal analysis with respect to
displacement or impedance. 61 The Division received written responses during the session and the
participants were given the opportunity to comment orally on the other particip ant's written
responses during the final day of the hearing.
1.35. On 30 June 2017 and 24 November 2017, respectively, the participants and third
participants were informed that, in accordance with Rule 15 of the Working Procedures, the Chair
of the Appellate Body had notified the Chair of the DSB of the Appellate Body's decision to
authorize Appellate Body Members Mr Ricardo Ramírez -Hernández and Mr Peter Van den Bossche
to complete the disposition of this appeal, even though their respective second terms of office
were due to expire before the completion of these appellate proceedings.
1.36. On 25 April 2018, pursuant to paragraph 18(xiii) of the Procedural Ruling of
25 October 2016, the Division provided a confidential advance copy of the Appellate Body Report
intended for circulation to WTO Members to the participants, invi ting them to indicate,
by 2 May 2018, whether any BCI or HSBI was inadvertently included in the report, and to request
removal of such information. The Division also provided the parti cipants with an opportunity to
respond to each other's comments by 4 May 2018. The United States indicated, on 2 May 2018,
that it had not found any BCI or HSBI outside of the text encompassed in square brackets in the
Appellate Body report intended for ci rculation, and the European Union indicated that it had
identified four instances in which confidential information had be en inadvertently included.
On 8 May 2018, the Division informed the European Union and the United States that it had
redacted the information concerned from the Appellate Body report to be circulated to Members.

58 There were no closing statements at the first session of the oral hearing. Korea did not make an
opening statement at either of the sessions, and Australia did not make an opening statement at the
second session. In addition, only the European Union, the United States, Canada, and Japan made closing
statements at the end of the second session.
59 China was not included in the video recording, having objected to opening its statements to public
observation.
60 China was not included in the audio recording, having objected to opening its statements to public
observation.
61 The second session was held from 26 to 29 September 2017 as scheduled and covered the topics not
covered in the first session, namely: (i) product market; (ii) non-subsidized like product; (iii) causation;
(iv) displacement/impedance and lost sales; and (v) completion of the legal analysis.

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2 ARGUMENTS OF THE PARTICIPANTS
2.1. The claims and arguments of the participants are reflected in the executive summaries of
their written submissions provided to the Appellate Body.62 The Notices of Appeal and
Other Appeal, and the executive summaries of the participants' claims and arguments, are
contained in Annexes A and B of the Addendum to this Report, WT/DS316/AB/RW/Add.1.
3 ARGUMENTS OF THE THIRD PARTICIPANTS
3.1. The arguments of those third participants that filed a written submission are reflected in the
executive summaries of their written submissions provided to the Appellate Body63, which are
contained in Annex C of the Addendum to this Report, WT/DS316/AB/RW/Add.1.
4 ISSUES RAISED ON APPEAL
4.1. The following issues are raised in this appeal64:
a. whether the Panel erred by declining to make a finding as to whether the
European Union had "withdrawn" the Bremen airport and Mühlenberger Loch measures
within the meaning of Article 7.8 of the SCM Agreement;
b. whether the Panel erred in finding that the United States had failed to establish that the
French, German, Spanish, and UK LA /MSF subsidies for Airbus' A350 XWB constituted
prohibited import substitution sub sidies, within the meaning of Article 3.1(b) of the
SCM Agreement (raised by the United States);
c. whether the Panel erred in determining the "corporate borrowing rate " component of the
market benchmark for the A350XWB LA/MSF measures; and, in particular:
i. whether the Panel erred in its application of Article 1.1(b) of the SCM Agreement or
acted inconsistently with Article 11 of the DSU by failing to determine the "corporate
borrowing rate" component of the market benchmark on the basis of the yield of the
EADS bond on the day of conclusion of each A350XWB LA/MSF contract; and
ii. in the event the Appellate Body finds that the Panel did not err in the manner
described above, whether the Panel erred in its application of Article 1.1(b) of the
SCM Agreement or acted inconsistently with Article 11 of the DSU by including in its
calculation of the "corporate borrowing rate" the average yield of the EADS bond
over the six months prior to the conclusion of the A350XWB LA/MSF contracts;
d. whether the Panel erred in using the risk premium applied to the A380 LA/MSF measures
in the original proceedings as the project-specific risk premium to determine whether the
A350XWB LA/MSF measures confer a benefit; and in particular:
i. whether the Panel erred under Article 1.1(b) of the SCM Agreement or acted
inconsistently with Article 11 of the DSU by allegedly failing to establish a risk
premium that best reflects the risks associated with the A350XWB project;
ii. whether the Panel acted inconsistently with Article 11 of the DSU in its assessment of
the differences in the risk profiles of the A380 and the A350XWB projects; and

62 Pursuant to the Appellate Body's communication on "Executive Summaries of Written Submissions in
Appellate Proceedings" and "Guidelines in Respect of Executive Summaries of Written Submissions in
Appellate Proceedings" (WT/AB/23, 11 March 2015).
63 Pursuant to the Appellate Body's communication on "Executive Summaries of Written Submissions in
Appellate Proceedings" and "Guidelines in Respect of Executive Summaries of Written Submissions in
Appellate Proceedings" (WT/AB/23, 11 March 2015).
64 Unless indicated otherwise, the following issues are raised by the European Union.

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iii. whether the Panel erred under Article 1.1(b) of the SCM Agreement or acted
inconsistently with Article 11 of the DSU by adopting a single proj ect risk premium
for each of the French, German, Spanish, and UK A350XWB LA/MSF measures;
e. whether the Panel erred in its interpretation of Article 7.8 of the SCM Agreement in
finding that this provision requires an implementing Member, found in original
proceedings to have granted or maintained subsidies that cause adverse effects, to
"remove the adverse effects" of the subsidies irrespective of whether those subsidies
continue to exist in the implementation period;
f. in the event the Appellate Body reverses the Panel's interpretation of Article 7.8 of the
SCM Agreement:
i. whether the Panel erred in its interpretation of Article 1.1(b) of the SCM Agreement
in finding that the ex ante "lives" of the French, German, and Spanish LA/MSF
subsidies for the A300B/B2/B4, A300 -600, A310, A320, and A330/A340, and the
UK LA/MSF subsidies for the A320 and A330/ A340 expired prior to 1 December 2011
(raised by the United States); and
ii. if the Appellate Body finds that the expiry of a subsidy after the end of the
implementation period constitutes "withdrawal" within the meaning of Article 7.8 of
the SCM Agreement, whether the Panel erred in finding that the LA/MSF subsidies for
the A330-200 and the A340-500/600 expired after 1 December 201 1 (raised by
the United States);
g. in the event that the Appellate Body reverses the Panel's interpretation of Article 7.8 of
the SCM Agreement and attempts to complete the legal analysis on the basis of a correct
interpretation, whether the Panel erred in its interpr etation of Article 7.8 (in conjunction
with Article 1 of the SCM Agreement ) in finding that the European Union has not
demonstrated that the "lives" of the French LA/MSF subsidies for the A310 -300 and
A330-200, the French and Spanish LA/MSF subsidies for t he A300B/B2/B4 and
A300-600, and the French, Spanish, and UK LA/MSF subsidies for the A320 and
A330/A340 came to an end when Airbus completed repaymen t of the financial
contribution;
h. whether, as a consequence of the Panel's interpretative error under Artic le 7.8 of the
SCM Agreement, the Panel's findings regarding the adverse effects caused by the
challenged subsidies must be reversed;
i. whether the Panel erred in rejecting the European Union's contention that the
United States was required under Article 6.4 of the SCM Agreement, to demonstrate that
its "like product" (Boeing LCA) was "non -subsidized" in order to make out its claims of
serious prejudice under Article 6.3(b) of the SCM Agreement;
j. whether the Panel erred in its identification of the relevant pro duct markets; and in
particular:
i. whether the Panel erred in interpreting the term "market" in Article 6.3 of the
SCM Agreement by finding that two products fall within the same product market as
long as there is "some" competitive relationship between the products, and
consequently failing to perform a "quantitative" analysis of the nature and degree of
competition between the products to determine whether it was "significant";
ii. in the alternative, to the extent that the Appellate Body finds that the Panel did not
err in its interpretation of the term "market", whether the Panel erred in its
application of Articles 5(c), 6.3, and 7.8 of the SCM Agreement by not finding that all
Airbus and Boeing LCA products form part of a "single" LCA market based on the
existence of "some" competition between each model of Airbus and Boeing LCA; and

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iii. whether the Panel acted inconsistently with Article 11 of t he DSU by assessing the
United States' adverse effects claims on the basis of the three -way market
segmentation proposed by the United States, without also enquiring whether there
existed "some" competiti on between aircraft that the United States had place d in
separate product markets;
k. whether the Panel erred in its interpretation and application of Articles 5(c), 6.3, and 7.8
of the SCM Agreement in finding that "product effects" of the pre -A350XWB LA /MSF
subsidies, that is, the effects of such subsidies on the ability of Airbus to launch and
bring to market an Airbus LCA as and when it did, continue to be a "genuine and
substantial" cause of the present -day market presence of the A320, A330 , and A380
families of Airbus LCA;
l. whether the Panel found that the LA/MSF subsidies for the A380 resulted in
"direct effects" on the launch and market presence of the A380 and , if so, whether the
Panel acted inconsistently with Article 11 of the DSU in reaching that finding;
m. whether the Panel erred in finding that the "product effects" of the aggregated LA/MSF
subsidies, with the exception of the LA/MSF subsidies for the A300 and A310, are a
"genuine and substantial" cause of the current market presence of the A350XWB family
of Airbus LCA; more specifically:
i. whether the Panel found that the LA/MSF subsidies for the A350XWB resulted in
"direct effects " on the launch and market presence of the A350XWB and, if so,
whether the Panel acted inconsistently with Article 11 of the DSU i n reaching that
finding; and
ii. whether the Panel erred in its application of Articles 5(c) and 7.8 of the
SCM Agreement in finding that A380 LA/MSF subsidies had "indirect effects" on
Airbus' ability to launch the A350XWB; and
n. whether the Panel erred in its interpretation and application of Articles 5(c), 6.3(a),
6.3(b), 6.3(c), and 7.8 of the SCM Agreement in finding that the United States
established that the challenged LA/MSF subsidies are a genuine and substantial cause of
"lost sales" and "displacement and/or impedance" of US LCA in the relevant product and
geographic markets; more specifically:
i. whether the Panel erred in finding a causal link between the challenged subsidies and
alleged "lost sales " and "displacement and/or impedance " by fai ling to take into
account: (i) the "closeness of competition" between various LCA models;
and (ii) non-attribution factors; and
ii. whether the Panel erred in finding "displacement and/or impedance " in the relevant
product and geographic markets at issue by: ( i) failing to distinguish between the
concepts of "displacement" and "impedance" and making undifferentiated findings of
"displacement and/or impedance"; and (ii) failing to engage with the relevant volume
and market share data and to adopt a large enough number of data points to
meaningfully investigate trends in the chosen reference period.
5 ANALYSIS OF THE APPELLATE BODY
5.1 Article 21.5 of the DSU – the Mühlenberger Loch and Bremen Airport measures
5.1. The European Union claims that, by declining to make a finding as to whether the
European Union had achieved compliance with respect to the Mühlenberger Loch aircraft assembly
site measure and the Bremen Airport runway extension measure, the Panel erred in its

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interpretation and application of Article 21.5 of the DSU and also acted inconsistently with
Article 11 of the DSU.65
5.2. Specifically, the European Union claims that the Panel erred in interpreting Article 21.5 of the
DSU as limiting the right of an original respondent to have recourse to Article 21.5 to a sc enario
where the following three conditions are met: (i) the original respondent initiates Article 21.5
proceedings; (ii) the original complainant refuses to participate in such proceedings;
and (iii) the original complainant has already suspended concessi ons vis -à-vis the original
respondent in accordance with Article 22 of the DSU. 66 For the European Union, the Panel thus
attached, without textual basis, such qualifications to the right of an original respondent to seek
adjudication of a disagreement conce rning the WTO-consistency of its measure taken to comply. 67
As to the Panel's application of Article 21.5, the European Union submits that the Panel erred in
finding that a "disagreement" within the meaning of this provision did not exist between the
parties with respect to the two measures at issue. 68 Finally, the European Union submits that,
by refusing to make findings as to whether the European Union had achieved withdrawal, within
the meaning of Article 7.8 of the SCM Agreement, in respect of the Mühlenb erger Loch and
Bremen Airport measures, the Panel incorrectly declined to exercise validly established jurisdiction,
thereby acting inconsistently with Article 11 of the DSU. 69 Based on these alleged errors in the
Panel's analysis, the European Union requests us to reverse the Panel's findings, complete the
legal analysis, and find that the European Union has withdrawn the subsidies that had been found
to flow from the two measures at issue.70
5.3. Before addressing the European Union's claims of error, we briefl y recall the Panel's analysis
concerning the Mühlenberger Loch and the Bremen Airport measures.
5.1.1 The Panel's findings
5.4. Regarding the Bremen Airport runway extension measure, the Panel noted that
"{t}he United States' claims of non -compliance d {id} not include" claims with respect to this
measure.71 In respect of the Mühlenberger Loch aircraft assembly site measure, the Panel noted
that the measure was initially within the scope of the United States' challenge to the
European Union's alleged compliance. However, having reviewed the European Union's explanation
in its first written submission to the Panel of the methodology it had used to adjust the rental for
the Mühlenberger Loch site to a market rate, the United States subsequently decided not to pursue
its claim with regard to this measure. 72 In footnote 1847 to para graph 6.1102 of its Report,
the Panel stated:
The extent to which the full or partial repayment of a subsidy or the alignment of its
terms with a market benchmark may amount to the "withd rawal" of a subsidy for the
purpose of Article 7.8 of the SCM Agreement are questions that are not before us and
we, therefore, make no specific findings as to whether such actions may suffice to
bring an implementing Member into conformity with its obliga tions under the
SCM Agreement. We note, however, that the United States does not challenge the
European Union's alleged "withdrawal" of the subsidies in relation to the Bremen
Airport runway extension and the Mühlenberger Loch aircraft assembly site, both of
which were found to cause adverse effects in the original proceeding. According to the
European Union, the terms of these subsidies were aligned to a market benchmark
before the end of the implementation period.73

65 European Union's appellant's submission, para. 226.
66 European Union's appellant's submission, para. 244.
67 European Union's appellant's submission, para. 244.
68 European Union's appellant's submission, paras. 258-262.
69 European Union's appellant's submission, paras. 270-271.
70 European Union's appellant's submission, para. 272.
71 Panel Report, para. 6.20 (referring to United States' first written submission to the Panel, paras. 5
and 35).
72 Panel Report, paras. 5.75 and 6.22.
73 See also Panel Report, fn 109 to para. 6.42.

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5.5. Similarly, the Panel observed that the United States' claims of continued adverse effects
"d{id} not include the subsidy measures relating to the Mühlenberger Loch and the extension of
the Bremen Airport runway that were found to cause adverse effects in the original proceeding".74
5.6. During the interim review stage of the Panel proceedings 75, the European Union requested
the Panel to find that the two measures taken to comply in respect of Mühlenberger Loch and
Bremen Airport achieved "withdrawal" of the respective subsidies within the meaning of Article 7.8
of the SCM Agreement.76 The European Union asserted that the right of an original respondent to
have a compliance panel under Article 21.5 of the DSU assess the WTO-consistency of a measure
taken to comply was explicitly recognized by the Appellate Body in US – Continued Suspension /
Canada – Continued Suspension.77 In response, the United States requested the Panel to reject
the European Union's request and confirmed that, as stated in its second written submission to the
Panel, it was not pursuing the claims with respect to the Mühlenberger Loch and Bremen Airport
measures.78
5.7. Responding to the European Union's request for findings presented during the interim review
stage, the Panel recalled that its task under Article 21.5 of the DSU was to make an objective
assessment as to whether the European Union had complied with the recommendations and
rulings of the DSB to the extent that there was a " disagreement as to the existence or
consistency" of "measures taken to comply". 79 In this regard, the Panel n oted that neither party
contested the "existence" of the European Union's measures taken to comply, and found that there
was no present disagreement between the parties regarding the conformity of the Mühlenberger
Loch and Bremen Airport measures with the relevant disciplines of the SCM Agreement or whether
those measures achieved compliance with the recommendations and rulings of the DSB. 80 For the
Panel, in the absence of any such "disagreement", there was no question of WTO -consistency to
determine in relation to those measures.81
5.8. The Panel then addressed the European Union's reliance on the Appellate Body reports in
US – Continued Suspension / Canada ‒ Continued Suspension . The Panel noted that, in those
disputes, the Appellate Body had discussed the scenario where: (i) the original respondent initiates
Article 21.5 proceedings; (ii) the original complainant refuses to participate in such proceedings;
and (iii) the original complainant has already suspended concessions vis -à-vis the original
respondent in accordance with Article 22 of the DSU.82 The Panel understood the Appellate Body to
have considered that, "in such a scenario, the compliance panel would be called upon to 'make its
determination on the basis of a prima facie case presented by the original respondent that its
implementing measure has brought it into compliance with the DSB's recommendations and
rulings'".83 The Panel considered the situation to be different in the present case , noting that the
original complainant – i.e. the United States – (rather than the original respondent) had initiated
these Article 21.5 p roceedings, in which both parties participated, and that the suspension of

75 The second, and final, round of written submissions to the Panel was concluded on 15 January 2013.
The Panel meeting with the parties in this dispute took place on 16-18 April 2013. The Panel issued its Interim
Report to the parties on 11 December 2015. The parties submitted their comments on the Interim Report on
22 January 2016, and responded to each other's comments on 12 February 2016.
76 Panel Report, para. 5.74.
77 Panel Report, para. 5.74 (quoting Appellate Body Reports, US – Continued Suspension /
Canada ‒ Continued Suspension, para. 358).
78 Panel Report, para. 5.75. The Panel noted that the United States neither sought a finding that the
European Union had failed to comply with the recommendations and rulings of the DSB with respect to those
measures, nor argued that those subsidies caused adverse effects after the end of the implementation period.
(Ibid.)
79 Panel Report, para. 5.76 (quoting Article 21.5 of the DSU (emphasis added by the Panel)).
80 Panel Report, para. 5.76.
81 Panel Report, para. 5.76.
82 Panel Report, para. 5.77.
83 Panel Report, para. 5.77 (quoting Appellate Body Reports, US – Continued Suspension /
Canada ‒ Continued Suspension, para. 358).

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concessions had not been approved or implemented .84 Furthermore, the Panel found no relevant
"disagreement" or "associated exigency" to exist in these proceedings.85
5.9. For all these re asons, and "in the absence of any explicit refutation by the United States of
the European Union's measures taken to comply with respect to the Mühlenberger Loch or the
Bremen Airport runway subsidies", the Panel found that "there {was} no requirement unde r
Article 21.5 of the DSU for the compliance Panel in this dispute to make any findings on the
consistency of those measures with the covered agreements ."86 Finally, referring to Article 22.2 of
the DSU, the Panel noted that, under these circumstances, "the United States would not be
entitled to request the suspension of concessions or other obligations under the covered
agreements in relation {to} the Mühlenberger Loch and the Bremen Airport runway measures."87
5.1.2 Whether the Panel erred by declining to make a finding as to whether the
European Union had "withdrawn" the Mühlenberger Loch and Bremen Airport measures
5.10. Article 21.5 of the DSU requires that "disputes" arising out of any "disagreement as to the
existence or consistency with a covered agreement of measures taken to comply with the
recommendations and rulings … shall be decided through recourse to these dispute settlement
procedures, including wherever possible resort to the original p anel." The Appellate Body has
emphasized the "compulsory" and "obligatory" nature of Article 21.5 proceeding s for resolving
disputes concerning the existence or WTO -consistency of measures taken to comply with the
recommendations and rulings of the DSB.88
5.11. In US – Continued Suspension / Canada – Continued Suspension, the Appellate Body stated
that a "disagreement" under Article 21.5 as to the consistency with the WTO agreements of a
measure taken to comply "arises from the existence of conflicting views: the original complainant's
view that such a measure is inconsistent with the WTO agreements or brings about only partial
compliance, and the original respondent 's view that a mea sure is consistent with the
WTO agreements and brings about full compliance with the DSB's recommendations and rulings".89
Article 21.5 does not indicate which party may initiate proceedings under this provision. Rather,
the language of the provision is neutral on this matter and it is open to either party to refer the
matter to a compliance panel to resolve a disagreement as to the existence or consistency with a
covered agreement of measures taken to comply .90 The text of Article 21.5, therefore, does not
preclude an original respondent from initiating proceedings under this provision t o obtain
confirmation of the WTO-consistency of its implementing measures.91
5.12. Article 6.2 of the DSU is "generally applicable " to panel requests under Article 21.5.92
Article 21.5, for its part, expressly links the measures taken to comply with the recommendations
and rulings of the DSB. 93 In carrying out its adjudicatory function, the task of a panel under
Article 21.5 is to decide "disputes" arising out of any "disagreement as to the existence or
consistency with a covered agreement of measures taken to comply with the recommendations
and rulings". By virtue of Article 11 of the DSU, which also governs proceedings under Article 21.5,
the task of a compliance panel is to "examine fully", and in an objective manner, the issues raised
by the partie s.94 Much like i t is for the Article 21.5 panel – and not for the complainant or the

84 Panel Report, para. 5.77.
85 Panel Report, para. 5.77.
86 Panel Report, para. 5.78.
87 Panel Report, para. 5.78.
88 Appellate Body Reports, US – Continued Suspension / Canada – Continued Suspension, para. 340.
See also paras. 336 and 339.
89 Appellate Body Reports, US – Continued Suspension / Canada – Continued Suspension, para. 347.
90 Appellate Body Reports, US – Continued Suspension / Canada – Continued Suspension, para. 347.
91 Appellate Body Reports, US – Continued Suspension / Canada – Continued Suspension, para. 347.
92 Appellate Body Report, US – FSC (Article 21.5 – EC II), para. 59. The Appellate Body further
explained that, "given that Article 21.5 deals with compliance proceedings, Article 6.2 needs to be interpreted
in the light of Article 21.5. In other words, the requirements of Article 6.2, as they apply to an original panel
request, need to be adapted to a panel request under Article 21.5". (Ibid.)
93 Appellate Body Report, US – FSC (Article 21.5 – EC II), paras. 61 and 93.
94 Appellate Body Report, US – Oil Country Tubular Goods Sunset Reviews (Article 21.5 – Argentina),
para. 151.

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respondent – to determine whether a particular measure is one "taken to comply" 95, it is also for
the Article 21.5 panel, and not for either party, to determine whether an o bjectively identifiable
"disagreement" exists between the parties. Thus, a panel under Article 21.5 must carry out its
objective assessment of the existence and WTO -consistency of measures taken to comply in light
of the arguments and evidence placed before it by the parties and the relevant recommendations
and rulings of the DSB.
5.13. With these considerations in mind, we begin by examining the European Union's claim that
the Panel erred in its interpretation of Article 21.5 of the DSU by qualifying the right of an original
respondent to seek adjudication of a disagreement regarding the WTO -consistency of a measure
taken to comply to scenarios where each of the following three conditions is met: (i) the original
respondent initiates Article 21.5 proceedings; (ii) the original complainant refuses to participate in
such proceedings; and (iii) the original complainant has already suspended concessions vis -à-vis
the original respondent in accordance with Article 22 of the DSU.96
5.14. Contrary to what the European Union suggests, we do not consider that the Panel dismissed
the European Union's request for findings on the basis of an alleged failure to meet the three
"conditions" discussed by the Appellate Body in US – Continued Suspension / Canada – Continued
Suspension.97 Instead, the Panel declined to rule on the WTO -consistency of the two measures at
issue because it found that "there {was} no relevant disagreement between the parties' to
resolve".98 In doing so, the Panel distinguished between the issues arising in the p resent case and
those in US ‒ Continued Suspension / Canada – Continued Suspension.99 We do not consider that
the Panel's reasoning distinguishing the present case from the specific situation addressed by the
Appellate Body in those disputes should be under stood as qualifying the rights of parties to have
recourse to compliance proceedings by interpreting Article 21.5 in the manner suggested by the
European Union. As we have discussed above, under a proper interpretation of Article 21.5, it is
open to either party to refer the matter to a compliance panel under this provision to resolve a
disagreement as to the existence or consistency with a covered agreement of a measure taken
to comply.100
5.15. The European Union further submits that the Panel erred in its applic ation of Article 21.5 of
the DSU in finding that there was no "disagreement" between the parties, within the meaning of
this provision, with respect to the Mühlenberger Loch and Bremen Airport measures. 101 According
to the European Union, a disagreement in r espect of the two measures taken to comply existed,
and continues to exist, between the parties in the present dispute. 102 First, the European Union
refers to its Compliance Communication, identifying the measures it took to comply concerning the
Mühlenberger Loch and Bremen Airport measures. Recalling that those measures were included in
the United States' compliance panel request103, the European Union submits that this is indicative

95 Appellate Body Report, EC – Bed Linen (Article 21.5 – India), para. 78.
96 European Union's appellant's submission, para. 244.
97 As the Panel rightly observed, the Appellate Body's discussion of the "hypothetical" scenario was
premised on the existence of a "disagreement" between the parties, namely, whether the ongoing suspension
of concessions continued to be justified under Article 22.8 of the DSU. (See Panel Report, para. 5.77)
98 Panel Report, para. 5.75.
99 In requesting the Panel to rule on the two measures at issue, the European Union relied on the
Appellate Body's statement in US – Continued Suspension / Canada – Continued Suspension that, "absent any
rebuttal by the original complainant, the Article 21.5 panel will make its determination on the basis of a
prima facie case presented by the original respondent that its implementing measure has brought it into
compliance with the DSB's recommendations and rulings". (Panel Report, para. 5.74 (quoting Appellate Body
Reports, US – Continued Suspension / Canada – Continued Suspension, para. 358)) This statement by the
Appellate Body discussed the specific situation where an original respondent has initiated Article 21.5
proceedings against the original complainant, and the original complainant has refused to participate in the
Article 21.5 proceedings initiated by the original respondent. The Appellate Body explained that, in such
proceedings initiated by the original respondent, a "defending party {i.e. the original complainant} who refuses
to participate in dispute settlement proceedings will lose the opportunity to defend its position and will risk a
finding in favour of the complaining party {i.e. the original respondent} that has established a prima facie
case". (Appellate Body Reports, US – Continued Suspension / Canada – Continued Suspension, para. 358) See
also Panel Report, para. 5.77.
100 Appellate Body Reports, US – Continued Suspension / Canada – Continued Suspension, para. 347.
101 European Union's appellant's submission, para. 256.
102 European Union's appellant's submission, para. 257.
103 WT/DS316/23.

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of a "disagreement" within the meaning of Article 21.5.104 Second, the European Union submits
that the parties' written submissions to the Panel also evidence "conflicting views" as to whether
the two measures at issue achieved withdrawal of the respective subsidies.105
5.16. The United States responds that the Bremen Airport measure was not included in its
compliance panel request as one of the measures on which the United States requested the Panel
to rule. 106 Even assuming that the Bremen Airport measure was properly included in the
United States' compliance panel request, we note that, in its first written submission to the Panel,
the United States made it clear that it was "not challenging t he EU's compliance with the
DSB recommendations and rulings with regard to {the infrastructure -related subsidy for the
Bremen Airport runway}" 107, nor " the EU's removal of the Bremen Airport runway subsidy." 108
At the oral hearing in these appellate proceedings, the United States confirmed its position that the
European Union had taken action with regard to the subsidy arising out of the Bremen Airport
measure in a way that ceased its adverse effects and that the European Union had therefore
"withdrawn" that subsidy.109 In light of its statements before the Panel , as confirmed by it on
appeal, we understand the United States to have clarified that it is not challenging the
European Union's compliance regarding the Bremen Airport measure and it is not making any
claim in respect of that measure.
5.17. Turning to the Mühlenberger Loch measure, the United States does not d ispute that this
measure was expressly included in its compliance panel request as one of the measures on which
it was seeking findings .110 We note that, unlike the Bremen Airport measure, the United States
initially pursued its claim with respect to the Müh lenberger Loch measure in its first written
submission to the Panel. 111 Subsequently, however, the United States clarified that it was
"not pursuing its claim with regard to {that} measure at {that} time112 and stated that "the only
subsidies that the EU ha {d} withdrawn {were} the discounted fee for the use of the Bremen
runway and the below-market rental terms for the Mühlenberger Loch site."113
5.18. On appeal, in support of its position that the parties' "disagreement" with respect to the
Mühlenberger Loch measure continued to exist during the course of the Panel proceedings, the
European Union relies on the heading of a section of the United States' second written submission
to the Panel, which reads as follows: " The modifications to the Mühlenberger Loch lease did not
make the terms consistent with the market and, therefore, failed to withdraw the subsidy". 114
While the text of the heading , when considered in isolation, may suggest that the United States
continued to take issue with the Mühlenberger Loch measure, we note that in the section following
that heading the United States clarified that it was " not pursuing its claim with regard to {that}
measure at {that} time".115 We understand the United States therefore to have abandoned its
claim in respect of the Mühlenbe rger Loch measure as of its second written submission to the
Panel. We also note in this regard that the European Union acknowledged before the Panel that
"{t}he United States agree{d} with respect to the measures involving take-off and landing fees at
Bremen Airport and the lease agreement for the land in the Mühlenberger Loch in Hamburg."116
5.19. It was only during the interim review stage of the Panel proceedings that the
European Union requested the Panel to make findings with respect to the Bremen Airport an d
Mühlenberger Loch measures. Asking the Panel to reject the European Union's request made

104 European Union's appellant's submission, paras. 258-259. At the oral hearing, the European Union
asserted that the United States' compliance panel request incorporated the entire Compliance Communication
by the European Union.
105 European Union's appellant's submission, para. 260.
106 United States' appellee's submission, para. 177.
107 United States' first written submission to the Panel, fn 13 to para. 5.
108 United States' first written submission to the Panel, fn 64 to para. 35.
109 United States' response to questioning at the oral hearing.
110 See United States' compliance panel request, para. 5.
111 United States' first written submission to the Panel, para. 97.
112 United States' second written submission to the Panel, para. 265.
113 United States' second written submission to the Panel, para. 52.
114 European Union's appellant's submission, para. 260 (quoting United States' second written
submission to the Panel, section IV.C.4).
115 United States' second written submission to the Panel, para. 265.
116 European Union's second written submission to the Panel, para. 72. (fn omitted)

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during the interim review stage, the United States reaffirmed that it was not pursuing the claims
with respect to those two measures.117 The United States confirmed at the first session of the oral
hearing in these appellate proceedings that it considered the European Union to have "withdrawn"
the subsidy arising out of the Mühlenberger Loch measure in a way that ceased its adverse
effects.118
5.20. As discussed above, a "disagreement" under Article 21.5 as to the consistency with the
WTO agreements of a measure taken to comply "arises from the exis tence of conflicting views:
the original complainant's view that such a measure is inconsistent with the WTO agreements or
brings about only partial compliance, and the original respondent 's view that a measure is
consistent with the WTO agreements and brings about full compliance with the
DSB's recommendations and rulings". 119 In accordance with Article 11 of the DSU, it is for th e
panel to determine whether an objectively identifiable "disagreement" within the meaning of
Article 21.5 exists between the parties.
5.21. By including the Bremen Airport and Mühlenberger Loch measures in its Compliance
Communication, the European Union took the view that those measures are consistent with the
WTO agreements and brought the European Union into full compliance with the relevant
recommendations and rulings by the DSB. It is our understanding, based on a collective reading of
its representations b efore the Panel, that the United States did not take issue with or challenge
this view held by the European Union.120 Thus, in light of the United States' and European Union's
statements before it, the Panel, in our view, rightly found that there was no " disagreement" for it
to resolve within the meaning of Article 21.5 of the DSU.121 With the United States having clarified
that it did not take issue with the Bremen Airport and Mühlenberger Loch measures 122, the Panel
was not, under the circumstances of the present case, required to rule on the merits of the claims
of WTO-consistency and/or compliance in respect of the those two measures.
5.22. Finally, the European Union claims that the Panel acted inconsistently with Article 11 of the
DSU by declining to assess whether the European Union had achieved withdrawal, within the
meaning of Article 7.8 of the SCM Agreement, in respect of the Mühlenberger Loch and Bremen
Airport measures.123 The European Union submits that a panel acts inconsistently with Article 11 of
the DSU if it declines to exercise validly established jurisdiction on the matter before it. 124
Recalling its position that the "disagreement" between the parties continued to exist throughout
the Panel proceedings, the European Union asserts that the "matter" relating to the two measures
at issue was properly before the Panel and should have been addressed by it.125
5.23. We agree with the European Union to the extent that it suggests that a panel acts
inconsistently with Article 11 of the DSU if it declines to exercise validly established jurisdiction. 126
It does not , however, follow from this that , once jurisdiction has been established, a panel is
required to rule on the substantive merits of each of the claims before it. 127 In the present case,
we have not found fault in the Panel's conclusion that there was no "disagreement" between the
parties with respect to the Bremen Airport and Mühlenberger Loch measures. In such
circumstances, the Panel was not required to make findings on the existence and WTO-consistency

117 Panel Report, para. 5.75.
118 United States' response to questioning at the oral hearing.
119 European Union's appellant's submission, para. 257 (quoting Appellate Body Reports, US – Continued
120 Our understanding is confirmed by the United States' responses to questioning during the
first session of the oral hearing in this appeal.
121 Panel Report, para. 5.77.
122 At the oral hearing in this appeal, the United States confirmed that it would not challenge the
Bremen Airport and Mühlenberger Loch measures in new proceedings under Article 21.5 of the DSU given its
view that the subsidies arising out of these measures did not cause adverse effects in the post-implementation
period. (United States' response to questioning at the oral hearing)
123 European Union's appellant's submission, para. 271.
124 European Union's appellant's submission, para. 264 (quoting Appellate Body Report, Mexico – Taxes
on Soft Drinks, para. 51).
125 European Union's appellant's submission, para. 269.
126 Appellate Body Report, Mexico – Taxes on Soft Drinks, paras. 46 and 51.
127 For example, a panel may validly decline to examine and rule on a particular claim for reasons of
judicial economy provided it resolves the dispute at hand.

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of those measures, and we therefore do not consider that the Panel erred under Article 11
of the DSU.
5.24. We further note that the Panel did not find that the European Union had acted in a
WTO-inconsistent manner or failed to com ply with its obligations under Article 7.8 of the
SCM Agreement with respect to the Bremen Airport and Mühlenberger Loch measures. In these
circumstances, we fail to see how the United States could request authorization to take
countermeasures pursuant to Article 7.9 of the SCM Agreement and Article 22 of the DSU 128 with
respect to any effects flowing from such measures. In this regard, we agree with the Panel that
"the United States would not be entitled to request the suspension of concessions or other
obligations under the covered agreements in relation {to} the M ühlenberger Loch and the
Bremen Airport runway measures."129
5.25. For these reasons, we find that the Panel did not err by declining to make a finding as to
whether the European Union had achieved compliance with respect to the Mühlenberger Loch
aircraft assembly site measure and the Bremen Airport runway extension measure, and see no
need to make further findings in respect of those measures.
5.2 Article 3.1(b) of the SCM Agreement
5.26. The United States seeks review of the Panel's finding that it failed to establish that the
French, German, Spanish, and UK A350XWB LA/MSF contracts are inconsistent with Article 3.1(b)
of the SCM Agreement because they grant subsidies contingent upon the use of domestic over
imported goods. Should we find that the Panel erred in its interpretation of Article 3.1(b), then the
United States requests that we reverse the Panel's finding , complete the legal analysis, and find
that the French, German, Spanish, and UK A 350XWB LA/MSF contracts grant subsidies contingent
upon the use of domestic over imported goods within the meaning of Article 3.1(b).130
5.27. We begin by summarizing the Panel's findings and the issues appealed before turning to
consider the United States' appeal of the Panel's analysis.
5.2.1 The Panel's findings
5.28. The Panel began by setting out the factual background, including the two general types of
evidence on which the United States based its argument under Article 3.1(b) of the
SCM Agreement, namely: (i) the publicly available information regarding the existence of the
Workshare Agreements ; and (ii) the terms of each of the French, German, Spanish, and
UK A350XWB LA/MSF contracts.131 The Panel observed that subsidy payments in all four contracts
depend on the recipie nt incurring expenses arising from A350XWB development and production
activities, and that they require some, if not all, reimbursable expenses to arise from activities
performed in the territory of the subsidy grantor . The Panel referred to this as the

128 We note that, by virtue of Article 1.2 of the DSU, the DSU (including Article 21.5) applies "subject to
such special or additional rules and procedures" as listed in Appendix 2 to the DSU. Articles 7.2 through 7.10 of
the SCM Agreement are listed in Appendix 2 to the DSU. Article 7.10 states that, "{i}n the event that a party
to the dispute requests arbitration under paragraph 6 of Article 22 of the DSU, the arbitrator shall determine
whether the countermeasures are commensurate with the degree and nature of the adverse effects determined
to exist".
129 Panel Report, para. 5.78. We also note the Panel's observation that "the United States does not
challenge the European Union's alleged 'withdrawal' of the subsidies in relation to the Bremen Airport runway
extension and the Mühlenberger Loch aircraft assembly site, both of which were found to cause adverse effects
in the original proceeding." The Panel went on to state the European Union's position that "the terms of these
subsidies were aligned to a market benchmark before the end of the implementation period". (Panel Report,
fn 1847 to para. 6.1102) The Panel's observations make clear that it did not find the measures taken to comply
at issue in these Article 21.5 proceedings to have WTO-inconsistent effects.
130 United States' other appellant's submission, para. 23.
131 Panel Report, paras. 6.754-6.773. Before the Panel, the United States argued that the relevant four
member States granted A350XWB LA/MSF to Airbus in exchange for commitments to locate certain LCA
production activities in the member States' territories and then use the LCA components made in such
domestic production in downstream LCA production activities. The United States characterized this exchange of
commitments as "Workshare Agreements". (Ibid., para. 6.780)

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"Domestic A350XWB Development Contingency ".132 The Panel also detected three other types of
contingencies in the terms of the [BCI] contracts.133 While the Panel observed that none of the
contracts explicitly required "the use of domestic over imported goods" , it noted that they could
nonetheless operate so as to require such use "whether alone or in combination".134
5.29. The Panel understood the United States to argue that both the publicly available information
and the terms of the four A350XWB LA/MSF contracts demonstrate that "the A350XWB LA/MSF
contracts are contingent {on} the use of domestic over imported goods. "135 However, the Panel
found the publicly available information insufficient to support the proposition that the
Workshare Agreements exist ed in a form dis tinct from the A350XWB LA/MSF contracts. 136
Turning to the terms of the four A350XWB LA/MSF contracts, t he Panel began by noting that a
degree of consistency is called for in the interpretation of Article III of the General Agreement on
Tariffs and Trade 1994 ( GATT 1994) and Article 3.1(b) of the SCM Agreement.137 The Panel
understood Article III:8(b) of the GATT 1994 to "suggest{} that the act of granting subsidies to
firms so long as they engage in domestic production activities, without more, should not b e
equated to making those subsidies contingent on the use of domestic over impo rted goods and
hence prohibited" under Article 3.1(b) of the SCM Agreement.138 The Panel added that
"the practice of providing subsidies to firms only so long as they engage in do mestic production
activity can and will many times … increase{} consumption of domestic goods" thereby "limit{ing}
competitive opportunities for relevant imported goods in certain markets". 139 The Panel
emphasized, however, that "{s}ignificant problems arise … if such alterations in the conditions of
competition … become the focus and determinant of whether a subsidy should be disciplined as
being contingent on the use of domestic over imported goods."140
5.30. The Panel understood the United States to argue that the A350XWB LA/MSF contracts are
"contingent on the use of domestic over imported goods " because they condition "the A350XWB
LA/MSF subsidies' receipt on the production of domestic LCA goods".141 The Panel found that the
discipline of Article 3.1(b) is "narrow and specific " and that it is "activated by a subsidy that
appropriates an entity's judgment by conditioning its receipt on that entity discriminating among
inputs with respect to their domestic or imported nature, whether in law or in fact ".142 The Panel
further found that "{n} one of the contingencies in the A350XWB LA/MSF contracts … operate in
this manner with respect to any entity. "143 The Panel thus found that the United States' claim that
the A350XWB LA/MSF subsidies are prohibited subsidies under Articles 3.1(b) and 3.2
of the SCM Agreement because they are de jure and/or de facto contingent upon the use of
domestic over imported goods is unsupported by sufficient evidence and therefore fails.144

132 Panel Report, para. 6.774.
133 Panel Report, para. 6.774. In this regard, the Panel noted that: (i) the [BCI] contracts appear to
condition subsidy payments on the recipient [BCI] on the development and/or production phases of the
A350XWB project in the territory of the grantor (Domestic A350XWB Employment Contingency); (ii) the [BCI]
contract appears to condition subsidy payments on the recipient maintaining a [BCI] (Domestic A350XWB
Workshare Contingency); and (iii) the [BCI] contract appears to condition subsidy payments on the recipient
maintaining certain [BCI] (Domestic Non-A350XWB Workshare Contingency). (Ibid.)
134 Panel Report, para. 6.775. For purposes of its subsequent analysis, the Panel "assume{d} arguendo"
that all the contingencies it had identified actually exist and, when satisfied, result in the manufacture of
LCA-related goods in the territories of the respective grantors. (Ibid., para. 6.776)
135 Panel Report, para. 6.780.
136 Panel Report, para. 6.781. In particular, the Panel considered that the publicly available information
was "a vague and ambiguous foundation upon which to establish the existence of any material agreements
between Airbus and the relevant member States regarding the domestic production and use of LCA
components beyond what the A350XWB LA/MSF contracts themselves exhibit". (Ibid.)
137 Panel Report, para. 6.783 (referring to Appellate Body Report, Canada – Autos, para. 140).
139 Panel Report, para. 6.786.
140 Panel Report, para. 6.787. In particular, the Panel noted that "disciplining such effects under
Article 3.1(b) of the SCM Agreement transforms the provision into an effects-based provision, thereby
significantly blurring … the line between the disciplines of Part II of the SCM Agreement and the effects-based
disciplines on actionable subsidies contained in Part III of the SCM Agreement." (Ibid.)
144 Panel Report, para. 6.790.

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5.2.2 Arguments on appeal
5.31. The United States notes that, while it agrees with the Panel's reading of Article 3.1(b) of the
SCM Agreement, at the time of these proceedings, a "competing interpretation" was under
consideration in the US – Tax Incentives dispute.145 The United States maintains that, if we find
the "competing interpretation" of Article 3.1(b) developed by the panel in US – Tax Incentives to
be correct, "then there is no question that the Panel {in the present case} erred in finding that the
French, German, Spanish, and UK LA/MSF for the A350 XWB do not constitute import substitution
subsidies prohibited by Article 3.1(b)."146 The United States argues that, following this
interpretation, "if (i) a subsidy is granted to a domestic producer conditional on the domestic siting
of production activities to produce a domestic input in an industrial process, and (ii) a substitution
of imported goods for these inputs would result in the producer's loss of the entitlement to the
subsidy, then the subsidy is contingent on the use of domestic over imported goods, an d therefore
is inconsistent with Article 3.1(b)."147 The United States submits that, because "the subsidies at
issue in this dispute are contingent upon " a number of intermediate goods "being produced in the
{European Union} and then used to manufacture the A350 XWB", "the goods are 'domestic goods'
and therefore Airbus is required to use domestic over imported goods to receive the subsidy." 148
If we confirm this "competing interpretation", then the United States requests that we complete
the legal analysis based on undisputed facts and Panel findings in this dispute, which establish that
the French, German, Spanish, and UK A350XWB LA/MSF contracts are contingent upon the use of
domestic over imported goods and therefore inconsistent with Article 3.1(b) of the
SCM Agreement.149
5.32. Referring to "undisputed facts from each of the LA/MSF contracts containing the
contingencies, as well as other relevant evidence" 150, the United States argues, for instance, that
the French A350XWB Protocole requires [BCI]151, and that these would be domestic goods for
purposes of Article 3.1(b).152 The United States adds that "it would be theoretically possible to
import this good instead of using a domestic version" .153 The United States further submits that
"the LA/MSF agreements address the c omprehensive program undertaken by Airbus to develop
and produce the A350 XWB, including inputs and tooling developed specifically for that model as
well as the finished LCA." 154 According to the United States, "in manufacturing finished A350
XWBs, Airbus mu st use the [BCI]"155, and "if [BCI], Airbus would [BCI] French A350 XWB
LA/MSF."156 The United States submits that, accordingly, under the interpretation of Article 3.1(b)
developed by the panel in US – Tax Incentives , the French A350XWB LA/MSF subsidy "is
contingent on the use of domestic over imported [BCI] in breach of Article 3.1(b)".157
5.33. The European Union responds that the "assertions upon which the United States seeks the
Appellate Body's review of the Panel's findings do not properly constitute an 'a ppeal' within the
meaning of the DSU", and therefore fall outside the scope of appellate review under Article 17.6 of
the DSU .158 The European Union submits that the United States "agrees with the Panel's
interpretation of Article 3.1(b)"159 and does not alleg e any legal error in the Panel's interpretation

145 United States' Notice of Other Appeal, para. 1; other appellant's submission, paras. 20-22.
146 United States' other appellant's submission, para. 23.
147 United States' other appellant's submission, para. 25. In addition, according to the United States,
this interpretation "assumes that any good completed in a domestic territory is 'domestic' for purposes of
Article 3.1(b), without the need to examine the significance of the operations undertaken in the domestic
territory, the proportion of foreign content contained in the good, rules of origin, or any other considerations."
(Ibid.)
148 United States' other appellant's submission, para. 26.
149 United States' other appellant's submission, para. 29.
150 United States' other appellant's submission, para. 31.
151 [BCI]
152 United States' other appellant's submission, para. 34 (referring to French A350XWB Protocole
(Panel Exhibit EU-(Article 13)-03 (BCI)); Panel Report, para. 6.757).
153 United States' other appellant's submission, para. 34.
154 United States' other appellant's submission, para. 34. (fn omitted)
155 United States' other appellant's submission, para. 34.
156 United States' other appellant's submission, para. 35.
157 United States' other appellant's submission, para. 35.
158 European Union's appellee's submission, para. 86.
159 European Union's appellee's submission, para. 119 (quoting United States' Notice of Other Appeal,
para. 1).

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or application of this provision, or a failure to make an objective assessment of the matter under
Article 11 of the DSU. 160 Instead, the United States "merely asserts that Article 3.1(b) 'can be
given a differ ent reading '" " without explaining what the legal error is supposed to be" in the
present case.161 The European Union requests us to reject the United States' appeal as falling
outside the scope of appellate review under Article 17.6 of the DSU "because it is based on a case
that is entirely different from the case advanced by the United States before the Panel"
in this dispute.162
5.34. Moreover, the European Union argues that, even if we were to consider the United States'
appeal, we should reject it on the merits. 163 According to the European Union, "the ordinary
meaning of the terms used {in Article 3.1(b)} suggests that a subsidy contingent on domestic
production, without more, does not fall within the prohibition set out in that provi sion."164
The European Union further argues that "the line drawn by the {SCM} Agreement between
prohibited … subsidies and actionable production subsidies would be blurred" 165 if "a requirement
of domestic production of goods, coupled with the fact that those goods are used downstream,
suffices to attract the prohibition" under Article 3.1(b).166
5.35. Finally, the European Union argues that the United States' request for completion of the
legal analysis should be rejected because it relies on three categories of factual assertions that
"were never made by the United States before the Panel", and which "{t}he European Union never
had an opportunity to dispute" .167 The European Union details the relevant assertions for each of
the four LA/MSF contracts as follows: (i) "'in manufacturing finished A350 XWBs, Airbus must use'
the components that the subsidy recipient is allegedly required to produce " in France, Germany,
Spain, or the UK , in order to receive LA/MSF for the A350 XWB from the respective country 168;
(ii) for certain components that the A350XWB LA/MSF contracts "allegedly require{} the subsidy
recipient to manufacture, 'it would be theoretically possible to import ' the relevant component"169;
and (iii) as interpreted by the United States, certain provisions in the French, German, Spanish,
and UK A350XWB LA/MSF contracts170 provide that "the subsidy recipient [BCI] the … LA/MSF
loan if Airbus SAS used imported instead of domestically-produced components" in the assembly of
the A350XWB.171
5.2.3 Whether the United States' appeal is within the scope of appellate review
5.36. We now turn to t he European Union's request that we reject this aspect of the
United States' appeal as falling outside the scope of appellate review under Article 17.6 of the DSU
on the basis that the United States has not alleged on appeal that the Panel committed a legal
error in its analysis of the United States' claim under Article 3.1(b) of the SCM Agreement.172
The European Union finds support for its position in the language of Articles 16.4 and 17.13 of the
DSU, as well as Rules 20(2)(d)(i), 21(2)(b)(i), and 23(2)(c)(ii)(A) of the Working Procedures. 173

160 European Union's appellee's submission, para. 119.
161 European Union's appellee's submission, para. 120 (quoting United States' other appellant’s
submission, para. 21) and para. 121.
162 European Union's appellee's submission, para. 148.
163 European Union's appellee's submission, para. 185.
164 European Union's appellee's submission, para. 192. (emphasis original)
165 European Union's appellee's submission, para. 194 (quoting Appellate Body Report, EC and certain
166 European Union's appellee's submission, para. 196. (emphasis original)
167 European Union's appellee's submission, para. 215. (emphasis omitted)
168 European Union's appellee's submission, para. 217 (quoting United States' other appellant's
submission, paras. 26, 34, 36, 40, 42, 44, 46, 48, 50, 52, and 54 (emphasis added by the European Union))
and paras. 227, 238, and 248.
169 European Union's appellee's submission, para. 217 (quoting United States' other appellant's
submission, paras. 34 and 36) and paras. 227, 238, and 248.
170 Namely, Article 9.1 of the French A350XWB Protocole (Panel Exhibit EU-(Article 13)-03 (BCI)), [BCI]
of the German KfW A350XWB Loan Agreement (Panel Exhibit EU-(Article 13)-14-ENG (BCI)), Clause 11 of the
Spanish A350XWB Convenio (Panel Exhibit EU-(Article 13)-29 (BCI)), and Section 21.14 of the UK A350XWB
Repayable Investment Agreement (Panel Exhibit EU-(Article 13)-30 (BCI)).
171 European Union's appellee's submission, para. 217 (referring to United States' other appellant's
submission, paras. 35, 37, 41, 43, 45, 47, 49, 51, 53, and 55) and paras. 227, 238, and 248.
172 European Union's appellee's submission, paras. 114-144.
173 European Union's appellee's submission, paras. 116-117.

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The European Union adds that the United States has failed to provide arguments in support of any
"specific allegations of errors "174 and improperly seeks to litigate a new case before the
Appellate Body, in that it asserts the existence of an express requirement to "use" domestic over
imported goods on the basis of the terms of the French, German, Spanish , and UK A350XWB
LA/MSF contracts, and in particular by reference to the [BCI] clauses in those contracts.175 We
address each of these claims in turn below.
5.37. According to Article 17.6 of the DSU, appellate review centres on "issues of law covered in
the panel report and legal interpretations developed by the panel". In turn, Article 17.12 of the
DSU calls upon the Appellate Body to "address each of the issues raised" on appeal in accordance
with Article 17.6. In exercising its mandate, the Appellate Body may thus be called upon to review
any aspect of a panel's legal analysis. Moreover, according to Article 3.2 of the DSU , the dispute
settlement system "is a central element in providing security and predictability to the multilateral
trading system", and "serves to preserve the rights and obligations of Members under the covered
agreements" and " to clarify the existing provisions of those agreements in accordance with
customary rules of interpretation of public international law ".176 Article 3.7 further states that
"{t}he aim of the dispute settlement mechanism is to sec ure a positive solution to a dispute ."
Therefore, the Appellate Body's review of issues of law covered in a panel report and legal
interpretations developed by a panel should be seen as part of its duty under Article 17.12 of the
DSU to "address each of the issues raised "177, which, as provided for under Article s 3.2 and 3.7,
may require it to "clarify the existing provisions" of the covered agreements with a view to
securing a "positive solution to a dispute" between the parties and ensuring the "security and
predictability" of the multilateral trading system. The Appellate Body has noted that s uch
"{c}larification, as envisaged in Article 3.2 of the DSU, elucidates the scope and meaning of the
provisions of the covered agreements" and that "the relevance of clarification contained in adopted
Appellate Body reports is not limited to the application of a particular provision in a
specific case."178
5.38. The European Union does not contest that the Panel's interpretation and applicati on of
Article 3.1(b) constitute issue s of law that the Appellate Body must address if properly raised;
rather, it submits that the United States has failed to "appeal" an issue of law or a legal
interpretation, because it did not raise a specific allegation of error before the Appellate Body
regarding the manner in which the Panel in this dispute interpreted and applied Article 3.1(b).
In the European Union's view, the United States "agrees with the interpretation of Article 3.1(b)
set out in the Panel Report" and, on appeal, "m erely asserts that Article 3.1(b) 'can be given a
different reading'", without explaining what the Panel's legal error is.179
5.39. We begin by considering the nature of the United States' appeal. In its Notice of
Other Appeal, the United States frames its appeal as follows:
The United States seeks review by the Appellate Body of the Panel 's finding that the
United States failed to establish that the French, German, Spanish, and UK LA/MSF
subsidies for Airbus 's A350 XWB constituted prohibited import substitution s ubsidies,
within the meaning of Article 3.1(b) of the Agreement on Subsidies and Countervailing

174 European Union's appellee's submission, paras. 145-147.
175 European Union's appellee's submission, paras. 148-183.
176 Article 3.2 also provides that "{r}ecommendations and rulings of the DSB cannot add to or diminish
the rights and obligations provided in the covered agreements."
177 Therefore, while Article 17.13 clarifies that the Appellate Body "may uphold, modify or reverse the
legal findings and conclusions of the panel", Article 17.12 confirms that the Appellate Body's mandate in
addressing a panel's "legal findings and conclusions" on appeal is not limited to these actions. For instance, in
US – Carbon Steel (India), India argued that "the United States' request for the Appellate Body to clarify the
meaning of Article 1.1(a)(1) of the SCM Agreement should be rejected because, in seeking such a clarification,
the United States {was} not challenging 'issues of law covered in the panel report and legal interpretations
developed by the panel'." (Appellate Body Report, US – Carbon Steel (India), para. 4.13) Based on its analysis,
the Appellate Body found, however, that the United States' "request for clarification" fell within the ambit of
that appeal, and the Appellate Body was therefore required to adjudicate it. (Ibid., para. 4.15) See also
Appellate Body Reports, China – HP-SSST (Japan) / China – HP-SSST (EU), para. 5.310.
178 Appellate Body Report, US – Stainless Steel (Mexico), para. 161.
179 European Union's appellee's submission, para. 120 (quoting United States' other appellant's
submission, para. 21). (emphasis original)

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Measures ("SCM Agreement"). While the United States agrees with the Panel' s
interpretation of Article 3.1(b), a competing interpretation is under consideration in
another dispute, US – Conditional Tax Incentives for Large Civil Aircraft (DS487). If the
Appellate Body were to determine that this competing interpretation of Article 3.1(b) is
correct, then the Panel here erred in its interpretation and application o f Article 3.1(b)
and its finding that the French, German, Spanish, and UK LA/MSF for the A350 XWB do
not constitute import substitution subsidies prohibited by Article 3.1(b).180
5.40. In its other appellant's submission, the United States further clarifies the meaning and
content of its Notice of Other Appeal and the nature of its claims of error. It explains that, "to the
extent that the Appellate Body considers that {another} interpretation of Article 3.1(b) is correct,
and the Panel's i nterpretation of that provision is incorrect", the Panel "erred in finding that the
French, German, Spanish, and UK LA/MSF for the A350 XWB do not constitute import substitution
subsidies prohibited by Article 3.1(b)".181 In this regard, the United States notes that the Panel
found that "subsidies conditioned on the domestic production of inputs to be used in the
manufacture of the A350 XWB are not prohibited under Article 3.1(b)".182 The United States
observes, however, that "Article 3.1(b) can be given a diff erent reading", that it advocated this
reading before the Panel in the present dispute, and that the panel in US – Tax Incentives agreed
with this other reading of Article 3.1(b).183 The United States underscores that this other reading
of Article 3.1(b) may not be "the best interpretation " of this provision , but emphasizes that it
"has an interest in ensuring that the same legal approach is applied" in this case and
in US ‒ Tax Incentives.184
5.41. As we see it, the United States contends that, depending on our reading of Article 3.1(b) of
the SCM Agreement, the Panel erred in its application of Article 3.1(b) to the facts of the present
case, and in particular in finding that the relevant A350 XWB LA/MSF do not constitute import
substitution subsidies prohib ited by Article 3.1(b).185 Specifically, in its other appellant's
submission, the United States describes the approach of the Panel in the present case186, and sets
out the elements of what it considers to constitute a different interpretation, including by reference
to its arguments before the Panel .187 Based on our reading of the United States' Notice of Other
Appeal together with its other appellant's submission, and as clarified by the United States at the
oral hearing, we understand the United States' request to be that, if we consider the Panel to have
erred in its interpretation of Article 3.1(b), we review the Panel's application of this provision, and
in particular its finding that the United States has not established that the French, German,
Spanish, and UK A350XWB LA/MSF contracts are inconsistent with Article 3.1(b).188 Therefore, in
our view, in its appeal, the United States has identified "issues of law covered in the panel report
and legal interpretations developed by the panel", within the meanin g of Article 17.6 of the DSU,
with regard to the Panel's interpretation and application of Article 3.1(b) of the SCM Agreement.
5.42. We also consider that the United States has "alleged e rrors" and identified
"specific allegations of errors" within the meaning of Rules 21(2)(b)(i), 23(2)(c)(ii)(A), and 23(3)
of the Working Procedures with regard to the Panel's interpretation and application of

180 United States' Notice of Other Appeal, para. 1. (fn omitted)
181 United States' other appellant's submission, para. 23. (emphasis added)
182 United States' other appellant's submission, para. 20 (referring to Panel Report, para. 6.790).
183 United States' other appellant's submission, paras. 20-21.
184 United States' other appellant's submission, para. 22.
185 United States' other appellant's submission, para. 23.
186 United States' other appellant's submission, paras. 19-20 and 27.
187 United States' other appellant's submission, paras. 21, 25, and 28.
188 United States' other appellant's submission, paras. 23, 26, and 29. The United States further
requests that we complete the legal analysis and find that the four A350XWB LA/MSF contracts at issue are
inconsistent with Article 3.1(b).

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Article 3.1(b).189 In particular, in its Notice of Other Appeal and other appellant's submission, the
United States alleges an error in the Panel's application of Article 3.1(b), conditional upon the
existence of an error in the Panel's interpretation of this provision. We are therefore called upon to
review and clarify the proper meaning of Article 3.1(b), and, if we find th at the Panel erred, to
examine whether we are in a position to complete the legal analysis and rule on the conformity of
the measures at issue with this provision.
5.43. The European Union also argues that the United States' appeal is based on a "hypothetical"
situation that does not arise in the present dispute. 190 According to the European Union,
"{c}onsiderations relating to {US – Tax Incentives} cannot serve as a basis for appellate review,
in these proceedings, of interpretative findings allegedly under consideration by a different panel in
a different dispute, and cannot serve as a surrogate for a valid allegation of error by the Panel in
this dispute."191 However, contrary to what the European Union argues, the United States is not
simply asking us "to address an interpretive position " because of the asserted relevance of this
position to the dispute in US – Tax Incentives.192 Instead, while the United States refers to the
interpretation of Article 3.1(b) developed by the panel in that dispute, it requests that we review
the interpretation of this provision developed by the Panel in this dispute. As observed, if we find
that the Panel erred in its interpretation of Article 3.1(b), then the United States considers that we
should reverse the Panel's findings applying Article 3.1(b) to the measures at issue and complete
the legal analysis.193 We therefore disagree with the European Union to the extent that it claims
that the United States' request to review the interpretation and application of Article 3.1(b)
adopted by the Panel in the present dispute constitutes a "hypothetical" situation.
5.44. Insofar as the United States has appealed an issue of law covered in this Panel Report, or a
legal interpretation of the Panel in this case, the fact that a similar interpretative issue may have
arisen in the context of another dispute is not relevant for the admissibility of the present appeal.
In fact, there is nothing exceptional about participants referring to legal interpretations developed
in other panel and Appellate Body reports in support of their arguments on appeal.
5.45. The European Union further asserts that the United States' other appellant's submission fails
to provide "legal arguments" in support of the "specific allegations of errors" as required by the
Working Procedures, insofar as it "offers no explanation of how the (alleged) two interpretations
(allegedly) 'compete', using the customary rules of interpretation of public international law found
in the Vienna Convention on the Law of Treaties ".194 In the European Union's view, this is because
"there are no 'competing interpretations' in the sense alleged by the United States."195
5.46. We consider that, in its other appellant's submission, the United States adequately provides
legal arguments in support of its request for us to review the Panel's interpretation and application
of Article 3.1(b). While referring to the interpretation and reasoning developed by the panel in
US – Tax Incentives, the United States has included and further developed legal argumentatio n on
that basis in its submission filed in this appeal. More specifically, the United States sets out, albeit
briefly, a reading of Article 3.1(b) that would arguably lead to a finding of inconsistency under this

189 We recall that, pursuant to Rule 23(2)(c)(ii)(A) of the Working Procedures, a Notice of Other Appeal
shall include "a brief statement of the nature of the other appeal, including … identification of the alleged errors
in the issues of law covered in the panel report and legal interpretations developed by the panel". In turn,
pursuant to Rules 21(2)(b)(i) and 23(3), an other appellant's submission shall set out "a precise statement of
the grounds for the appeal, including the specific allegations of errors in the issues of law covered in the panel
report and legal interpretations developed by the panel, and the legal arguments in support thereof".
The Working Procedures therefore contemplate that a Notice of Other Appeal will identify "alleged errors",
and that an other appellant's submission will set out "specific allegations of errors" with regard to a panel's
interpretation and/or application of the covered agreements.
190 European Union's appellee's submission, para. 121 (referring to Appellate Body Reports, US – COOL
191 European Union's appellee's submission, para. 125. (emphasis original)
192 European Union's appellee's submission, para. 130.
193 United States' other appellant's submission, para. 23.
194 European Union's appellee's submission, paras. 145-146 (referring to Rules 21(2)(b)(i) and 23(3) of
the Working Procedures). (emphasis original)
195 European Union's appellee's submission, para. 146.

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provision in the present case. 196 The United States also contrasts this with the approach taken by
the Panel197, and concludes:
This raises a threshold interpretive question that the Appellate Body has yet to
consider. Where a subsidy is contingent not only on the production of a finished good,
but is also contingent on the production, in th e grantor' s territory, of intermediate
goods for use as inputs (or goods used to produce other goods, i.e., instrumentalities
of production) – which are then presumed to be "domestic" – in manufacturing the
downstream good, is the subsidy in breach of Article 3.1(b)?198
5.47. Notwithstanding the terminology used by the United States, the question before us is not
whether the interpretation of Article 3.1(b) by the Panel in the present dispute is different from the
interpretation of this provision by the panel in US – Tax Incentives. Rather, we are called upon to
examine whether the Panel here erred in its interpretation and application of Article 3.1(b).
Consistent with the principle jura novit curia, it was not the responsibility of the United States to
provide us with the "correct" legal interpretation of Article 3.1(b)199, nor does the United States'
appeal of the Panel's interpretation of Article 3.1(b) fall outside the scope of appellate review
merely because the United States has expressed an opinion as to a "preferred" interpretation.
5.48. We see in the United States' request and in its stated "interest in ensuring that the same
legal approach is applied in this proceeding and in { US – Tax Incentives }"200 a reflection of
Article 3.2 of the DSU, which provides that the dispute settlement system of the WTO is a central
element in providing security and predictability to the multilateral trading syst em, and that i t
serves to preserve the rights and obligations of Members under the covered agreements, as well
as to clarify the existing provisions of those agreements in accordance with customary rules of
interpretation of public international law.
5.49. Regarding the admissibility of the United States' appeal, the European Union also submits
that the United States improperly "seeks to litigate a fundamentally different case" on appeal than
the one it did before the Panel201 by basing its appeal "on factual assertions about the content and
meaning of specific provisions of the A350XWB LA/MSF contracts never referred to by the
United States when laying out it{s} case to the compliance Panel ".202 The European Union
underscores in this regard that, while the four A350XWB LA/MSF contracts form part of the Panel
record, "the meaning in municipal law that the United States accords to" the [BCI] clauses was
not argued before the Panel, and that a proper determination as to the meaning of those clauses
would require us "to entertain complex new factual arguments ", including arguments that we
would need "to solicit, receive and review from the European Union".203
5.50. In previous disputes, the Appellate Body has considered that "new arguments are not per se
excluded from the scope o f appellate review, simply because they are new ."204 At the same time ,
the ability of the Appellate Body to consider new arguments is circumscribed by its mandate under
Article 17.6 of the DSU to address " issues of law covered in the panel report and legal
interpretations developed by the panel".205 Thus, the Appellate Body has found that it would not be
able to consider new arguments if such arguments required it "to solicit, receive and review new
facts", or if a new argument did "not involve either an 'issue of law covered in the panel report' or

196 United States' other appellant's submission, paras. 25-26.
197 United States' other appellant's submission, para. 27.
198 United States' other appellant's submission, para. 28.
199 See Appellate Body Report, EC – Tariff Preferences, para. 105.
200 United States' other appellant's submission, para. 22.
201 European Union's appellee's submission, para. 168.
202 European Union's appellee's submission, para. 172. (emphasis original)
203 European Union's appellee's submission, paras. 181-182. (emphasis original) We recall that the
[BCI] clauses on which the United States relies are Article 9.1 of the French A350XWB Protocole (Panel Exhibit
EU-(Article 13)-03 (BCI)), [BCI] of the KfW A350XWB Loan Agreement (Panel Exhibit EU-(Article 13)-14-ENG
(BCI)), Clause 11 of the Spanish LA/MSF Convenio (Panel Exhibit EU-(Article 13)-29 (BCI)), and Article 21.14
of the UK A350XWB Repayable Investment Agreement (Panel Exhibit EU-(Article 13)-30 (BCI)).
204 See e.g. Appellate Body Report, Canada – Aircraft, para. 211.
205 Appellate Body Reports, Canada – Aircraft, para. 211; US – FSC, paras. 102-103.

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'legal interpretations developed by the panel'". 206 As we see it, the United States' argument on
appeal is not new in the sense that it involves an issue of law th at was not covered in the
Panel Report.207 However, we understand the European Union to argue that, to the extent that the
United States relies, only on appeal, on certain clauses in the French, German, Spanish,
and UK A350XWB LA/MSF contracts to establish the existence of an inconsistency under
Article 3.1(b), its claim falls outside the scope of appellate review under Article 17.6 of the DSU.
5.51. We recall in this regard that we have no authority to solicit, receive, and review new facts
that were not before the Panel and were not considered by it .208 The Appellate Body can review a
Member's municipal law on its face "to determine whether the legal characterization by the panel
was in error" 209, focusing on its text, the context of the provision , and the "overall structure and
logic"210 of the municipal law. 211 However, in instances where a panel's assessment of municipal
law goes "beyond the text of an instrument on its face" and "further examination may be required
{which} may involve factual elements", the Appellate Body will not lightly interfere on appeal with
a panel's finding.212
5.52. The [BCI] clauses are part of the French, German, Spanish, and UK A350XWB LA/MSF
contracts and are therefore part of the Panel record. We note, however, that the meaning of those
clauses and how they would operate were not examined by t he Panel in any detail. Therefore, to
the extent that the proper construction of the [BCI] clauses and their operation in practice under
the municipal laws of the four member States would require us to go beyond the text of those
clauses and may involve the examination of factual elements, the analysis of those clauses would ,
as we see it, extend beyond our mandate under Article 17.6 of the DSU and may prejudice the due
process rights of the European Union.213 The absence of Panel findings and further exploration by
the Panel concerning the meaning of the [BCI] clauses may well have a bearing on our ability to
complete the legal analysis, in the event that we reverse the Panel's findings under Article 3.1(b)
of the SCM Agreement. However, the absence of such factual findings does not preclude us from
examining the United States' arguments regarding the Panel's articulation of the legal standard
under Article 3.1(b), and whether, by reason of this legal stan dard, the Panel erred in finding that
the A350 XWB LA/MSF subsidies do not constitute import substitution subsidies prohibited by
Article 3.1(b).
5.53. In light of the foregoing, we find that the United States' appeal under Article 3.1(b) of the
SCM Agreement falls within the scope of appellate review under Article 17.6 of the DSU, and is
properly before us. We therefore proceed to examine the merits of the United States' appeal
regarding the Panel's interpretation and application of Article 3.1(b) of the SCM Agreement.

206 Appellate Body Report, US – FSC, paras. 102-103. Similarly, in US – COOL (Article 21.5 ‒ Canada
and Mexico), the Appellate Body observed that it could not consider a new argument on appeal, if that would
have required it "to address legal issues quite different from those which confronted the {p}anel and which
may well {have} require{d} proof of new facts". (Appellate Body Reports, US – COOL (Article 21.5 – Canada
207 The United States argued before the Panel that "all four A350XWB LA/MSF contracts are conditioned
on Airbus producing specific Airbus LCA components in the relevant member States' territories", that "{t}hose
components, therefore, become domestic goods of the relevant member States, and are then used in
downstream Airbus LCA production activity" and, "therefore, that the contracts 'effectively require{} Airbus to
source a large part of its components' from domestic sources." (Panel Report, para. 6.748 (quoting
United States' first written submission to the Panel, para. 239; referring to second written submission to the
Panel, paras. 338-355)) On appeal, the United States argues that "there is no question that, in manufacturing
finished A350 XWBs", Airbus must use the [BCI]. (United States' other appellant's submission, paras. 34, 36,
40, 42, 44, 46, 48, 50, 52, 54, 59, 63, and 68)
208 Appellate Body Report, Canada – Aircraft, para. 211. See also Appellate Body Report, EC – Export
Subsidies on Sugar, paras. 240-242.
209 Appellate Body Report, US – Countervailing and Anti-Dumping Measures (China), para. 4.99 (quoting
Appellate Body Reports, China – Auto Parts, para. 225).
210 Appellate Body Reports, China – Auto Parts, para. 238.
211 Appellate Body Reports, China – Auto Parts, paras. 225-245; China – Publications and Audiovisual
Products, para. 177.
212 Appellate Body Reports, US – Countervailing and Anti-Dumping Measures (China), para. 4.99;
China – Auto Parts, para. 225.
213 Appellate Body Report, US – Offset Act (Byrd Amendment), para. 222. See also Appellate Body
Report, Chile – Price Band System (Article 21.5 – Argentina), paras. 13-15.

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5.2.4 The legal standard under Article 3.1(b) of the SCM Agreement
5.54. Article 3.1(b) of the SCM Agreement reads:
Except as provided in the Agreement on Agriculture, the following subsidies, within
the meaning of Article 1, shall be prohibited:
…
(b) subsidies contingent, whether solely or as one of several other conditions, upon
the use of domestic over imported goods.
Article 3.2 adds that "{a} Member shall neither grant nor maintain subsidies referred to in
paragraph 1."
5.55. The SCM Agreement distinguishes between two categories of subsidies: prohibited subsidies
(Part II of the Agreement ); and actionable subsidies (Part III of the Agreement ). The granting of
subsidies is not, in and of itself, prohibited under the SCM Agreement; nor does the granting of
subsidies constitute, without more, an inc onsistency with that Agreement. 214 Only subsidies
contingent upon export performance within the meaning of Article 3.1(a) (commonly referred to as
export subsidies), or contingent upon the use of domestic over imported goods within the meaning
of Article 3.1(b) (commonly referred to as import substitution subsidies), are prohibited per se
under Article 3 of the SCM Agreement.215 In any event, subsidies, if specific, are disciplined under
Part III of the SCM Agreement, but a complaining Member must demonstrate the existence of
adverse effects under Article 5 of that Agreement.
5.56. Article 3.1(b) of the SCM Agreement prohibits subsidies the granting of which is
"contingent … upon the use of domestic over imported goods". The Appellate Body has found that
the legal standard for establishing the existence of "contingency" under Article 3.1(b) is the same
as under Article 3.1(a) of the SCM Agreement.216 Since the ordinary meaning of "contingent" is
"conditional" or "dependent for its existence on something else", a subsidy would be prohibited
under Article 3.1(b) if it is "conditional" or "dependent for its existence on" the use of domestic
over imported goods.217 Therefore, a subsidy would be "contingent" upon the use of domestic over
imported goods where the use of those goods is a condition, in the sense of a requirement 218,
for receiving the subsidy.219
5.57. The Appellate Body in US – Tax Incentives noted that the term "use" in Article 3.1(b) refers
to the action of using or employing something 220 and "may, depending on the particular
circumstances, refer to consuming a good in the process of manufacturing, but may also refer to,
for instance, incorporating a component into a separate good, or serving as a tool in the

214 See Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil), para. 47.
215 In accordance with Article 2.3 of the SCM Agreement, any subsidy falling under the provisions of
Article 3 shall be deemed to be "specific". A complaining Member that is able to prove the existence of such a
prohibited subsidy need not demonstrate that the subsidy also causes adverse effects to the interests of other
Members within the meaning of Articles 5 and 6 of the SCM Agreement.
216 Appellate Body Report, Canada – Autos, para. 123.
217 Appellate Body Report, Canada – Autos, para. 123 (referring to Appellate Body Report,
Canada ‒ Aircraft, para. 166).
218 For instance, the Appellate Body observed in Canada – Autos that the measure at issue in that case
would be inconsistent with Article 3.1(b) if "the use of domestic goods {was} a necessity and thus {} required
as a condition for eligibility" under the measure. (Appellate Body Report, Canada – Autos, para. 130 (emphasis
original))
219 Appellate Body Report, Canada – Autos, para. 126. The link between "contingency" and
"conditionality" is also borne out by the text of Article 3.1(b), which states that import substitution contingency
can be the sole or "one of several other conditions". (Appellate Body Report, Canada – Aircraft, para. 166
(emphasis added by the Appellate Body)) As with Article 3.1(a), this "relationship of conditionality or
dependence" lies at the "very heart" of the legal standard in Article 3.1(b) of the SCM Agreement.
(Appellate Body Reports, Canada – Aircraft, para. 171; Canada – Aircraft (Article 21.5 – Brazil), para. 47)
220 Appellate Body Report, US – Carbon Steel (India), para. 4.374 and fn 1009 thereto (referring to
Shorter Oxford English Dictionary, 6th edn, A. Stevenson (ed.) (Oxford University Press, 2007), Vol. 2,
p. 3484).

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production of a good ."221 The Appellate Body also noted that the term "goods" in Article 3.1(b) is
qualified by the adjectives "domestic" and "imported", which implies that the "goods" concerned
should be at least potentially tra dable.222 Finally, the term "over" expresses a preference between
two things and, in the context of the phrase "contingent … upon the use of domestic over imported
goods", refers to the use of domestic goods in preference to, or instead of, imported goods.223
5.58. The term "contingency" under Article 3.1(b) covers contingency both in law and in fact, but
the legal standard expressed by the term "contingent" is the same for de jure and de facto
contingency.224 A subsidy will be de jure contingent upon the use of domestic over imported goods
"when the existence of that condition can be demonstrated on the basis of the very words of the
relevant legislation, regulation or other legal instrument consti tuting the measure", or can
"be derived by necessary implication f rom the words actually used in the measure".225
The Appellate Body has observed that proving de facto contingency "is a much more difficult
task".226 The existence of de facto contingency "must be inferred from the total configuration of
the facts constituting and surrounding the granting of the subsidy , none of which on its own is
likely to be decisive in any given case ".227 Factors that may be relevant in this regard include the
design and structure of the measure granting the subsidy , the modalities of operati on set o ut in
such a measure, and 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.228 While these factors have been relied upon in addressing de facto contingency under
Article 3.1(a), the Appellate Body considered in US – Tax Incentives that they are also relevant to
a de facto contingency analysis under Article 3.1(b).
5.59. Where an analysis of contingency does not yield a finding of inconsistency under
Article 3.1(b) on the basis of the words actually used in the measure, or any necessary implication
therefrom, the existence of a requirement to use domestic over imported goods may still be found
on the basis of the above-mentioned factors and factual circumstances that form part of the total
configuration of the facts constituting and surrounding the granting of the subsidy. 229
The Appellate Body in US – Tax Incentives noted that the analysis of de jure and de facto
contingency under Article 3.1(b), in light of the above -mentioned factors and circumstances,
should be understood as a continuum, and a panel should conduct a holistic assessment of all
relevant elements and evidence on record.230
5.60. Accordingly, Article 3.1(b) prohibits those subsidies that are de jure or de facto contingent
such that they require the use of domestic goods in preference to, or instead of, imported goods
as a condition for receiving the subsidy. While the distinction between de jure and de facto
contingency lies in the "evidence {that} may be employed to prove" that a subsidy is contingent
upon the use of domestic over imported goods 231, in both its de jure and de facto analyses,
a panel assesses the consistency of the granting of a subsidy under Article 3.1(b) with the same
obligation and against a single legal standard of contingency . In each case, an assessment of
whether a subsidy is contingent within the meaning of Article 3.1(b) requires a thorough analysis

221 Appellate Body Report, US – Tax Incentives, para. 5.8.
222 Appellate Body Report, US – Tax Incentives, para. 5.9. This term may refer to any type of good that
may be used by the subsidy recipient, including parts or components that are incorporated into another good,
materials or substances that are consumed in the production process of another good, or tools or instruments
that are used in the production process. (Ibid.)
223 Appellate Body Report, US – Tax Incentives, para. 5.11.
225 Appellate Body Report, Canada – Autos, paras. 100 and 123.
226 Appellate Body Report, Canada – Aircraft, para. 167.
227 Appellate Body Report, Canada – Aircraft, para. 167. (emphasis original)
228 Appellate Body Report, US – Tax Incentives, para. 5.12 (referring to Appellate Body Report,
EC and certain member States – Large Civil Aircraft, para. 1046).
229 Appellate Body Report, US – Tax Incentives, para. 5.13. In that report, the Appellate Body
mentioned that, for instance, factual circumstances potentially relevant to an assessment of whether a subsidy
is de facto contingent may include the existence of a multi-stage production process, the level of specialization
of the subsidized inputs, or the level of integration of the production chain in the relevant industry. (Ibid., fn 49
to para. 5.13)
230 Appellate Body Report, US – Tax Incentives, para. 5.13.
231 Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil), fn 46 to para. 47 (quoting
Appellate Body Report, Canada – Aircraft, para. 167).

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of whether the conditional relationship between the granting of the subsidy and the use of
domestic over imported goods is objectively observable on the basis of a careful and rigorous
scrutiny of all the relevant evidence. This is especially important when the alleged c ontingency is
not clearly expressed in the language used in the relevant legal instrument.232
5.61. The Appellate Body in US – Tax Incentives further observed that, insofar as, b y its terms,
Article 3.1(b) does not prohibit the subsidization of domestic "producti on" per se, but rather the
granting of subsidies contingent upon the use of domestic over imported goods, s ubsidies that
relate to domestic production are not, for that reason alone, prohibited under Article 3 of the
SCM Agreement.233 In particular, such sub sidies can ordinarily be expected to increase the supply
of the subsidized domestic goods in the relevant market, thereby increasing the use of these
goods downstream and adversely affecting imports, without necessarily requiring the use of
domestic over imported goods as a condition for granting the subsidy.234
5.62. With regard to the relevance of Article III:8(b) of the GATT 1994, we note that this
provision exempts from the national treatment obligation in Article III "the payment of subsidies
exclusively to d omestic producers" , and thus makes clear that the provision of subsidies to
domestic producers only, and not to foreign producers, does not in itself constitute a breach of
Article III.235 The Appellate Body in US – Tax Incentives observed that, while Article III:8(b) of the
GATT 1994 comports with a reading of Article 3.1(b) of the SCM Agreement under which
something more than mere subsidization of domestic production is required for finding an import
substitution subsidy, a subsidy exempt from the Article III national treatment obligation by virtue
of it being paid exclusively to domestic producers within the meaning of Article III:8(b) of the
GATT 1994 may still be found to be contingent upon the use by those producers of domestic over
imported goods under Article 3.1(b) of the SCM Agreement.236
5.63. In light of the above, t o the extent that no conditionality requiring the use of domestic over
imported goods can be determined, but the effect of the subsidy is to displace or impede ,
or otherwise cause adverse effects to imports, those effects are disciplined under Part III of the
SCM Agreement. In other words, the relevant question in determining the existence of contingency
under Article 3.1(b) is not whether the eligibility requirements under a subsidy may result in the
use o f more domestic and fewer imported goods. Rather, the question is whether
a condition requiring the use of domestic over imported goods can be discerned from the terms of
the measure itself, or inferred from its design, structure, modali ties of operation, and the relevant
factual circumstances constituting and surrounding the granting of the subsidy that provide
context for understanding the operation of these factors.237
5.2.5 The United States' claim on appeal
5.64. In the interpretation section of its Report, the Panel summarized the jurisprudence of the
Appellate Body under Article 3.1(b) of the SCM Agreement.238 In particular, t he Panel noted the
Appellate Body's findings that " Article 3.1(b)'s scope covers both de jure and de facto
contingency"239 and "an evaluation of de facto contingency under Article 3.1(b) should be
objectively assessed with respect to the total configuration of facts constituting and surround ing
the granting of the subsidy ".240 The Panel further developed its understanding of Article 3.1(b) in
applying this legal standard to the measures at issue in this dispute .241 We proceed by reviewing
the Panel's interpretation in light of our own understanding of the proper interpretation of
Article 3.1(b) as set out above.

232 Appellate Body Report, US – Tax Incentives, para. 5.14.
233 Appellate Body Report, US – Tax Incentives, para. 5.15. (referring to Appellate Body Report,
234 Appellate Body Report, US – Tax Incentives, para. 5.15.
235 See Appellate Body Report, US – Tax Incentives, para. 5.16.
236 Appellate Body Report, US – Tax Incentives, para. 5.16.
237 Appellate Body Report, US – Tax Incentives, para. 5.18.
238 See Panel Report, paras. 6.777-6.778.
239 Panel Report, para. 6.778 (referring to Appellate Body Report, Canada – Autos, paras. 139-143).
240 Panel Report, para. 6.778.
241 Panel Report, paras. 6.782-6.789.

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5.65. As the Appellate Body noted in US – Tax Incentives, both import substitution subsidies and
other subsidies that relate to domestic production may have detrimental effects in respect of
imported goods. Subsidies contingent upon import substitution, by their nature, adversely affect
competitive conditions of imported goods. Yet, also subsidies that relate to the production of
certain goods in a Member's domestic territory can ordinarily be expected to increase the supply of
the subsidized goods in the relevant market, which wo uld have the consequence of increasing the
use of subsidized domestic goods downstream and adversely affecting imports. In the specific case
of subsidies granted for the production of both an input and a final good, subsidy recipients would
likely both "produce" and "use" the subsidized inputs in the production of the subsidized final good.
Such subsidies would have consequences for the subsidized producers' input -sourcing decisions to
the extent that, h aving been required to produce an input domestically , and for reasons of
production costs and efficiency, they would likely use at least some of these inputs in their
downstream production activities. This is even more so in instances where the subsidized input is
specialized in nature or where vertical int egration between the upstream and downstream stages
of the production chain exists. However, while such subsidies may foster the use of subsidized
domestic goods and result in displacement in respect of imported goods, such effects do not,
in and of themselves, demonstrate the existence of a requirement to use domestic over imported
goods.242 As observed, t he relevant question in determining the existence of contingency under
Article 3.1(b) is not whether conditions for eligibility and access to the subsidy may result in the
use of more domestic and fewer imported goods, but whether the measure reflects a condition
requiring the use of domestic over imported goods.243
5.66. At the same time, we recall that whether a subsidy is contingent upon the use of domestic
over imported goods has to be established on the basis of the total configuration of the facts
constituting and surrounding the granting of the subsidy. 244 In particular, in discerning whether or
not a de facto contingency exists, relevant factual circumstances may form part of the context for
understanding the measure's design, structure, and modalities of operation in a particular market.
The Appellate Body in US – Tax Incentives noted in this regard that the design and structure of a
measure granting a subsidy may be adapted to factual circumstances – such as a multi-stage
production process where specialized inputs and final goods are subsidized, or where the
production chain is vertically integrated. The modalities of a measure so designed or structured
may then operate such that conditions for eligibility or access to the subsidy may entail a condition
requiring the use of domestic over imported goods. 245 Ultimately, whether a su bsidy is simply
conditional upon the domestic production of certain goods, or upon the use by the subsidy
recipient of domestic over imported goods , should be assessed on a case -by-case basis. 246
We consider these observations made in US – Tax Incentives also useful for our review of the
Panel's analysis under Article 3.1(b) in this appeal.
5.67. In the present case, the Panel began its analysis by addressing the European Union's
assertion that "a proper understanding of Article 3.1(b)'s disciplines should be form ulated in light
of an examination of Article III and, more specifically, Article III:8(b) of the GATT 1994."247
The Panel found Article III:8(b) to confirm that, "without more, the mere payment of subsidies to
firms so long as they engage in domestic product ion activities should not be interpreted as
imparting to such subsidies a discriminatory element as among domestic and foreign goods in a
manner that Article III may discipline ."248 The Panel considered this to suggest that "the act of
granting subsidies to firms so long as they engage in domestic production activities, without more,
should not be equated to making those subsidies contingent on the use of domestic over imported
goods and hence prohibited."249
5.68. As observed above, Article III:8(b) of the GATT 1994 comports with a reading of
Article 3.1(b) of the SCM Agreement under which something more than mere subsidization of
domestic production is required for finding the existence of an import substitution subsidy. That

242 Appellate Body Report, US – Tax Incentives, para. 5.49.
243 Appellate Body Report, US – Tax Incentives, para. 5.18.
244 Appellate Body Report, Canada – Aircraft, para. 167.
245 Appellate Body Report, US – Tax Incentives, para. 5.50.
246 Appellate Body Report, US – Tax Incentives, para. 5.50.
247 Panel Report, para. 6.783.
248 Panel Report, para. 6.785.

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said, a subsidy exempt from the Article III national treatment obligation by virtue of it being paid
exclusively to domestic producers within the meaning of Article III:8(b) of the GATT 1994 may still
be found to be contingent upon the use by those producers of domestic over imported goods under
Article 3.1(b) of the SCM Agreement.250 Thus, we do not disagree with the Panel's statement that
"the act of granting subsidies to firms so long as they engage in domestic production activities,
without more, should not be equated t o making those subsidies contingent on the use of domestic
over imported goods and hence prohibited ."251 However, we do not see that this statement
addresses the specific question of the circumstances under which domestic production subsidies
may be found to be contingent upon the use of domestic over imported goods.
5.69. The Panel then distinguished subsidies found to be prohibited under Article 3.1(b) in
previous cases from those domestic subsidies requiring the production of certain goods on
domestic territory.252 In particular, the Panel observed that prohibited import substitution subsidies
would be those that "contain{} elements requiring firms to use certain amounts of domestic goods
as production inputs, i.e. to discriminate between upstream sources of domest ic and imported
goods in favour of the former ."253 By contrast, "providing subsidies to firms only so long as they
engage in domestic production activity can and will many times have an effect occurring
downstream from the mandated domestic production activity, i.e. increased consumption of
domestic goods due to quantitative and/or qualitative enhancements to the goods produced
pursuant to the mandated domestic production activities."254 In the Panel's view, while these latter
subsidies could limit competitive opportunities for relevant imported goods in certain markets,
Part III, and not Part II, of the SCM Agreement is concerned with such event chains.255
5.70. We see no error in the Panel's reading of Article 3.1(b) in thi s context . To begin with,
the Panel rightly reasoned that a subsidy conditioning eligibility on the production of a certain good
on domestic territory is not per se inconsistent with Article 3.1(b). As we have noted, while
subsidies that relate to the prod uction of certain goods in a Member's territory may foster the use
of subsidized domestic goods and result in displacement in respect of imported goods, such effects
do not, in and of themselves, demonstrate the existence of a requirement to use domestic over
imported goods. The Panel similarly observed that the fact "that a subsidy in fact results in the use
of domestic over imported goods cannot by itself demonstrate that that subsidy is contingent on
the use of domestic over imported goods, whether in la w or in fact ."256 We also agree with the
Panel that basing the legal standard under Article 3.1(b) on the market effects of a subsidy would
result in "significantly blurring – and with respect to at least certain subsidies, potentially erasing –
the line between the disciplines of Part II of the SCM Agreement and the effects-based disciplines
on actionable subsidies contained in Part III of the SCM Agreement".257 As we have observed,
to the extent that no conditionality on the use of domestic over imported goods can be
established, but the effects of the subsidy are to displace or impede, or otherwise cause adverse
effects to imports, those effects are disciplined under Part III of the SCM Agreement.258
5.71. With regard to the legal standard under Article 3.1(b), the Panel stated that the phrase
"contingent … upon the use of domestic over imported goods" refers to those subsidies that
"contain{} elements requirin g firms to use certain amounts of domestic goods as production
inputs" and "condition{} the availability of the subsidy on discrimination between upstream
sources of goods". 259 Moreover, the Panel observed that the discipline of Article 3.1(b) is
"narrow and specific, activated by a subsidy that appropriates an entity's judgment by conditioning
{the} receipt {of the subsidy} on that entity discriminating among inputs with respect to their
domestic or imported nature, whether in law or in fact." 260 The Panel also correctly noted that the
mere fact that the French, German, Spanish, and UK A350XWB LA/MSF contracts may " affect the

250 Appellate Body Report, US – Tax Incentives, para. 5.16.
252 Panel Report, para. 6.786 (referring to Panel Reports, Indonesia – Autos; US – Upland Cotton;
Appellate Body Report, Canada – Autos, paras. 118-146). (additional text in fn 1418 thereto omitted)
253 Panel Report, para. 6.786. (emphasis original; fn omitted)
254 Panel Report, para. 6.786.
255 Panel Report, paras. 6.786 and 6.788.
256 Panel Report, fn 1422 to para. 6.788. (emphasis original)
257 Panel Report, para. 6.787.
258 See Appellate Body Report, US – Tax Incentives, para. 5.18.
259 Panel Report, para. 6.786.

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domestic/import composition of a supply of inputs …, thereby displacing or impeding competitive
opportunities for relevant substitute imported goods", cannot in itself demonstrate the existence of
a requirement, whether express or implicit, to use domestic over imported goods.261 The focus of
the Panel's legal standard under Article 3.1(b) on the need to establish a condition requiring the
use of domestic over imported goods accords with our reading of this provision.
5.72. With regard to the Panel's references to "discrimination", we observe that the
Appellate Body has held that Article 3.1(b) addresses discriminatory conduct. 262 Import
substitution subsidies, by their nature, adversely affect competitive conditions of imported goods
and thereby intrinsically distort the preferences of the subsidy recipient by requiring it to obtain
goods from domestic sources, to the detriment of imports .263 We consider that, in the context of
the phrase "contingent … upon the use of domestic over imported goods", it is the word "over",
linking the words "domestic" and "imported", that captures this inherent discriminatory nature of
import substitution subsidies. Yet, also subsidies that relate to the production of certain goods in a
Member's domestic territory can ordinarily be expected to increase the supply of the subsidized
domestic goods in the relevant market, which would have the consequence of increasing the use of
these subsidized domestic goods downstream, and have discriminatory effects in respect of
imported goods. However, the legal standard under Article 3.1(b) requires establishing the
existence of "contingency", namely, whether the measure granting the subsidy reflects a condition
requiring the use of domestic over imported goods , and not whether the measure may result in
any discriminatory effects to the detriment of imported goods.
5.73. We wish to highlight in this regard the following statement by the Panel:
{R}ather than conditioning the availability of the subsidy on discrimination between
upstream sources of goods, the practice of providing subsidies to firms only so long as
they engage in domestic production activity can and will many times have an effect
occurring downstream from the mandated domestic production activity, i.e. increased
consumption of domestic goods due to quantitative and/or qualitative enhancements
to the goods produced pursuant to the mandated domestic production activities.264
5.74. Since the granting of both subsidies concerning the production of inputs and final goods
domestically and subsidies conditional upon the use of domestic over imported goods may result in
"discriminat{ion} between upstream sources of domestic and imported goods in favour of the
former", we do not consider that the distinction articulated by the Panel between a requirement
under the subsidy relating to upstream sourcing decisions ("conditioning the availability of the
subsidy on discrimination between upstream sources of goods") and effects occurring downstream
resulting from the subsidy ("an effect occurring downstream from the mandated domestic
production activity") is particularly useful in establishing the existence of contingency under
Article 3.1(b).265 However, we understand the Panel to have made this statement as an example
illustrating its understanding of the legal standard under Article 3.1(b), namely, the need to
establish the existence of a condition that requires the use of d omestic over imported goods,
as opposed to relying solely on the existence of displacement effects in respect of imported goods.
Therefore, we do not consider that this statement undermines the Panel's articulation of the legal
standard under Article 3.1(b).
5.75. Referring to the approach tak en by the panel in US – Tax Incentives , the United States
argues that the implication of that approach would be that, "if (i) a subsidy is granted to a
domestic producer conditional on the domestic siting of production activities to produce a domestic
input in an industrial process, and (ii) a substitution of imported goods for these inputs would
result in the producer's loss of the entitlement to the subsidy, then the subsidy is contingent on
the use of domestic over imported goods, and therefore is incons istent with Article 3.1(b)."266
We recall that the Appellate Body reversed the relevant findings appealed by the United States in

261 Panel Report, para. 6.788.
262 See Appellate Body Reports, Canada – Renewable Energy / Canada – Feed-in Tariff Program,
para. 5.5.
263 See Appellate Body Report, US – Tax Incentives, para. 5.49.
265 Panel Report, para. 6.786. (emphasis original; fn omitted)
266 United States' other appellant's submission, para. 25.

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US ‒ Tax Incentives. In so doing, the Appellate Body reasoned that, "{w}hile it is not unusual
that, in order to receive a subsi dy, the recipient is required to meet certain conditions", it was not
entirely clear, in the circumstances of that case, "how the Washington Department of Revenue
would exercise its discretion and whether a loss of the subsidy by the recipient, if these co nditions
are not met, would demonstrate the existence of a requiremen t to use domestic over
imported goods."267
5.76. Indeed, as noted above, subsidies granted for the production of both an input and a final
good may well have consequences for the subsidized produ cers' input-sourcing decisions to the
extent that the producer would likely use at least some of the subsidized inputs in the production
of the subsidized final good .268 However, even if such subsidies are likely to affect adversely
imported inputs, such effects cannot, in and of themselves, establish the existence of a
requirement to use domestic over imported goods within the meaning of Article 3.1(b).
Admittedly, factual circumstances such as the existence of a multi -stage production process, the
level of specialization of the subsidized inputs, or the level of integration of the production chain in
the relevant industry may form part of the context for understanding the design, structure, and
modalities of operation of a measure granting a subsidy in a particular market .269 Ultimately,
however, whether a subsidy is simply conditional upon the domestic production of certain goods,
or upon the use by the subsidy recipient of domestic over imported goods , should be assessed
case by case on the basis of the te rms of the measure at issue, t heir necessary implication,
and other relevant factors and circumstances.270
5.77. In light of our analysis above, we uphold the Panel's interpretation of Article 3.1(b) of
the SCM Agreement.
5.78. We note that the United States' appeal o f the Panel's application of Article 3.1(b) and its
request for us to complete the legal analysis are conditional upon us reversing the Panel's
interpretation of Article 3.1(b).271 Having upheld the Panel's interpretation of Article 3.1(b),
we therefore do n ot need to examine the United States' arguments relating to the Panel's
application of th e legal standard under Article 3.1(b) to the facts of the present case. Nor do we
need to address the United States' arguments concerning its request that we complete the legal
analysis. In any event, we note that the meaning of the [BCI] clauses in the French, German,
Spanish, and UK A350XWB LA/MSF contracts 272 and how they would operate was not discussed
before and examined by the Panel in any detail. Thus, to the extent that the proper construction of
those clauses and their operation in practice under the municipal laws of the four member States
would require us to solicit and review new factual arguments , and in the absence of sufficient
factual findings by the Panel or undisputed facts on the Panel record , any analysis of those clauses
would extend beyond our mandate under Article 17.6 of the DSU and may prejudice the
participants' due process rights.273
5.79. The Panel's finding that the United States' claim u nder Articles 3.1(b) and 3.2 of the
SCM Agreement is unsupported by sufficient evidence therefore stands.274

267 Appellate Body Report, US – Tax Incentives, para. 5.73.
268 Appellate Body Report, US – Tax Incentives, para. 5.49.
269 Appellate Body Report, US – Tax Incentives, paras. 5.48 and 5.50.
270 Appellate Body Report, US – Tax Incentives, para. 5.50.
271 We recall that the United States argues that the Panel erred in its application of Article 3.1(b) of the
SCM Agreement and requests us to reverse the Panel's findings that the French, German, Spanish, and UK
LA/MSF for the A350XWB are not inconsistent with Article 3.1(b) "to the extent that the Appellate Body
considers that … the Panel's interpretation of {Article 3.1(b)} is incorrect". (United States' other appellant's
submission, para. 23 (emphasis added)) Moreover, at the oral hearing, the United States confirmed that what
it is appealing is the interpretation of Article 3.1(b) adopted by the Panel in the present case.
272 The United States raises on appeal the relevance of the so-called [BCI] clauses in the four A350XWB
LA/MSF contracts, arguing that, in light of those clauses, if [BCI], Airbus would [BCI] the A350XWB LA/MSF.
(See e.g. United States' other appellant's submission, para. 35)
273 Appellate Body Report, US – Offset Act (Byrd Amendment), para. 222. See also Appellate Body
Report, Chile – Price Band System (Article 21.5 – Argentina), para. 13.
274 Panel Report, para. 6.790.

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5.2.6 Conclusion
5.80. With respect to the admissibility of the United States' appeal under Article 3.1(b) of the
SCM Agreement raised by the European Union, we find that the United States' appeal falls within
the scope of appellate review under Article 17.6 of the DSU . In particular, we consider that the
United States' appeal adequately identifies "issues of law covered in the panel report and legal
interpretations developed by the panel" pursuant to Article 17.6 of the DSU, as well as
"specific allegations of errors" within the meaning of the Working Procedures, with regard to the
interpretation and application of Article 3.1(b) of the SCM Agreement. Regarding the merits of the
United States' appeal, we uphold the Panel's interpretation of Article 3.1(b). While we have
expressed concerns with certain aspects of the Panel's reasoning, the focus of the Panel's legal
standard on the need to establish a condition requiring the use of domestic over imported goods
comports with our reading of this provision.
5.81. Having upheld the Panel's interpretation of Article 3.1(b) of the SCM Agreement, we are not
required to make findings regarding the application of this provision to the facts of the present
case, or to address the United States' arguments concerning comple tion of the legal analysis.
The Panel's finding that the United States' claim under Articles 3.1(b) and 3.2 of the
SCM Agreement is unsupported by sufficient evidence therefore stands.
5.3 Benefit
5.82. We turn now to the European Union's appeal of the Panel's findings concerning the
assessment of whether each of the French, German, Spanish, and UK A350XWB LA/MSF contracts
confers a "benefit", and the refore constitutes a "subsidy", within the meani ng of Article 1.1(b) of
the SCM Agreement.275
5.83. In determining whether the A350XWB LA/MSF contracts confer a benefit, the Panel divided
its analysis into two parts. First, the Panel assessed the expected rate of return on the loans
provided to Airbus through each of the four A350XWB LA/MSF contracts. 276 Second, the Panel
examined the rate of return that a market lender would have demanded for providing financing on
the same or similar t erms as LA/MSF for the A350XWB. In evaluating these two issues, the Panel
sought to determine whether a benefit had been conferred , by conducting a comparison between
the expected rates of return of the A350XWB LA/MSF contracts and the market benchmark
rate of return.
5.84. The European Union's appeal concerns only the second aspect of the Panel's analysis,
namely, the identification of the market benchmark rate of return. The Panel divided this part of its
analysis into two main subsections: (i) the calculation of a general corporate borrowing rate that
Airbus would have had to pay to a commercial lender to borrow money; and (ii) the calculation of
a project-specific risk premium that represents the additional rate of return that a commercial
lender would have re quired for offering financing to Airbus on the particular terms of the relevant
A350XWB LA/MSF contracts .277 On appeal, t he European Union challenges the Panel's analysis
regarding both the corporate borrowing rate and the project -specific risk premium . We begin by
examining the European Union's appeal concerning the Panel's anal ysis of the corporate
borrowing rate.
5.3.1 Corporate borrowing rate
5.85. The European Union argues that the Panel erred in identifying the corporate borrowing rate
that served as a basis for the market benchmark used in the benefit analysis . In particular,
the European Union takes issue with the fact that, in identifying the time period over which to

275 European Union's Notice of Appeal, paras. 6-15; appellant's submission, paras. 276 and 328.
276 In referring to the expected rates of return for each of the four A350XWB LA/MSF contracts, the
United States used the terms "rate of return" and "interest rate". In turn, the European Union referred to the
expected rates of return as the "internal rate of return" (IRR) of the A350XWB LA/MSF contracts. The Panel
decided to use "rates of return" as a generic term, and referred to the European Union's proposed rates for the
A350XWB LA/MSF contracts as "internal rates of return", or "IRR estimates". (Panel Report, fn 485 to
para. 6.306)
277 Panel Report, para. 6.350.

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observe the corporate borrowing rate, the Panel erroneously relied on a range of average yields of
the EADS bond at issue278, rather than the yield of such a bond on the day of conclusion of each of
the French, German, Spanish, and UK A350XWB LA/MSF contracts. The European Union therefore
requests us to reverse the Panel's conclusion that the corporate borrowing rate component of the
market benchmark in the present case can be based on "the average yields one-month prior and
six-months prior to the conclusion of the contract, in the form of a range" 279, and, consequently,
also the Panel's findings related to the corporate borrowing rate set out in Table 7
("Corporate borrowing rate estimates") at paragraph 6.430 and Table 10 ("Approximate difference
between rates of return and market benchmark rate") at paragraph 6.632 of its Report.280
5.86. The European Union brings two principal claims of error concerning the manner in which the
Panel identified the time period over which to observe the corporate borrowing rate component of
the market benchmark. First, the European Union contends that the Panel erred in its application
of Article 1.1(b) of the SCM Agreement by rejecting data pertaining to the yield of the relevant
EADS bond on the day of conclusion of each A350X WB LA/MSF contract. Second,
the European Union asserts that th e Panel failed to make an objective assessment of the matter,
as required by Article 11 of the DSU, because its decision to reject the EADS bond yield on the day
of conclusion of each A350XWB LA/MSF contract lacks an evidentiary basis and reflects a lack o f
objectivity and even-handedness.
5.87. In the event that we reject the above claims, the European Union brings two conditional
claims – a claim of error in the application of Article 1.1(b) of the SCM Agreement and a claim of
inconsistency with Article 11 of t he DSU – challenging the Panel's decision to accept the average
yield of the EADS bond over the six months prior to the conclusion of each of the A350XWB
LA/MSF contracts as part of the range of average yields that was used to determine the corporate
borrowing rate.281
5.88. Before addressing the European Union's claims of err or, we begin by summarizing
the Panel's findings.
5.3.1.1 The Panel's findings
5.89. Having determined the expected rates of return of the four A350XWB LA/MSF contracts, the
Panel turned to examine the rate of return that a market lender would have demanded for
providing financing on the same or similar terms as LA/MSF for the A350XWB (i.e. the market
benchmark rate of return). Before the Panel , the United States proposed constructing such a
benchmark based on : (i) a general borrowing rate that the recipient (Airbus) would have had to
pay to a market lender ; plus (ii) a project-specific risk premium that represents the additional
return that a lender would have required for offering financing on the particular terms of the
relevant A350XWB LA/MSF contracts .282 The European Union did not object to this approach for
examining whether the A350XWB LA/MSF contracts confer a benefit. However, the Panel observed
that the pa rties had diverging positions regarding both the general corporate borrowing rate and
the project-specific risk premium.283
5.90. The Panel began by noting that the determination of the market benchmark rate of return
raised the initial question of whether to use the rates derived from the data and regression models

278 As explained in more detail below, the European Union proposed determining the corporate
borrowing rate on the basis of bond data of Airbus' parent company, EADS. In particular, the European Union
proposed using the EADS Finance B.V. 5.5% coupon 03/18 medium-term note (MTN), a bond issued on
24 September 2003 and maturing on 25 September 2018. (Panel Report, paras. 6.357-6.358)
279 European Union's appellant's submission, para. 319 (quoting Panel Report, para. 6.389).
280 European Union's appellant's submission, para. 319.
281 We note that, in taking issue with the Panel's decision to include the average yield over the
six months prior to the conclusion of each of the A350XWB LA/MSF contracts in the relevant time period over
which to observe the EADS bond yield, the European Union does not appear to challenge the use of the
one-month average yield of the EADS bond.
282 Panel Report, para. 6.350.
283 Panel Report, para. 6.351. The Panel observed, in particular, that the parties disagreed on not only
what the values of the two components should be, but also what bases these values should be derived from.
(Ibid.)

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used in the original proceedings, as proposed by the United States, or from EADS' actual general
borrowing costs, as proposed by the European Union.284 The United States requested an expert –
Dr James Jordan – to prepare a report calculating Airbus' corporate borrowing rate.285 On the basis
of this report, t he United States presented general corporate borrowing rates that were based on
the same data used to derive the general corporate borrowing rates app lied in the original
proceedings, updated to account for the timing of the conclusion of the relevant A350XWB LA/MSF
contracts.286 The European Union rejected the United States' approach, maintaining that, unlike in
the original proceeding s, the borrowing hi story and bond data of Airbus' parent company, EADS,
were directly observable when the A350XWB LA/MSF contracts were concluded. 287
The European Union also relied on an expert – Professor Robert Whitelaw – to calculate the
relevant corporate borrowing rate. 288 Professor Whitelaw asserted that "it 'is possible to establish
from market data the company's actual cost of long -term borrowing ', that is, 'EADS' actual,
long-term borrowing rates at the date of the agreements, expres sed as the yield on its
longest-term bond'."289
5.91. The Panel agreed with the European Union that the integration of the Airbus entities and the
availability of the EADS bond data are relevant factual differences between the original and the
compliance proceedings .290 Thus, th e Panel considered that using relevant bond data directly
observable at the time that the A350XWB LA/MSF contracts were concluded – to the extent that
such data reflect borrowing by the relevant entities – would, in principle, be preferable to the
approach proposed by the United States.291 However, before reaching its conclusion on the
appropriate corporate borrowing rate for constructing the market benchmark, the Panel addressed
a series of criticisms by the United States questioning the extent to which the EADS bond data
may be used to construct the relevant corporate borrowing rates. In particular, the Panel
examined the following four issues raised by the United States: (i) whether the EADS bond reflects
the identity of the borrower; (ii) the relevant date s for obser ving the EADS bond yield;
(iii) whether to adjust the EADS bond yield in terms of maturity and duration; and (iv ) whether to
add to the corporate borrowing rate an amount for normal fees and charges associated with
general corporate borrowing on the market.292
5.92. With respect to the first issue, the United States questioned whether a bond representing
the corporate borrowing rate of EADS – Airbus' parent company – is a good reflection of the
general corporate bor rowing rate associated with the Airbus entities with which the A350XWB
LA/MSF contracts were concluded.293 In the Panel's view, the borrowing rate can be expected to be
closest to the parent company's borrowing rate where the parent is explicitly a co -contractor
[BCI]. Noting that the German KfW A350XWB Loan Agreement and UK A350XWB LA/MSF contract
implicate EADS directly as a co -contractor [BCI], the Panel agreed with the European Union that
the reference to EADS' corporate borrowing rate is appropriate for those two contracts. 294 By
contrast, the Panel indicated that general corporate borrowing rates may be higher than the parent

284 Panel Report, para. 6.352.
285 See Dr James Jordan, NERA Economic Consulting, "Comparison of A350 XWB LA/MSF Interest Rates
with Market Benchmarks", 18 October 2012 (Jordan Report) (Panel Exhibit USA-475 (BCI/HSBI)).
286 Panel Report, para. 6.353. In the original proceedings, the United States constructed a corporate
borrowing rate for each of the four member States, using what limited bond data was then available regarding
the relevant Airbus companies for the time periods in question and regression models and other techniques to
fill data gaps. The constructed corporate borrowing rate for each of the four member States was the sum of a
government borrowing rate (said to be a "risk-free" borrowing rate) derived from government bonds and a
"general corporate risk premium", or credit spread, derived from Aérospatiale and BAE Systems bond data for
borrowing in France and the United Kingdom (i.e. the spread between French and UK risk-free rates) and the
performance of similarly rated bonds. The corporate risk premium was applied over the relevant
country-specific risk-free rate to arrive at a corporate rate for each contract. (Ibid. (referring to Ellis-Jordan
Report, 10 November 2006 (Panel Exhibit USA-474/506 (BCI) (exhibited twice)), pp. 1 and 7))
287 Panel Report, para. 6.357.
288 Professor Robert Whitelaw, "Response to Dr Jordan's report on the benefits of MSF",
13 December 2012 (Whitelaw Response to Jordan) (Panel Exhibit EU-121 (BCI/HSBI)).
289 Panel Report, para. 6.357 (quoting Whitelaw Response to Jordan (Panel Exhibit EU-121 (BCI/HSBI)),
paras. 8 and 11-12, and fns 10 and 13 thereto).
290 Panel Report, para. 6.360.
291 Panel Report, para. 6.364.
292 Panel Report, paras. 6.367-6.428.
293 Panel Report, para. 6.367.
294 Panel Report, para. 6.372.

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company rate where the parent [BCI]. The Panel thus considered that the corporate borrowing
rate for the French Airbus entity, Airbu s SAS (Toulouse), and for the Spanish Airbus entity, Airbus
Operations SL, could be higher than the corporate borrowing rate for EADS. 295 As a result, for the
French A350XWB LA/MSF contract and the Spanish A350XWB Convenio, the EADS bond may be an
understatement of the general corporate borrowing rate. However, the Panel considered that using
the EADS bond for all four A350XWB LA/MSF contracts was preferable to the United States'
proposed alternative on the understanding that the EADS bond may well be an underestimate for
at least the French A350XWB LA/MSF contract and Spanish A350XWB Convenio.296
5.93. Regarding the relevant dates for observing the EADS bond yield, the Panel identified two
main issues raised by the United States: (i) whether Professor Whitelaw's approach – which
averaged the yield over a period representing the time during which the A350XWB LA/MSF
contracts were concluded – was an appropriate way of determini ng the EADS bond rate;
and (ii) which date is relevant for deriving the yield applicable to the French A350XWB LA/MSF
contract.297
5.94. With resp ect to Professor Whitelaw's average, the European Union indicated that his
proposed corporate borrowing rate was obtained by averaging the EADS bond's yield to maturity
(YTM) over [BCI] months. Therefore, Professor Whitelaw derived the YTM of the EADS 5.5%
03/18 medium-term note (MTN) bond for the period [BCI]. According to the European Union, this
is the period over which all four of the A350XWB LA/MSF contracts were concluded. On this basis,
Professor Whitelaw calculated a rate of [BCI] for EADS' actual cost of long-term borrowing for the
French, German, and Spanis h A350XWB LA/MSF contracts, and [BCI] for the UK A350XWB
LA/MSF contract.298
5.95. In response, the United States' expert, Dr Jordan, criticized "the manner in which Professor
Whitelaw derive{d} the results for EADS' actual cost of long -term debt based on the EADS bond,
submitting that the [BCI] averaging period used by Professor Whitelaw is an 'inconsistent
approach to selecting a yield based on the signing dates of the agreements' and produces a
downward bias in the selected yield".299 Dr Jordan maintained that "Professor Whitelaw's corporate
borrowing rates are based on yields that include time periods after the LA/MSF loan agreements
were finalized. They also do not use consistent periods of time around the loan agreement dates,
and they are affected by the downward trends in yields."300
5.96. The Panel compared Professor Whitelaw's average yields with Dr Jordan's observation of the
EADS bond yield on various dates (i.e. the average yield over the six months prior to the
conclusion of the relevant A350XWB LA/MSF contract, the average yield over the month prior to
the conclusion of the relevant contract, and the yield on the day of conclusion of the relevant
contract).301 The Panel's comparison is reproduced below:

295 Panel Report, para. 6.373.
296 Panel Report, para. 6.374.
297 Panel Report, para. 6.377.
298 Panel Report, para. 6.378. Professor Whitelaw revealed that the average YTM on the bond was
computed for the [BCI] for each of the three euro-denominated A350XWB LA/MSF contracts, with an
adjustment based on the average EUR to GBP swap rates being made for the UK A350XWB LA/MSF contract.
(Ibid.)
299 Panel Report, para. 6.379 (quoting Dr James Jordan, NERA Economic Consulting, "Reply to Professor
Whitelaw's Response to Jordan Report", 20 May 2013 (Jordan Reply) (Panel Exhibit USA-505 (BCI/HSBI)),
para. 16 (fn omitted)).
300 Panel Report, para. 6.379 (quoting Jordan Reply (Panel Exhibit USA-505 (BCI/HSBI)), paras. 24-28).
301 Panel Report, para. 6.382 (referring to Jordan Reply (Panel Exhibit USA-505 (BCI/HSBI)), Table 6;
Jordan Materials in Response to Panel Questions Nos. 110, 111, 112, and 114 (Panel Exhibit USA-567
(BCI/HSBI)), supplement to Table 6).

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Table 1: Respective proposals for EADS bond yield values
EU member State and
relevant date of
conclusion of loan
agreement
6 month average
prior to date of
loan agreement
1 month average
prior to date of
loan agreement
Yield on day
of loan
agreement
Whitelaw average yield
over [BCI] starting [BCI]
France
[BCI]
([BCI])302
[BCI]

[BCI]
([BCI])
[BCI]

[BCI]
([BCI])
[BCI]

[BCI]
([BCI])
[BCI]

[BCI]
Germany
[BCI]

[BCI]

[BCI]

[BCI]

[BCI]
Spain
[BCI]

[BCI]

[BCI]

[BCI]

[BCI]
United Kingdom
[BCI]

[BCI]

[BCI]

[BCI]

[BCI]
Source: Panel Report, Table 6 at paragraph 6.382.
5.97. The Panel then noted the Appellate Body's guidance from the original proceedings:
Under a "benefit" analysis, a comparison is made between the terms and conditions of
the financial contribution when it is granted {and} the terms and conditions that
would have been offered on the market at that time … a panel's assessment of benefit
should focus on the relevant market benchmark at the time the financial contribution
is granted to the recipient. That benchmar k entails a consideration of what a market
participant would have been able to secure on the market at that time.303
5.98. On the basis of this guidance, the Panel indicated that "borrowing costs should be observed
at the time that each particular contract was con cluded."304 The Panel explained that "{a}veraging
the borrowing rate of contracts concluded over a time -period during which there were different
market borrowing rates may lead to distortions."305 For this reason, the Panel considered that:
Professor Whitelaw's averaging approach could artificially lower a higher market
borrowing rate, leading to a misplaced finding that there was no subsidisation. It could
also artificially increase a lower market borrowing rate, and create a danger that a
benefit might be found in a case where LA/MSF was really obtained at, or above,
market rate. In such an instance there could be a misplaced finding of
subsidisation.306
5.99. The Panel observed that "Professor Whitelaw's averaging approach would result in the
application of corporate borrowing rates derived over time periods that are different for the
four LA/MSF contracts." 307 By way of example, the Panel noted that " the market rate for the
UK loan agreement, coming later, would be distorted upwards by higher yields from the time when

302 In their submissions before the Panel, the parties referred to the date of the conclusion of the
French A350XWB Protocole as [BCI]. The Panel noted that the French A350XWB Protocole was signed and
dated [BCI] and that [BCI] is the date of a cover letter enclosing copies of the French A350XWB Protocole
sent to the Director General of Airbus. Therefore, the Panel considered the correct date for the French
A350XWB Protocole to be [BCI]. However, the Panel also decided to include the yields on both dates in the
table of calculations for the sake of completeness. (Panel Report, fn 585 to Table 6 at para. 6.382)
303 Panel Report, para. 6.384 (quoting Appellate Body Report, EC and certain member States – Large
Civil Aircraft, para. 706 (emphasis original)). The Panel also noted the Appellate Body's statement that "{t}he
comparison is to be performed as though the {actual and benchmark} loans were obtained at the same time …
the assessment focuses on the moment in time when the lender and borrower commit to the transaction".
(Ibid. (quoting Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 835-836))
304 Panel Report, para. 6.385.
305 Panel Report, para. 6.385.
306 Panel Report, para. 6.385.
307 Panel Report, para. 6.386 (referring to Jordan Reply (Panel Exhibit USA-505 (BCI/HSBI)), para. 27).
(emphasis added; additional text in fn 588 thereto omitted)

- 52 –

the French agreement was concluded – some [BCI] earlier".308 However, "{t}he market rate for
the French loan agreement … would not be judged against market rates from [BCI] prior to its
conclusion, when the bond yields were even higher and would have likewise distorted the rates
upwards."309 Thus, the Panel considered that there was no "justification for judging the four
LA/MSF agreements by different standards".310
5.100. In addition, t he Panel pointed out that "Professor Whitelaw's averaging approach would
also incorporate data from after the conclusion of three of the four contracts. "311 In the Panel's
view, "{m}arket rates for debt after the conclusion of a contract do not seem … to be a good
measure of what the market would have offered at the time it was concluded."312 The Panel found
it "difficult to see how what … happens after the conclu sion of an agreement is relevant for the
purposes of establishing a market benchmark".313
5.101. In light of these considerations, the Panel concluded that, contrary to the Appellate Body's
guidance, "Professor Whitelaw's approach of observing the average daily yield to maturity over a
[BCI]-month period during which the four contracts were signed, d{id} not provide the yields 'at
the time' that the terms, and thus rates, of the individual contracts were negotiated and
agreed."314 Therefore, the Panel "reject{ed} the averaging approach in favour of the yields from a
consistent time-period up to the date of the conclusion of the individual contract, as calculated by
Dr Jordan".315
5.102. The Panel then turned to determine which of the periods provided by Dr Jordan should be
utilized for constructing the market benchmark : (i) the average yield over the six months prior to
the conclusion of the contract; (ii) the average yield over the month prior to the conclusion of the
contract; or (iii) the yie ld on the day of conclusion of the contract . In this regard, t he Panel
considered t hat "the yield on the day of the signature of contract may reflect atypical
fluctuations."316 First, the Panel considered that parties agreeing to a complex loan contract may
rather set the rates in the lead-up to the conclusion of the contract. Therefore, in the Panel's view,
"the one-month average would appear to be a reasonable proxy for the parties' expectations ."317
The Panel added that "{t} he six-month average may be less likely to reflect expectations during
the finalisation period, but may also be a hel pful indication of market exp ectations."318 On this
basis, the Panel decided to carry out the "benchmarking assessment using the average yields
one-month prior and six-months prior to the conclusion of the contract, in the form of a range".319
5.103. Second, with respect to the relevant date of the French A350XWB LA/MSF contract, the
Panel considered that th is question would be a material issue only if Professor Whitelaw's
averaging approach were used. The Panel pointed out that, having rejected that approach, there
was no material difference in the yields regardless of the chosen dates.320 However, for the sake of
completeness, the Panel examined the issue and concluded that the date of conclusion of the
French A350XWB Protocole, signed on [BCI], should be used given that it reflected the relevant
time when the French Government committed to the terms and conditions of LA/MSF, while the

308 Panel Report, para. 6.386.
310 Panel Report, para. 6.386.
313 Panel Report, para. 6.387. In contrast to market rates after the time of conclusion of the relevant
contract, the Panel noted that market rates for debt in the lead-up to the conclusion of a contract could provide
empirical evidence of the "going market rates" and may be indicative of what the market might have been
willing to offer and accept at the time of conclusion of the relevant contract. (Ibid.)
314 Panel Report, para. 6.388. In particular, the Panel considered that Professor Whitelaw's approach
was not consistent with the Appellate Body's guidance that: (i) the benchmark entails a consideration of what a
market participant would have been able to secure on the market at that time; and (ii) the assessment focuses
on the moment in time when the lender and borrower commit to the transaction. (Ibid.)
315 Panel Report, para. 6.388.
316 Panel Report, para. 6.389.
317 Panel Report, para. 6.389.
318 Panel Report, para. 6.389.
319 Panel Report, para. 6.389.
320 Panel Report, para. 6.392.

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date of conclusion of the French A350XWB Convention (i.e. [BCI]) related to when the relevant
funds were attributed.321
5.104. Third, the Panel turned to assess whether it was necessary to adjust the EADS bond yield
in terms of maturity and duration. The United States sought to adjust the EADS bond yield based
on similarly rated bonds with a term of 20 years, on the ground that the LA/MSF measures at issue
have a much longer term to maturity than the EADS bond. 322 The Pa nel noted that, if an
adjustment is made to take into account differences in maturity, then account must also be taken
of differences that may exist in terms of structure. The Panel therefore considered that it would be
an "oversimplification to adjust the EADS bond yield solely by adding the term spread, or term
premium, of simil arly-ranked 20-year corporate bonds, given that the structure of the A350XWB
LA/MSF contracts means the loan principal will not be exposed for the full length of that term". 323
Consequently, the Panel concluded that the United States' proposal to adjust the EADS bond was
not appropriate, and proceeded on the basis of the unadjusted EADS bond yield.324
5.105. Finally, the Panel examined the United States' propo sal of adding to the corporate
borrowing rate an amount for normal fees and charges associated with general corporate
borrowing on the market. The Panel agreed that fee amounts normally charged as part of the
corporate borrowing rate should be considered in the benefit analysis . However, the Panel
expressed concerns about some of the estimates provided by the United States.325 The Panel thus
decided to accept the European Union's estimate of the underwriting fee for the EADS bond itself,
leading to an adjustment to the EADS bond yield of approximately [BCI] basis points.326
5.106. In sum , the Panel decided to use the yield of the EADS bond identified by the
European Union as the basis for the corporate borrowing rate . As regards the dates for observing
the yield, the Panel determined that "the EADS bond's yields should be observed over consistent
time periods in the lead up to each of the four individual contracts, in the form of a range of the
one-month and six-month average yields prior to the date of the individual contracts".327 However,
the Panel observed that "the EADS bond yield may be lower than rates that would be required for
borrowing by its Airbus subsidiaries alone (that is, the EADS bond yield may understat e the
corporate borrowing rate for the French and Spanish contracts)." 328 Similarly, the Panel observed
that it would use "the unadjusted yields of the EADS bond on the understanding that it is likely to
be a conservative reflection of the corporate borrowin g rate that should be used to construct the
relevant market benchmark for the LA/MSF contracts". 329 On this basis, in Table 7 at
paragraph 6.430 of its Report, the Panel concluded that the quantitative implications of its findings
on the corporate borrowing rate are the following:

321 Panel Report, para. 6.399.
322 Panel Report, para. 6.400.
323 Panel Report, para. 6.417.
324 Panel Report, para. 6.421.
325 The Panel considered it unclear that the United States' underwriting fee estimate, derived from an
analysis of complex, equity-linked, derivative, and innovative instruments, would match the kind of normal
fees that Airbus would face if it turned to the market for funding for the A350XWB. (Panel Report, para. 6.428)
326 Panel Report, para. 6.428 (referring to European Union's comments on the United States' response
to Panel question No. 161, para. 16 and fn 41 thereto; Whitelaw Comments on US Responses (Panel
Exhibit EU-508 (BCI)), para. 16).
327 Panel Report, para. 6.429.
328 Panel Report, para. 6.429.
329 Panel Report, para. 6.429.

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Table 2: Corporate borrowing rate estimates
EU member State
Corporate borrowing rate as
reflected by yield on EADS
bond (range: between
average yield 1-month prior,
and 6-months prior, to date
of individual contract)
Representative
sum for normal
market fees
Total corporate
borrowing rate
component of market
benchmark rate
France [BCI] to [BCI] [BCI] [BCI] to [BCI]
Germany [BCI] to [BCI] [BCI] [BCI] to [BCI]
Spain [BCI] to [BCI] [BCI] [BCI] to [BCI]
United Kingdom [BCI] to [BCI] [BCI] [BCI]330 to [BCI]
Source: Panel Report, Table 7 at paragraph 6.430.
5.3.1.2 Overview of the relevant jurisprudence regarding the benefit analysis
5.107. A financial contribution constitutes a subsidy within the me aning of Article 1.1 of the
SCM Agreement if it confers a benefit. With respect to the nature of the benefit analysis, the
Appellate Body has explained that the concept of "benefit" under Article 1.1(b) of the
SCM Agreement implies conducting a comparison. This is because "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." 331 The Appellate Body has pointed out that the
"marketplace" provides an appropriat e 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 such financial contribution on terms more
favourable than those available to the recipient on the market.332
5.108. The Appellate Body has stated that Article 14 of the SCM Agreement provides relevant
context to Article 1.1(b).333 Article 14 sets forth guidelines relating to equity investments, loans,
loan guarantees, and the provision of goods or services by a government and the purchase of
goods by a government. Under each of the guidelines, a benefit arises if the recipient has received
a financial contribution on terms more favourable than those available to it on the market.334 Thus,
Article 14 confirms the view that the "marketplace" should be used as the benchmark for the
comparison in determining whether a benefit exists.335
5.109. With regard to financial contributions provi ded in the form of a loan, Article 14(b) of the
SCM Agreement sets out that government loans 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 t he amount the firm would pay on a comparable commercial loan that it
could actually obtain on the market. Article 14(b) also specifies that the benefit "shall be the
difference between these two amounts". Thus, t here is a benefit where 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.
5.110. The Appellate Body has specified that a benchmark loan under Article 14(b) must be a loan
that is "comparable" to the investigated government loan. In the Appellate Body's view,
"a benchmark loan under Article 14(b) should have as many elements as possible in common with

330 As reflected in Table 10 of the Panel Report, the correct figure representing the lower bound of the
total corporate borrowing rate component of the market benchmark rate for the UK LA/MSF contract is [BCI].
This figure has been used in reproducing Table 7 of the Panel Report.
331 Appellate Body Report, Canada – Aircraft, para. 157.
332 Appellate Body Report, Canada – Aircraft, para. 157.
333 Although Article 14 is in Part V of the SCM Agreement, "it is relevant context to the interpretation of
Article 1.1(b) for the purpose of Part II of the SCM Agreement" and "can be used as relevant context to
determine whether a subsidy exists". (Appellate Body Report, Canada – Renewable Energy / Canada – Feed-in
Tariff Program, para. 5.163 (fn omitted)) See also Appellate Body Report, US – Large Civil Aircraft
(2nd complaint), fn 1293 to para. 616.
334 Appellate Body Report, Canada – Aircraft, para. 158.
335 Appellate Body Report, Canada – Aircraft, paras. 155 and 158.

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the investigated loan to be comparable." 336 In the context of that provision, the Appellate Body
has observed that, "ideally, an investigating authority should use as a benchmark a loan to the
same borrower that has been established around the same time, has the same structure as, and
similar maturity to, the government loan, is about the same size, and is denominated in the same
currency."337
5.111. The Appellate Body has, however, acknowledged that, "in practice, the existence of such
an ideal benchmark loan would be extremely rare, and that a comparison should also be possible
with other loans that present a lesser degree of similarity." 338 This means that a certain degree of
flexibility applies under Article 14(b) in the selection of benchmarks, so that such selection can
ensure a meaningful comparison for the determination of benefit.339 In line with this flexibility, the
Appellate Body has indicated that, "{i}n the absence of an actual comparable commercial loan that
is available on the market, an investigating authority should be allowed to use a proxy for what
'would' have been paid on a comparable commercial loan that 'could' have been obtained on the
market."340 In this regard, the Appellate Body has specified that " selecting a benchmark under
Article 14(b) involves a progressive search for a comparable co mmercial loan".341 The aim is to
find "the commercial loan that is closest to the investigated loan (a loan to the same borrower that
is nearly identical to the investigated loan in terms of timing, structure, maturity, size and
currency)".342 The "further away an investigating authority moves from the ideal benchmark of the
identical or nearly identical loan, the more adjustments will be necessary to ensure that the
benchmark loan approximates the 'comparable commercial loan which the firm could actually
obtain on the market' specified in Article 14(b)".343
5.112. The Appellate Body has mentioned a series of factors that inform whether the benchmark
loan is "comparable" to the investigated government loan , such as the timing, structure, size, and
currency of the relevan t loans. 344 Regarding the timing of the relevant transactions , the
Appellate Body in the original proceedings in this dispute stated that, pursuant to Article 14(b), the
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 " is "to be performed as though the
loans were obtained at the same time." 345 Thus, "the comparable commercial loan is one that
would have been available to the recipient firm at the time it recei ved the government loan." 346
The Appellate Body reasoned that the assessment focuses "on the moment in time when the
lender and borrower commit to the transaction", and that a panel conducting this assessment must
therefore consider " how the loan is structur ed and how risk is factored in, rather than looking at
how the loan actually performs over time".347
5.113. In this regard, the Appellate Body further explained in the original proceedings that
financial transactions should be analysed on an ex ante basis. This is because, in deciding whether
to commit resources to a particular investment, an investor will consider alternative investment
opportunities and will make a decision on the basis of information available at that time about
market conditions and projections. It is on the basis of this information that a panel should
determine whether a particular investment was "commercially rational ".348 For this reason, the
Appellate Body rejected the notion that it is relevant to examine how the investment at issue

336 Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 476.
337 Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 476.
338 Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 476.
(fn omitted)
339 Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 489. See also
Appellate Body Report, US – Carbon Steel (India), para. 4.345.
340 Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 487.
341 Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 486.
342 Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 486.
343 Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 488.
344 Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 476.
345 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 835.
346 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 835.
347 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 836. (emphasis
added; fn omitted)
348 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 836.

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actually performed.349 Such an ex post analysis "has nothing useful to say about the basis upon
which the investment was made". 350 In light of these considerations, the Appellate Body
emphasized that a benefit analysis "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 by the
market at that time."351
5.3.1.3 Whether the Panel erred in its application o f Article 1.1(b) of t he
SCM Agreement by failing to identify properly the "corporate borrowing rate"
5.114. The European Union submits that the Panel erred in its application of Article 1.1(b) of the
SCM Agreement by identifying the corporate borrowing rate compo nent of the market benchmark
rate of return as "the average yields {on an EADS bond} one -month prior and six-months prior to
the conclusion of the { relevant LA/MSF} contract, in the form of a range". 352 The European Union
submits that the Panel correctly ide ntified the legal stan dard applicable under Article 1.1(b) when
it explained that "borrowing costs 'should be observed at the time that each particular contract
was concluded'".353 However, the European Union maintains that, in applying this standard, the
Panel should have used the actual data on the bond yield at the time each of the four A350XWB
LA/MSF contracts was concluded (i.e. the yield on the day of conclusion of each A350XWB LA/MSF
contract).354 Instead, the Panel "replac{ed} this single yield for each contract with a range based
on the average yields one month and six months prior to the date on which each contract was
concluded".355
5.115. According to the European Union, the Panel justified its rejection of the data per taining to
the yield on the day of conclusion of the A350XWB LA/MSF contracts by "speculating" that it
"may reflect atypical fluctuations". 356 However, "the Panel did not find that there were 'atypical
fluctuations' in the yields of the relevant EADS bond on the day of conclusion of the LA/MSF
contracts."357 Rather, the Panel's own factual findings reveal that "the yield on the day of the
conclusion of the co ntract was very similar – and sometimes even identical – to the average yield
over the month prior to the conclusion of the contract." 358 In addition, the European Union noted
that the Panel criticized Professor Whitelaw's averaging approach , arguing that it could lead to
distortions.359 For the European Union, a similar concern applies to the range of average yields
used by the Panel because they "could artificially increase or lower a market borrowing rate,
leading to a false positive or a false negative subsidy finding".360
5.116. For the foregoin g reasons, the European Union requests us to reverse the Panel's
conclusion that the corporate borrowing rate component of the market benchmark can be based
on "the average yields one -month prior and six-months prior to the conclusion of the contract, in

349 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 836. Given that
the assessment focuses "on the moment in time when the lender and borrower commit to the transaction",
a panel conducting this assessment "must look at how the loan is structured and how risk is factored in, rather
than looking at how the loan actually performs over time". (Ibid. (fn omitted))
350 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 836.
351 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 838.
352 European Union's appellant's submission, para. 278 (quoting Panel Report, para. 6.389). See also
para. 290.
353 European Union's appellant's submission, para. 288 (quoting Panel Report, para. 6.385 (emphasis
added by the European Union)).
354 The European Union maintains that, for each A350XWB LA/MSF contract, "the day of conclusion of
the contract represents 'the moment in time when the lender and borrower committ{ed} to the transaction'".
(European Union's appellant's submission, para. 289 (quoting Panel Report, para. 6.388))
355 European Union's appellant's submission, para. 290. (emphasis omitted)
356 European Union's appellant's submission, para. 291 (quoting Panel Report, para. 6.389 (emphasis
added by the European Union)).
357 European Union's appellant's submission, para. 291. (emphasis original)
358 European Union's appellant's submission, para. 292.
359 European Union's appellant's submission, para. 293 (quoting Panel Report, para. 6.385).
360 European Union's appellant's submission, para. 294.

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the form of a range" , and the Panel's findings related to the corporate borrowing rate set out in
Tables 7 and 10 of the Panel Report.361
5.117. The United States disagrees with the European Union that Article 1.1(b) o f the
SCM Agreement requires the use of a corporate borrowing rate based exclusi vely on data from the
24-hour period coinciding with the finalization of the terms and conditions of each A350XWB
LA/MSF contract. According to the United States, Article 1.1(b) affords panels "a degree of
discretion in selecting the appropriate methodology to determine 'benefit'" 362, which encompasses
the choice of whether to consult data pre -dating the date of conferral of an alleged subsidy. The
United States argues that, in evaluating whether a financial contribution confers a benefit within
the meaning of Article 1.1(b), panels should condu ct an ex ante analysis, and that "determining
whether the investment was commercially rational is to be ascertained based on the information
that was available to the investor at the time the decision to invest was made". 363 Therefore,
"the body of 'informat ion available at the time the decision is made' will necessarily include
information that pre-dates the decision itself".364
5.118. Additionally, the United States argues that, "in situations where the relevant 'decision' to
confer a subsidy is 'made' over an extended period of time, the Appellate Body's guidance implies
that the corresponding commercial benchmark should include information from the same period of
time (as well as additional information preceding it)". 365 In this case, the Panel found that the
terms and conditions for all four A350XWB LA/MSF contracts were the product of [BCI].366 This
process had begun by [BCI], and various stages were completed [BCI].367 In the United States'
view, these facts further suppor t the Panel's finding that the average corporate borrowing rate in
the one­month period preceding finalization is a "reasonable proxy" for investor expectations, and
that the six-month average is also a "helpful indication" of such e xpectations, though to a
lesser extent.368 Consequently, the United States argues that the Panel's decisi on to use the one -
month and six-month average yields as the basis for the corporate borrowing rate is consistent
with Article 1.1(b) of the SCM Agreement.
5.119. A meaningful benefit analysis pursuant to Article 1.1(b) requires panels to carry out a
careful and thorough comparison between the financial contribution provided by a government and
a market benchmark. Regarding the manner in which the timing of the relevant transactions
should be factored into the benefit analysis, we reiterate that the benefit comparison must be
undertaken on an ex ante basis, and thus focuses "on the moment in time when the lender and
borrower commit to the transaction". 369 Information that is closer in time to the conclusion of the
terms and conditions of a loan will usually be more probative than information that derives from
time periods preceding the final stages of negotiation and conclusion of a transaction.
Nevertheless, a panel's determination regardi ng the appropriate timing of when the lender and
borrower committed to the relevant terms and conditions of the transaction at issue should be
made on a case-by-case basis, taking into account the specific nature and features of the financing
at issue and in light of the arguments and evidence presented by the parties.
5.120. Therefore, a panel conducting this assessment must look at how the relevant government
financial contribution is structured, focusing on the nature and type of financing that is being
provided and whether aspects thereof were agreed upon in the period leading up to the formal
signing of the legal instrument providing the financial contribution. While in some cases parties

361 European Union's appellant's submission, para. 319 (referring to Panel Report, para. 6.389, Table 7
362 United States' appellee's submission, para. 198 (quoting Appellate Body Report, EC and certain
member States – Large Civil Aircraft, para. 883).
363 United States' appellee's submission, para. 202 (quoting Appellate Body Report, EC and certain
member States – Large Civil Aircraft, para. 836).
364 United States' appellee's submission, para. 202.
365 United States' appellee's submission, para. 204 (referring to Appellate Body Report, EC and certain
member States – Large Civil Aircraft, para. 836).
366 United States' appellee's submission, para. 204 (quoting Panel Report, para. 6.644, in turn quoting
Statement by Tom Williams, Executive Vice President, Programmes, Airbus SAS, 17 May 2013 (Williams
Statement) (Panel Exhibit EU-354 (BCI)), para. 3).
367 United States' appellee's submission, para. 204 (referring to Panel Report, paras. 6.55 and 6.645).
368 United States' appellee's submission, para. 204.
369 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 836.

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may commit to a complex financing instrument only after all the relevan t terms and conditions in
their overall configuration are known, it is also possible to envisage cases where parties may have
committed to a transaction – or to key aspects thereof – during a finalization period of the
negotiations preceding the moment of formal conclusion of all aspects of that transaction .
This may be the case, in particular, where the financial contribution at issue consists of complex
financing instruments, the terms and conditions of which have been negotiated and agreed over a
certain contracting period. In such circumstances, it would be appropriate for a panel to take into
account in its analysis information that pre -dates the moment or actual day on which the legal
instruments underlying the relevant transaction were formally signed , bearing in mind that
information closer in time to the formal conclusion of the financing instrument will be more
probative than information from earlier stages of the negotiations.
5.121. While the European Union correctly notes that, in condu cting the benefit analysis,
the comparison focuses "on the moment in time when the lender and borrower commit to the
transaction"370, we disagree with the European Union to the extent that it suggests that the Panel
was required to limit its analysis to data from "the day of conclusion" of each A350XWB LA/MSF
contract regardless of the time period over which the parties may have committed to the terms
and conditions of that financing instrument. Rather, for purposes of conducting its benefit analysis,
the Panel was required to take into account the specific financing instrument at issue, including the
relevant circumstances surrounding the conclusion of that instrument, to determine the period
over which the terms and conditions of the relevant contract were agreed.
5.122. With these considerations in mind, in order to determine whether the Panel erred under
Article 1.1(b), we turn to review its analysis regarding the specific nature and features of
A350XWB LA/MSF financing, incl uding the time period over which the parties negotiated and
committed to that financing.
5.123. Before doing so, however, we note that the Panel relied on the yield of the EADS bond as
an analytical tool to determine the first component of the market benchmark p roposed by the
United States – namely, a corporate borrowing rate that Airbus would have had to pay to a market
lender. In conducting this examination, the Panel addressed a series of criticisms by the
United States regarding the extent to which the EADS bond data could be used to construct the
relevant corporate borrowing rate. In assessing the relevant dates for observing the EADS bond
yield, we do not understand the Panel to have sought to determine the "price of the EADS b ond"
per se . Rather, the Panel examined the time period over which the relevant A350XWB LA/MSF
contracts were concluded to draw a conclusion as to the corporate borrowing rate that would have
been applicable to Airbus during that period using the yield of the EADS bond as a proxy in
this regard.
5.124. With respect to the specific nature and features of LA/MSF financing, the original panel
held that, despite a number of variations in the terms and conditions of the legal instruments
making up the contractual framework of the challenged LA/MSF measures, numerous similarities in
the type and form of financing exist ed.371 In these compliance proceedings, the United States
argued before the Panel that the four A350XWB LA/MSF contracts contain the same "core" terms
as the pre-A350XWB LA/MSF measures. 372 After examining the similarities and differences
between the A350XWB LA/MSF contracts and the LA/MSF measures examined in the original
proceedings, the Panel indicated that "the LA/MSF contracts for the A350XWB resemble the
contracts at issue in the original proceeding {s}, based on the type of terms, including the
similarity of disbursement mechanisms, the levy -based repayments of the principal along an
anticipated schedule of deliveries and the imposition of royalties, the fa ct that no security is
provided for the debt amount, and the existence of conditional guarantees that are limited only to
the performance of obligations." 373 Thus, the Panel considered that, overall, the repayment of the

370 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 836.
371 Panel Report, para. 6.286 (referring to Original Panel Report, paras. 7.374, 7.410, and 7.525).
372 Panel Report, para. 6.58 (referring to United States' first written submission to the Panel, paras. 140,
143-144, and 147; second written submission to the Panel, paras. 85 and 89-101).
373 Panel Report, para. 6.286.

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A350XWB LA/MSF is back -loaded374, primarily levy-based375, dependent on the sales of aircraft,
and unsecured.376 To this extent, the Panel concluded that the A350XWB LA/MSF contracts share
the same core features as the LA/MSF measures considered in the original proceedings.377
5.125. Moreover, the Pane l made relevant findings regarding the time period over which the
parties negotiated and committed to the A350XWB LA/MSF contracts. In particular, the Panel
found that, "the Airbus governments {i.e. France, Germany, Spain, and the United Kingdom}
formally entered into negotiations with Airbus for LA/MSF {to support the A350XWB programme}
in late 2008, individually agreeing on its terms on different dates between [BCI]."378 [BCI]379 As
will be elaborated below, the Panel's reasoning reveals that the terms and co nditions of the
relevant instruments were negotiated and agreed over a contracting period spanning across
[BCI].
5.126. In terms of the reasoning provided by the Panel in support of its conclusion regarding the
relevant dates for observing the EADS bond yield, w e recall that , in conducting this analysis, the
Panel began by rejecting Professor Whitelaw's averaging approach because such approach "would
result in the application of corporate borrowing rates derived over time periods that are different
for the four L A/MSF contracts." 380 In addition, the Panel indicated that "Professor Whitelaw's
averaging approach would also incorporate data from after the conclusion of three of the
four contracts."381 On this basis, the Panel was unable to accept Professor Whitelaw's approach.
5.127. Then, the Panel decided to determine the corporate borrowing ra te using the average
yields one month prior and six months prior to the conclusion of the four A350XWB LA/MSF
contracts, in the form of a range. The Panel provided two reasons in support of its decision. First,
the Panel considered that "the yield on the day of the signature of contract may reflect atypical
fluctuations."382 In this regard, we note t he European Union's contention that "the Panel did not
find that there were 'atypical fluctuations' in the yields of the relevant EADS bond on the day of
conclusion of the LA/MSF contracts." 383 The European Union also makes this argument in its
challenge under Article 11 of the DSU, where it is further elaborated. 384 We will therefore address
it in more detail in our analysis of that claim. At this juncture, however, we observe that we do not
understand the Panel to have based its finding on speculation that there might have been atypical
fluctuations in the yield of the EADS bond on the day of signature of the A350XWB LA/MSF
contracts. Rather, we understand the Panel to have merely observed, as a general matter,
that choosing the yield on the day of conclusion of the A350XWB LA/MS F contract at issue might

374 The Panel stated that, "{i}n some instances, repayment begins only after Airbus has made a
specified number of aircraft deliveries. Although the amount of the per-aircraft levies varies {among} the
different contracts, it appears in nearly all cases to be [BCI]. In this way, the contracts are back-loaded."
375 The Panel explained that reimbursement of the loan principal in all four A350XWB LA/MSF contracts
is by per-aircraft levies. The levy is charged upon aircraft delivery, and thus levies are expected to be paid
according to a pre-determined anticipated aircraft delivery schedule. According to the Panel, repayment of the
principal may thus be said to be levy-based. (Panel Report, para. 6.270)
376 The Panel observed that, similar to the situation in the original proceedings where the loans were
said to be unsecured, in these compliance proceedings "no security or collateral is nominated or provided by
another entity for repaying {A350XWB} LA/MSF either if Airbus does not fulfil its obligations or in the event
that delivery targets are not met or if the programme fails or is discontinued". (Panel Report, para. 6.277)
377 Panel Report, para. 6.286.
378 Panel Report, para. 6.55 (referring to Williams Statement (Panel Exhibit EU-354 (BCI)), para. 3;
European Union's response to Panel question No. 101).
380 Panel Report, para. 6.386 (referring to Jordan Reply (Panel Exhibit USA-505 (BCI/HSBI)), para. 27).
(emphasis added; additional text in fn 588 thereto omitted)
381 Panel Report, para. 6.387.
382 Panel Report, para. 6.389.
383 European Union's appellant's submission, para. 291. (emphasis original) According to the
European Union, "rather than reflecting atypical fluctuations, the Panel's own factual findings reveal that the
yield on the day of conclusion of each {A350XWB} LA/MSF contract was typical." (Ibid., para. 292 (emphasis
original))
384 See section 5.3.1.4 of this Report.

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raise some methodological concerns for purposes of constructing the market benchmark because,
on the day of conclusion of a contract, the yield "may reflect atypical fluctuations".385
5.128. The Panel's second reason in support of its con clusion regarding the relevant dates for
observing the EADS bond yield was that " {p}arties agreeing to a complex loan contract may
rather set the rates in the lead -up to the conclusion of the contract, and prior to the actual day on
which the contract is signed."386 Earlier in its analysis, the Panel had also stated that "market rates
for debt in the lead -up to the conclusion of a contract could provide empirical evidence of the
'going market rates' and may be indicative of what the market might have been wil ling to offer
and accept, and may thus inform what is known and predicted ab out market rates at the time
of conclusion".387
5.129. The Panel applied these general considerations to the facts of the present dispute by
making relevant findings with respect to the le ngth of the negotiations between Airbus and the
four member States , thereby shedding light on the period of time during which the investment
decisions were made in the present case. For instance, the Panel observed that, "{a}fter publicly
signalling their support for the new programme in July 2006, the Airbus governments {i.e. France,
Germany, Spain, and the United Kingdom} formally entered into negotiat ions with Airbus
for LA/MSF {to support the A350XWB programme} in late 2008, individually agreeing on its terms
on different dates between [BCI]."388 As noted, [BCI].389
5.130. The above considerations served as the basis for the Panel's decision to determine the
corporate borrowing rate using the average yields one month prior and six months prior to the
conclusion of the four A350XWB LA/MSF contracts, in the form of a range. In this regard, we
observe that, although the Panel determined the corporate borrowing rate in the form of a range
of average yields, the Panel rightly gave more prominence to the one-month average yield on the
EADS bond than to the six-month average yield . Indeed, the Panel found that "the one -month
average would appear to be a reasonable proxy for the parties' expectations."390 By contrast, the
Panel considered that "{t}he six-month average may be less likely to reflect expectations during
the finalisation period, but may also be a helpful indication of market expectations."391
5.131. As noted, in the present case, the Panel found that "{p}arties agreeing to a complex loan
contract may rather set the rates in the lead-up to the conclusion of the contract, and prior to the
actual day on which the contract is signed ."392 In our view, t his understanding is in line with our
observation that, in some cases, parties may have committed to a transaction – or to key aspects
thereof – during a finalization period of the negotiations preceding the moment of formal
conclusion of all aspects of th at transaction. This may be the case, in particular, where , as here,
the financial contribution at issue consists of complex financing instruments, the terms and
conditions of which have been negotiated and agreed over a certain contracting period. We have
indicated that, in such circumstances, it would be appropriate for a panel to take into account in its
analysis information that pre -dates the moment or actual day on which the legal instruments
underlying the relevant transaction were formally signed.
5.132. Specifically, with regard to the A350XWB LA/MSF contracts, the Panel's findings support
the view that the four A350XWB LA/M SF contracts fall within this category of complex financing ,
the terms and conditions of which have been negotiated and agreed over a c ertain period of time.
Indeed, we recall that the Panel indicated that these contracts share the same core features as the
LA/MSF measures considered in the original proceeding s in that their repayment is back -loaded,

386 Panel Report, para. 6.389.
387 Panel Report, para. 6.387.
388 Panel Report, para. 6.55 (referring to Williams Statement (Panel Exhibit EU-354 (BCI)), para. 3;
European Union's response to Panel question No. 101). According to the Panel, "Airbus commenced formal
negotiations with the Airbus governments for A350XWB LA/MSF in [BCI] after the launch of the A350XWB."
(Ibid., para. 6.144 (referring to European Union's response to Panel question No. 101) (emphasis original;
additional text in fn 290 thereto omitted))
390 Panel Report, para. 6.389.
391 Panel Report, para. 6.389.
392 Panel Report, para. 6.389.

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primarily levy-based, dependent on the sales of aircraft, and unsecured. 393 As to the manner in
which the terms and conditions of the A350XWB LA/MSF contracts were negotiated and agreed,
the Panel found that "the Airbus governments {i.e. France, Germany, Spain, and the
United Kingdom} formally e ntered into negotiations with Airbus for LA/MSF {to support the
A350XWB programme} in late 2008, individually agreeing on its terms on different dates between
[BCI]."394 Indeed, [BCI].395 These findings by the Panel show that Airbus and the four member
States negotiated and agreed the terms and conditions of the different A350XWB LA/MSF contracts
over a certain period of time.
5.133. Moreover, our review of the manner in which the parties presented their argume nts and
evidence regarding the relevant dates for observing the yield of the EADS bond reveals that the
parties did not focus their discussion before the Panel on determining which of the three time
periods proposed by Dr Jordan would be the correct one fo r determining such yield. Indeed, t he
market benchmark that the United States originally proposed to the Panel did not include a
reference to the EADS bond. 396 In turn, most of the European Union's argumentation sought to
support Professor Whitelaw's averagi ng approach as a basis for determining the relevant dates of
the EADS bond yield. 397 In response, the United States criticized Professor Whitelaw 's averaging
approach398 and presented as Exhibit USA -505 an additional report prepared by Dr Jordan.399
In that report, Dr Jordan provided a table comparing the averag e yield calculated by
Professor Whitelaw with yields for "more relevant dates and periods for each of the
agreements".400 Through this table, the United States submitted to the Panel information
regarding: (i) the average yield over the six months prior to the conclusion of the A350XWB
LA/MSF contracts; (ii) the average yield over the month prior to the conclusion of the A350XWB
LA/MSF contracts; and (iii) the yield on the day of conclusion of the A350XWB LA/MSF
contracts.401
5.134. Following the report presented by Dr Jordan as Exhibit USA -505, the discussion between
the United States and the European Union focused mostly on the question of whether the EADS
bond yield to maturity should be adjust ed based on similarly rated bonds with a term of 20 years,
as proposed by the United States. In its subsequent communications to the Panel , the
European Union did not appear to criticize expressly the relevant da tes for observing the EADS
bond yield proposed by the United States. Nor did the European Union, for instance, in its
comments to the United States' responses to Panel questions, seem to express a preference for

393 Panel Report, para. 6.286.
394 Panel Report, para. 6.55 and fn 132 thereto (referring to Williams Statement (Panel Exhibit EU-354
(BCI)), para. 3; European Union's response to Panel question No. 101). (fn 131 omitted)
396 The general corporate borrowing rates originally proposed by the United States were based on the
same data used to derive the general corporate borrowing rates applied in the original proceedings, updated to
account for the timing of the conclusion of the relevant A350XWB LA/MSF contracts. (Panel Report,
para. 6.353)
397 We recall that the European Union asserted before the Panel that it "is possible to establish from
market data the company's actual cost of long-term borrowing", that is, "EADS' actual, long-term borrowing
rates at the date of the agreements, expressed as the yield on its longest-term bond". (Panel Report,
para. 6.357 (quoting Whitelaw Response to Jordan (Panel Exhibit EU-121 (BCI/HSBI)), paras. 8 and 11-12,
and fns 10 and 13 thereto)) In particular, the European Union proposed using the EADS Finance B.V. 5.5%
coupon 03/18 MTN, a bond issued on 24 September 2003 and maturing on 25 September 2018. (Ibid.,
para. 6.358) The European Union specified that Professor Whitelaw derived "the average yield to maturity
('YTM') of the EADS bond maturing in the last quarter of 2018 for the period when all four member State
financing agreements were concluded – i.e., [BCI]". (European Union's second written submission to the
Panel, para. 312)
398 The United States took issue with the fact that Professor Whitelaw calculated an average of the daily
YTM on the EADS bond over "an arbitrary [BCI] time period that beg{an} [BCI]". (United States' comments
to the European Union's responses to Panel question No. 99, para. 275 (fn omitted)) The United States
disagreed with the fact that Professor Whitelaw's approach also relied on debt instruments with a maturity that
is "far shorter than the actual term of the A350 XWB LA/MSF loans to Airbus". (Ibid. (quoting Jordan Reply
(Panel Exhibit USA-505 (BCI/HSBI)), fn 3 to para. 3))
399 Jordan Reply (Panel Exhibit USA-505 (BCI/HSBI)).
400 Jordan Reply (Panel Exhibit USA-505 (BCI/HSBI)), para. 29.
401 Jordan Reply (Panel Exhibit USA-505 (BCI/HSBI)), Table 6 at para. 29.

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observing the EADS bond yield on the day of conclusion of the contracts .402 Thus, there was not
much debate between the parties regarding which of the three yields of the EADS bond presented
by the United States should be chosen for purposes of determining the corporate borrowing rate.
5.135. In light of these considerations, we see no error in the Panel's obse rvation that "{p}arties
agreeing to a complex loan contract may rather set the rates in the lead -up to the conclusion of
the contract, and prior to the actual day on which the contract is signed"403, and its conclusion that
the four A350XWB LA/MSF contracts are complex financing instruments that were negotiated and
agreed by Airbus and the four member States over a contracting period spanning across [BCI].
5.136. We note that the European Union additionally argues that the range of average yields used
by the Panel r aises concerns similar to those expressed by the P anel itself regarding
Professor Whitelaw's averaging approach. According to the European Union, "{b}y using average
yields – instead of the yield at the time each contract was signed – the Panel's approach could
artificially increase or lower a market borrowing rate, leading to a false positive or a false negative
subsidy finding."404 We find the European Union's position difficult to reconcile with the fact that,
before the Panel, the European Union itself proposed determining the corporate borrowing rate on
the basis of average yields. 405 Moreover, the European Union appears to assume that the reason
why the Panel rejected Professor Whitelaw's approach was the fact that it used average yields.
We disagree. As we see it, the Panel's conclusion was based on other reasons. For example, the
Panel observed that "Professor Whitelaw's averaging approach would result in the application of
corporate borrowing rates derived over time periods that are different for the four LA/MSF
contracts."406 Also, the Panel indicated that "Professor Whitelaw's averaging approach would also
incorporate data from after the conclusion of three of the four contracts."407
5.137. Other aspects of the Panel's analysis are also relevant in addr essing the European Union's
argument that the use of average yields could lead to a "false" finding of benefit. In particular, we
recall that, in addition to the question of the relevant dates for observing the EADS bond yield, the
Panel examined other iss ues in determining the applicable corporate borrowing rate. 408
In assessing these issues, it seems that the Panel preferred to follow an approach whereby the
calculations would most likely be a conservative reflection of the corporate borrowing rate .409
For instance, the Panel pointed out that "the EADS bond yield may be lower than rates that would
be required for borrowing by its Airbus subsidiaries alone (that is, the EADS bond yield may
understate the corporate borrowing rate for the French and Spanish contracts)."410 In addition, the
Panel stated that, contrary to the United States' position, it decided not to adjust the EADS bond
yield for a 20-year maturity. The Panel considered it preferable to "use the unadjusted yields of
the EADS bond on the understanding that it is likely to be a conservative reflection of the

402 See e.g. European Union's comments on the United States' response to Panel questions Nos. 92
and 110-112.
403 Panel Report, para. 6.389.
404 European Union's appellant's submission, para. 294.
405 Panel Report, para. 6.378.
406 Panel Report, para. 6.386 (referring to Jordan Reply (Panel Exhibit USA-505 (BCI/HSBI)), para. 27).
(emphasis added; additional text in fn 588 thereto omitted) The Panel explained in this regard:
For example, in the present case, the market rate for the UK loan agreement, coming later,
would be distorted upwards by higher yields from the time when the French agreement was
concluded – some [BCI] earlier (according to Professor Whitelaw). The market rate for the
French loan agreement, however, would not be judged against market rates from [BCI] prior to
its conclusion, when the bond yields were even higher and would have likewise distorted the
rates upwards.
(Ibid. (emphasis original))
407 Panel Report, para. 6.387.
408 We recall that, in determining the general corporate borrowing rate, the Panel examined the
following four issues raised by the United States: (i) whether the EADS bond reflects the identity of the
borrower; (ii) the relevant dates for observing the EADS bond yield; (iii) whether to adjust the EADS bond yield
in terms of maturity and duration; and (iv) whether to add to the corporate borrowing rate an amount for
normal fees and charges associated with general corporate borrowing on the market. (Panel Report,
paras. 6.367-6.428)
409 Indeed, the Panel indicated that it would "use the unadjusted yields of the EADS bond on the
understanding that it is likely to be a conservative reflection of the corporate borrowing rate that should be
used to construct the relevant market benchmark for the LA/MSF contracts". (Panel Report, para. 6.429)
410 Panel Report, para. 6.429.

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corporate borrowing rate that should be used to construct the relevant market be nchmark for the
LA/MSF contracts". 411 In light of these considerations, we doubt that the use of average yields
could, in and of itself, have led to "a false positive or a false negative subsidy finding" in the
present case, as the European Union suggests.412
5.138. As indicated above, t he European Union correctly argues that, in conducting the benefit
analysis, the comparison focuses "on the moment in time when the lender and borrower commit to
the transaction".413 However, we disagree with the European Union to the ex tent that it suggests
that the Panel was required, pursuant to Article 1.1(b) of the SCM Agreement, to limit its analysis
to data regarding the yield "on the day of conclusion" of each A350XWB LA/MSF contract
regardless of the time period over which the parties may have committed to the terms and
conditions of that financing instrument. Rather, a panel conducting this assessment must look at
how the relevant government financial contribution is structured , focusing on the nature and type
of financing that is being provided and whether aspects thereof were agreed in the lead -up to the
formal signing of the legal instrument providing the financial contribution.
5.139. We recall that the Panel provided two reasons in support of its decision to determine the
corporate borrowing rate using the average yields one month prior and six months prior to the
conclusion of the A350XWB LA/MSF contracts, in the form of a range. First, the Panel considered
that "the yield on the day of the signature of contract may reflect atypi cal fluctuations." 414
As noted above, we see no error in th is observation by the Panel. The Panel's second reason was
that "{p}arties agreeing to a complex loan contract may rather set the rates in the lead -up to the
conclusion of the contract, and prior to the actual day on which the contract is signed."415 We have
found this understanding to be in line with our observation that, in some cases, parties may have
committed to a transaction – or to key aspects thereof – during a finalization period of the
negotiations preceding the moment of formal conclusion of all aspects of that transaction .
This may be the case, for example, where, as here, the financial contribution at issue consists of
complex financing the terms and conditions of which have been negotiated and agreed over a
certain contracting period. The Panel's findings, in our view, support the view that the A350XWB
LA/MSF contracts fall within this category of complex financing. This is particularly the case, given
the Panel's findings t hat: (i) the A350XWB LA/MSF contracts share certain unique features
compared to other forms of financing, namely, that their repayment terms are back-loaded,
primarily levy -based, dependent on the sales of aircraft , and unsecured; and (ii) "the Airbus
governments {i.e. France, Germany, Spain, and the United Kingdom} formally entered into
negotiations with Airbus for LA/MSF {to support the A350XWB programme} in late 2008,
individually agreeing on its terms on different dates between [BCI]."416
5.140. The above consi derations served as the basis for the Panel's determin ation of the
corporate borrowing rate. As noted, while the Panel determined the corporate borrowing rate in
the form of a range of average yields, it rightly gave more prominence to the one -month average
yield of the EADS bond than to the six-month average yield . Indeed, the Panel found th at
"the one-month average would appear to be a reasonable proxy for the parties' expectations." 417
By contrast, the Panel considered that "{t}he six-month average may be less likely to reflect
expectations during the finalisation period, but may also be a helpful indication of market
expectations."418 In these circumstances, we find that the Panel did not err in its application of
Article 1.1(b) of the SCM Agreement in finding that the corporate borrowing rate component of the
market benchmark could be based on the average yields o f the EADS bond "one-month prior and

411 Panel Report, para. 6.429. (emphasis added) In this regard, the Panel indicated that "the increased
uncertainty with respect to repayments scheduled for a more distant point in time means that the EADS bond
yield likely gives a conservative estimate of the corporate borrowing rate component of the benchmark rate for
all four contracts". (Ibid. (emphasis original)) Moreover, the Panel stated that "the higher Macaulay durations
of the [BCI] contracts, when compared to the Macaulay duration of the EADS bond, further suggests that the
EADS bond yield would represent a conservative estimate for those three contracts." (Ibid. (emphasis original))
412 European Union's appellant's submission, para. 294.
413 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 836.
414 Panel Report, para. 6.389.
415 Panel Report, para. 6.389.
416 Panel Report, para. 6.55 (referring to Williams Statement (Panel Exhibit EU-354 (BCI)), para. 3;
European Union's response to Panel question No. 101).
417 Panel Report, para. 6.389.
418 Panel Report, para. 6.389.

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six-months prior to the conclusion " of the French, German, Spanish, and UK A350XWB LA/MSF
contracts, "in the form of a range", attributing more weight to the former average yields than it did
to the latter.419
5.3.1.4 Whether the Panel acted inconsistently with Article 11 of the DSU by rejecting
the yield of the relev ant EADS bond on the day of conclusion of each A 350XWB
LA/MSF contract
5.141. The European Union presents two main lines of argumentation in support of its claim that
the Panel acted inconsistently with its obligations under Article 11 of the DSU. First, the
European Union argues that the Panel acted inconsist ently with Article 11 because it "lacked a
sufficient evidentiary basis" for rejecting the EADS bond yield on the day of conclusion of each of
the four A350XWB LA/MSF contract s.420 According to the European Union, the Panel justified the
rejection of the EADS bond yield on the day of conclusion of the contract s due to "the possibility
that that yield 'may reflect atypical fluctuations'".421 The European Union asserts that the Panel did
not test whether such atypical fluctuations in fact existed, and argues that the Panel therefore had
no evidentiary basis to reject the yield on the day of conclusion of the four contracts.
5.142. Second, the European Union asserts that two aspects of the Panel's analysis reflect a
"lack of objectivity and even -handedness".422 The European Union argues that, on the one hand,
the Panel's rejection of the data pertaining to the EADS bond yield on the day of conclusion of each
contract occurred against the background of a downward trend in such yield, which resulted in an
"artificial increase in the market benchmark" used by the Panel .423 On the other hand , the Panel
provided no plausible explanation for its "unsupported" decision to set the corporate borrowing
rate component of its market benchmark in the form of a range of average yields.424
5.143. The United States requests that we reject the European Union's claim that the Panel acted
inconsistently with Article 11 of the DSU in this regard. According to the United States, the Panel in
this case provided a thoroughly reasoned explanation, supported by evidence, for each of its
findings. In particular, t he United States disagrees that the Panel acted inconsistently with
Article 11 by stating that the EADS bond yield " may reflect atypical fluctuations " without
"test{ing} whether such atypical fluctuations in fact existed". 425 The United States points out that
the Panel Report contains a graph that displays daily fluctuations in the EADS bond yield, which
confirms that the Panel's concern about potentially atypical fluctuations in the bond yield was
"reasonable – not egregiously erroneous ".426 The United States also disagrees with the
European Union's assertion that the Panel provided no "plausible explanation" for its decision to
express the corporate borrowing rate in the form of a range of average yields, contrary to
Article 11 of the DSU.427 The United States points out that such a plausible explanation is found in
paragraph 6.389 of the Panel Report. Additionally, the United States asserts that the inclusion of
such a range "enhances the robustness" of any findings based on a market benchmark because it
allows for a comparison that reflects the variability of the bond yields.428

419 Panel Report, para. 6.389.
420 European Union's appellant's submission, para. 296.
421 European Union's appellant's submission, para. 297 (quoting Panel Report, para. 6.389 (emphasis
added by the European Union)).
422 European Union's appellant's submission, para. 298.
423 European Union's appellant's submission, para. 298.
424 European Union's appellant's submission, para. 299. The European Union submits that eliminating
the range chosen by the Panel narrows the gap between the benchmark and the internal rate of return, which
increases the "stress" on the Panel's overall benefit finding. (Ibid.)
425 United States' appellee's submission, para. 211 (quoting European Union's appellant's submission,
para. 297).
426 United States' appellee's submission, para. 211 (referring to Panel Report, para. 6.381 and Figure 1
thereto).
427 United States' appellee's submission, para. 210 (quoting European Union's appellant's submission,
para. 299).
428 United States' appellee's submission, para. 210. Furthermore, while the United States acknowledges
that there could be cases where the inclusion of such a range calls into question the existence of a subsidy, this
is not the case in the present dispute, "as the terms of LA/MSF for the A350 XWB were better than both ends
of the Panel's ranges". (Ibid.)

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5.144. Before addressing the European Union's claim that the Panel acted inconsistently with
Article 11 of the DSU, we begin by recalling key aspects of the Appellate Body's jurisprudence
under this provision.
5.145. Article 11 of the DSU provides:
Function of Panels
The function of panels is to assist the DSB in discharging its responsibilities under this
Understanding and the covered agreements. Accordingly, a pane l should make an
objective assessment of the matter before it, including an objective assessment of the
facts of the case and the app licability of and conformity with the relevant covered
agreements, and make such other findings as will assist the DSB in m aking the
recommendations or in giving the rulings provided for in the covered agreements.
5.146. As the Appellate Body has observed, " Article 11 of the DSU imposes upon panels a
comprehensive obligation to make an 'objective assessment of the matter', an obligat ion which
embraces all aspects of a panel's examination of the 'matter', both factual and legal." 429
In disputes concerning actionable subsidies under the SCM Agreement, a panel serves as the initial
trier of facts. In such cases, panels have the responsibil ity to gather and analyse relevant factual
data and information.430 The Appellate Body has explained that a panel's duty as the trier of facts,
in such cases, requires it to "consider all the evidence presented to it, assess its credibility,
determine its weight, and ensure that its factual findings have a proper basis in that evidence". 431
In the context of addressing claims under Part III of the SCM Agreement, the Appellate Body has
further specified the conditions that a panel must comply with to remain within the bounds of its
authority as the initial trier of facts. 432 In particular, a panel may not "mak e affirmative findings
that lack a basis in the evidence contained in the panel record". 433 As the initial trier of facts,
a panel must also provide "reasone d and adequate explanations and coherent reasoning" 434 and
not reveal a lack of "even-handedness" in the "treatment of the evidence".435
5.147. Within these parameters, however, it is generally within the discretion of a panel to decide
which evidence it chooses to utilize in making its findings436, and to determine how much weight to
attach to the various items of ev idence placed before it by the parties. 437 A panel does not err
simply because it declines to accord to the evidence the weight that one of the parties believes
should be accorded to it.438 Moreover, the mere fact that a panel has not explicitly referred to each
and every piece of evidence in its reasoning is insufficient to establish a claim of violation under
Article 11.439 Rather, an appellant must explain why such evidence is so material to its case that
the panel's failure to address it explicitly has a bearing on the objectivity of its factual
assessment.440

429 Appellate Body Report, US – Hot-Rolled Steel, para. 54.
430 Appellate Body Report, US – Upland Cotton, para. 458.
431 Appellate Body Reports, US – Large Civil Aircraft (2nd complaint), para. 992; Brazil – Retreaded
Tyres, para. 185. See also Appellate Body Reports, EC – Hormones, paras. 132-133; Australia – Salmon,
para. 266; EC – Asbestos, para. 161; EC – Bed Linen (Article 21.5 – India), paras. 170, 177, and 181;
Japan ‒ Agricultural Products II, paras. 141-142; Korea ‒ Alcoholic Beverages, paras. 161-162; Korea – Dairy,
432 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 881 and 1317.
433 Appellate Body Report, US – Carbon Steel, para. 142 (referring to Appellate Body Report,
US ‒ Wheat Gluten, paras. 161-162).
434 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), fn 618 to para. 293.
435 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 292.
436 Appellate Body Report, EC – Hormones, para. 135.
437 Appellate Body Report, Korea – Dairy, para. 137.
438 Appellate Body Reports, Australia – Salmon, para. 267; Japan – Apples, para. 221; Korea – Alcoholic
Beverages, para. 164.
439 Appellate Body Reports, EC – Fasteners (China), paras. 441-442; Brazil – Retreaded Tyres,
para. 202.
440 Appellate Body Report, EC – Fasteners (China), para. 442.

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5.148. The Appellate Body has also considered it unacceptable for an app ellant simply to recast
factual arguments that it made before the panel in the guise of an Article 11 claim.441 Instead, an
appellant must ide ntify specific errors regarding the objectivity of the panel's assessment 442 and
"explain why the alleged error meets the standard of review under that provision". 443 Indeed, a
claim that a panel has f ailed to conduct the "objective assessment of the matter before it" as
required by Article 11 of the DSU is "a very serious allegation"444, and the Appellate Body will not
"interfere lightly" with a panel's fact -finding authority.445 Rather, for a claim under Article 11 to
succeed, the Appellate Body "must be satisfied that the panel has exceeded the bounds of its
discretion, as the trier of facts". 446 According to the Appellate Body, "not every error allegedly
committed by a panel amounts to a violation of Article 11 of the DSU" 447, but only tho se that are
so material that, "taken together or singly" 448, they undermine the objectivity of the panel's
assessment of the matter before it.449
5.149. In its first line of argumentation, the European Union challenges the lack of a sufficient
evidentiary basis for the Panel's rejection of the yield of the EADS bond on the day of conclusion of
each A350XWB LA/MSF contract because of "the possibility that that yield 'may reflect atypical
fluctuations'".450 According to the European Union, the undisputed data on the record show that
the yield on the day of conclusion of each A350XWB LA/MSF contract did not reflect atypical
fluctuations, but was very similar – and sometimes even identical – to the average yield over the
one-month period prior to the conclusion of each contract.
5.150. In our view, in making this argument, the European Union appears to be assuming that
the Panel intended to base its conclusion on the fact that , in effect, there were "atypical
fluctuations" in the EADS bond yield on the day of conclusion of the four A350XWB LA/MSF
contracts. However, as noted above, we do not understand the Panel to have based its finding on
such an assumption. Rather, the Panel appears to have merely observed, as a general matter, that
choosing the yield on the day of conclusion of the contract at issue might raise some
methodological concerns for purposes of constructing the market benchmark because, on the day
of conclusion of a contract, the yield " may reflect atypical fluctuations".451 Had the Panel intended
to make the factual finding that the yield of the EADS bond was indeed affected by atypical
fluctuations on the day of conclu sion of each of the four contracts, there could well be good
reasons to criticize the Panel for not having verified whether the data substantiated tha t finding
and for not having reflected such review of the data in its reasoning . However, this is not how we
read the Panel's analysis. Moreover, t he Panel provided further reasoning as to why it would be
preferable not to choose the yield of the bond on t he day of conclusion of a contract by stating
that "{p}arties agreeing to a complex loan contract may rather set the rates in the lead -up to the
conclusion of the contract, and prior to the actual day on which the contract is signed." 452
Therefore, we are not persuaded by the European Union's argument in this regard.
5.151. In its second line of argumentation under Article 11 of the DSU, the European Union
argues that the Panel's analysis reflects a lack of objectivity and even -handedness.
The European Union's argument is two-fold. First, the European Union contends that the fact that
the Panel reject ed the EADS bond yield on the da y of conclusion of each A350XWB LA/MSF
contract against the background of a downward trend in such yield evidences a lack of objectivity

441 Appellate Body Report, EC – Fasteners (China), para. 442.
442 Appellate Body Report, EC – Fasteners (China), para. 442.
443 Appellate Body Reports, China – Rare Earths, para. 5.178 (quoting Appellate Body Report,
EC ‒ Fasteners (China), para. 442 (emphasis original)).
444 Appellate Body Reports, China – Rare Earths, para. 5.227 (quoting Appellate Body Report,
EC ‒ Poultry, para. 133).
445 Appellate Body Reports, EC – Sardines, para. 299 (quoting Appellate Body Report, US ‒ Wheat
446 Appellate Body Report, US – Wheat Gluten, para. 151.
447 Appellate Body Report, EC – Fasteners (China), para. 442.
448 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1318. See also
Appellate Body Report, EC – Fasteners (China), para. 499.
449 Appellate Body Reports, China – Rare Earths, para. 5.179.
450 European Union's appellant's submission, para. 297 (quoting Panel Report, para. 6.389 (emphasis
added by the European Union)).
452 Panel Report, para. 6.389.

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and even-handedness. According to the European Union, this resulted in an "artificial increa se in
the market benchmark" used by the Panel.453
5.152. We agree with the European Union that, given the risk of false findings of benefit being
made, a panel must be particularly vigilant when it engages in a benefit analysis with respect to
complex financial contributions , the terms and conditions of which have been negotiated and
agreed over a period of time. In particular, a panel is required to take into account the time period
over which the terms and conditions of the financial contribution were negotiated and agreed,
so that the benefit comparison focuses "on the moment in time when the lender and borrower
commit{ted} to the transaction".454 However, the fact that the Panel relied on averages of data is
not in itself objectionable, provided that this information is close enough in time to the conclusion
of the contract terms and conditions to be probative for the benefit c omparison. In any event, the
fact that there was a downward trend in the yield of the EADS bond does not per se establish that
the Panel failed to conduct a proper benefit analysis when it relied on a range of average yields,
let alone that it acted incons istently with Article 11 of the DSU. In fact, we view the
European Union's arguments under Article 11 of the DSU as being largely premised on its view
that the Panel misapplied Article 1.1(b) of the SCM Agreement.
5.153. As noted above, we see no error in the Pan el's analysis of the corporate borrowing rate
component of the market benchmark under Article 1.1(b) of the SCM Agreement. Indeed, we
consider that the Panel based its conclusion on the specific nature and features of the A350XWB
LA/MSF financing at issue in light of the arguments and evidence presented by the parties .
In particular, one of the reasons provided by the Panel was that "{p}arties agreeing to a complex
loan contract may rather set the rates in the lead-up to the conclusion of the contract, and prior to
the actual day on which the contract is signed ."455 The Panel's findings support the view that the
French, German, Spanish, and UK A350XWB LA/MSF contracts fall within this category of
complex financing.456
5.154. As we understand it, these considerations served as the basis for the Panel's decision to
determine the corporate borrowing rate using the average yields one month prior and six months
prior to the conclusion of each contract, in the form of a range , placing more reliance on the
one-month average, while considering the six-month average "helpful". Since we disagree with the
European Union's arguments in the context of its claim of error under Article 1.1(b) of
the SCM Agreement, we consequently disagree with this line of argumentation under Article 11
of the DSU.
5.155. Second, the European Union asserts that the Panel's lack of objectivity and
even-handedness is also revealed by its decision to set the corporate borrowing rate component of
the market benchmark in the form of a range of average yields, without supporting its decision
with any explanation.457
5.156. In addressing this challenge under Article 11 of the DSU, we begin by noting that the Panel
expressed a clear pref erence for determining the EADS bond yield on the basis of evidence about
market rates "in the lead -up to the conclusion of a contract". 458 We recall that the information on
the record regarding the relevant yields of the EADS bond included: (i) the average yield over the
six months prior to the conclusion of the A350XWB LA/MSF cont racts; and (ii) the average yield

453 European Union's appellant's submission, para. 298.
454 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 836.
455 Panel Report, para. 6.389.
456 This is particularly the case, given the Panel's findings that: (i) the four A350XWB LA/MSF contracts
share certain unique features compared to other forms of financing, namely, that their repayment terms are
back-loaded, primarily levy-based, dependent on the sales of aircraft, and unsecured; and (ii) "the Airbus
governments {i.e. France, Germany, Spain, and the United Kingdom} formally entered into negotiations with
Airbus for LA/MSF {to support the A350XWB programme} in late 2008, individually agreeing on its terms on
different dates between [BCI]." (Panel Report, para. 6.55 (referring to Williams Statement (Panel
Exhibit EU-354 (BCI)), para. 3; European Union's response to Panel question No. 101))
457 European Union's appellant's submission, para. 299.
458 Panel Report, para. 6.387. For instance, in its concluding sentence addressing Professor Whitelaw's
averaging approach, the Panel stated that it "reject{ed} the averaging approach in favour of the yields from a
consistent time-period up to the date of the conclusion of the individual contract, as calculated by Dr Jordan".
(Ibid., para. 6.388 (emphasis added))

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over the month prior to the conclusion of the A350XWB LA/MSF contracts. In selecting those
two periods proposed by Dr Jordan, the Panel reasoned that "{p}arties agreeing to a complex loan
contract may rather set the rates in the lead-up to the conclusion of the contract , and prior to the
actual day on which the contract is signed." 459 In light of these considerations, the Panel, in our
view, did provide an explanation for its decision to set the corporate borro wing rate in the form of
a range of average yields. In any event, w e reiterate our understanding that, even though the
corporate borrowing rate was determined in the form of a range of average yields, the Panel
rightly gave more prominence to the one -month average yiel d of the EADS bond than to the
six-month average yield.
5.157. In addition, we highlight that the European Union itself fails to indicate why relying on a
range of average yields for purposes of identifying the general corporate borrowing rate
necessarily shows a lack of objectivity. An appellant must identify specific errors regardi ng the
objectivity of the panel's assessment460, and "it is incumbent on a participant raising a claim under
Article 11 on appeal to explain why the alleged error meets the standard of review under that
provision".461 It certainly fell well within the bounds of the Panel's discretion under Article 11 of the
DSU to refer to both averages in the form of a range.
5.158. For the foregoing reasons, we disagree with the European Union's claim that the Panel
acted inconsistently with Article 11 of the DSU because it lacked a sufficient evidentiary basis for
rejecting the EADS bond yield on the day of conclusion of each A350XWB LA/MSF contract .
Moreover, we do not believe that the European Union has established that the Panel's decision to
set the corporate borrowing rate in the form of a range of average yields, or the fact that such
decision was done against the background of a downward trend in the yield of the EADS bond,
reflects a lack of objectivity and even-handedness contrary to the requirements of Article 11 of the
DSU. Consequently, we find that the European Union has failed to establish that the Panel acted
inconsistently with its obligations under Article 11 of the DSU.
5.3.1.5 The European Union's conditional appeal
5.159. The European Union brings two conditional claims – one claim of error in the application of
Article 1.1(b) of the SCM Agreement and one claim of inconsistency with Article 11 of the DSU –
challenging the Panel's decision to accept the average yield of the EADS bond over the six months
prior to the conclusion of each of the four A350XWB LA/MSF contract s as part of the range that
was used to determine the corporate borrowing r ate.462 These claims are conditional upon us
rejecting the European Union's principal claims on appeal. Given that we have rejected these
claims of error, we turn to address the European Union's conditional claims.
5.3.1.5.1 Whether the Panel erred in its application of Article 1.1(b) of the
SCM Agreement by including the six-month average yield of the EADS bond in its
determination of the corporate borrowing rate
5.160. The European Union argues that the Panel erroneously used, "as part of the range of
corporate borrowing r ates forming part of its market benchmark, the average yield {of the EADS
bond} over the six months prior to the conclusion of each of the {four A350XWB} LA/MSF
contracts".463 In the European Union's view, "{t}he average yield of the relevant EADS bond over
those six-month periods does not reflect the yield 'at the time that each particular contract was
concluded', and does not 'focus{} on the moment in time when the lender and borrower commit to
the transaction '."464 The European Union points out that " {t}he Panel itself found that the
six-month average was ' less likely to reflect expectations during the finalisation period' of each

460 Appellate Body Report, EC – Fasteners (China), para. 442.
461 Appellate Body Reports, China – Rare Earths, para. 5.178 (quoting Appellate Body Report,
EC ‒ Fasteners (China), para. 442 (emphasis original)).
462 European Union's appellant's submission, paras. 300-301.
463 European Union's appellant's submission, para. 302.
464 European Union's appellant's submission, para. 303 (quoting Panel Report, paras. 6.385 and 6.388
(emphasis added by the European Union)).

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LA/MSF contract than the one -month average."465 Thus, in the European Union's view, the Panel
"adopted a market benchmark that the Panel itself recognised does not reflect the yield at the time
the LA/MSF contracts were concluded".466
5.161. Moreover, according to the European Union, the six-month average yield used by the Panel
was "particularly prone to result in misplaced findings of subsidisation", given that "there was a
downward trend in yields on the relevant EADS bond in the months leading-up to the conclusion of
each contract ."467 Consequently, with regard to each of the four A350XWB LA/MSF contracts,
"the average yield over the six-months prior to the conclusion of each contract was substantially
higher than the average yield over the one -month period prior to the conclusion of each
contract".468 Therefore, the European Union maintains that, "by using the six-month average yield,
the Panel 'artificially increase{d} a lower market borrowing rate', thereby 'creat{ing} a danger
that a benefit might be found in a case where LA/MSF w as really obta ined at, or above,
market rate'."469
5.162. In response, the United States asserts that, as in the context of its principal claim of error
in the application of Article 1.1(b) of the SCM Agreement, the European Union adopts an
"improperly narrow" reading of the Appellate Body's guidance that the commer cial benchmark
should be based on the time at which each particular contract was concluded.470 Therefore, for the
same reasons advanced in the context of the European Union's principal claim , the United States
disagrees that the Panel erred in its application of Article 1.1(b) by including in the calculation of
the corporate borrowing rate the average yiel d of the EADS bond over the six months prior to the
conclusion of the four A350XWB LA/MSF contracts.471
5.163. In our analysis above, we indicate that, although the Panel determined the corporate
borrowing rate in the form of a range of average yields, it rightly gave more prominence to the
one-month average yield of the EADS bond than to the six-month average yield. Indeed, the Panel
found that "the one -month average would appear to be a reasonable proxy for the parties'
expectations."472 By contrast, the Panel considered that "{t}he six-month average may be less
likely to reflect expectations during the finalisation period, but may also be a helpful indication of
market expectations." 473 Moreover, we find that Article 1.1(b) of the SCM Agreement does not
require the Panel to have conducted its benefit analysis by focusing exclusively on the yield of the
EADS bond "on the day of conclusion" of each A350XWB LA/MSF contract . Indeed, while in
conducting the benefit analysis the comparison focuses "on the moment in time when the lender
and borrower commit to the transaction" 474, we disagree with the European Union to the extent
that it suggests that the Panel should have conducte d the benefit comparison exclusively using
data concerning the yield "on the day of conclusion" of each A350XWB LA/MSF contract regardless
of the time period over which the parties may have committed to the terms and conditions of that
financing instrument.
5.164. As we see it, in claiming that the Panel committed legal error under Article 1.1(b) by
including in its analysis "the average yield {of the EADS bond} over the six months prior to the
conclusion of each of the LA/MSF contracts" 475, the European Union's claim is similarly challenging
the Panel's benefit analysis regardless of the time period over which the parties may have
committed to the terms and conditions of that financing instrument . Therefore, the same
considerations provided in our analysis of the earlier claim of error also apply in the context of the
present claim. As noted, we consider it relevant for a panel to evaluate the specific financing
instrument at issue, including the relevant circumstances surrounding the conclusion of that

465 European Union's appellant's submission, para. 304 (quoting Panel Report, para. 6.389 (emphasis
added by the European Union)).
466 European Union's appellant's submission, para. 304. (emphasis original)
467 European Union's appellant's submission, para. 306 (referring to Panel Report, para. 6.381).
468 European Union's appellant's submission, para. 306. (emphasis original)
469 European Union's appellant's submission, para. 307 (quoting Panel Report, para. 6.385).
470 United States' appellee's submission, para. 213.
471 United States' appellee's submission, para. 213.
472 Panel Report, para. 6.389.
473 Panel Report, para. 6.389.
474 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 836.
475 European Union's appellant's submission, para. 302.

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instrument, to determine the period over which the terms and conditions of those contracts were
agreed. This is because it is possible to envisage cases where , as here, the parties may have
committed to a transaction – or to key aspects thereof – during a finalization period of the
negotiations preceding the moment of formal conclusion of all aspects of that transaction. In such
circumstances, it would be appropriate for a panel to take into account in its analysis information
that pre-dates the moment or actual day on which the legal instruments underlying the relevant
transaction were formally signed.
5.165. As indicated above, the Panel's findings in the present case support the view that the
four A350XWB LA/MSF contracts fall within this category of comp lex financing. This is particularly
the case, given the Panel's findings that: (i) the A350XWB LA/MSF contracts share certain unique
features compared to other forms of financing, namely, that their repayment terms are
back-loaded, primarily levy -based, de pendent on the sales of aircraft , and unsecu red;
and (ii) "the Airbus governments {i.e. France, Germany, Spain, and the United Kingdom} formally
entered into negotiations with Airbus for LA/MSF {to su pport the A350XWB programme}
in late 2008, individually agreeing on its ter ms on different dates between [BCI]."476 These
considerations served as the basis for the Panel's decision to determine the corporate borrowing
rate using the average yields one month prior and six months prior to the conclusion of each of the
four contracts, in the form of a range.
5.166. Moreover, our review of the arguments and evidence presented by the parties regarding
the relevant dates for observing the yield of the EADS bond reveals that the parties did not focus
their discussion on determining which of the three time periods proposed by Dr Jordan would be
the correct one for determining such yield. Rather, much of the European Union's argumentation
supported the relevant dates of the EADS bond yield on the basis of Professor Whitelaw's
averaging approach. In turn, the United States criticized Professor Whitelaw's averaging approach
and submitted a report by Dr Jordan that included a table comparing the average yield calculated
by Professor Whitelaw with yields for "more relevant date s and periods for each of the
agreements"477, which contained data on the three periods from which the Panel ultimately chose
the corporate borrowing rate. As noted, since the six - and one -month average yields were not
contested by the parties before the Pan el, it does not seem unreasonable for the Panel to have
relied on this evidence, especially given the Panel's observation that "{p}arties agreeing to a
complex loan contract may rather set the rates in the lead -up to the conclusion of the contract,
and prior to the actual day on which the contract is signed" 478, and its conclusion that the
four A350XWB LA/MSF contracts are complex financing instruments , the terms and conditions of
which were negotiated and agreed by Airbus and the four member States over a contracting period
spanning across [BCI].
5.167. The European Union argues that " {t}he six-month average yield used by the Panel was
particularly prone to result in misplaced findings of subsidisation " because "there was a downward
trend in yields on the relevan t EADS bond in the months leading up to the conclusion of each
contract."479 We agree with the European Union that, given the risk of false findings of the
existence of benefit being made, a panel must be particularly vigilant where it engages in a benefit
analysis with respect to complex financial contributions , the terms and conditions of which are
negotiated and agreed over a certain finalization period before the time of formal conclusion.
In particular, a panel has to scrutinize the time period over whic h the terms and conditions of the
financial contribution were negotiated and agreed, so as to ensure that the benefit comparison
focuses "on the moment in time when the lender and borrower commit{ted} to the transaction".480
As noted, the fact that there was a downward trend in the yield of the EADS bond does not per se
establish that the Panel failed to conduct a proper benefit analysis when it relied on the average
yields of the EADS bond. In our analysis above, we reject the European Union's claims that the
Panel committed legal error under Article 1.1(b) of the SCM Agreement in its analysis of the
corporate borrowing rate component of the market benchmark. Instead, we find that the Panel

476 Panel Report, para. 6.55 (referring to Williams Statement (Panel Exhibit EU-354 (BCI)), para. 3;
European Union's response to Panel question No. 101).
477 Jordan Reply (Panel Exhibit USA-505 (BCI/HSBI)), Table 6 at para. 29.
478 Panel Report, para. 6.389.
479 European Union's appellant's submission, para. 306 (referring to Panel Report, para. 6.381).
480 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 836.

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based its conclusion on the specifi c A350XWB LA/MSF financing at issue and the relevant time
period over which its terms and conditions were concluded.
5.168. For the foregoing reasons, we do not consider that it was inappropriate for the Panel to
have included in its analysis information regarding the average yield of the EADS bond over the
six months prior to the conclusion of each of the four A350XWB LA/MSF contracts. In any event,
we recall that, although the corporate borrowing rate was determined in the form of a range of
average yields, the Panel rightly gave more prominence to the one -month average yield of the
EADS bond than to the six-month average yield, which was considered to be only a
"helpful indication of market expectations". 481 Consequently, we find that the European Union has
not es tablished that the Panel erred under Article 1.1(b) of the SCM Agreement "by accepting,
as part of the range for the corporate borrowing rate, the average yield on the relevant EADS bond
over the six months prior to conclusion of each LA/MSF contract".482
5.3.1.5.2 Whether the Panel acted inconsistently with Article 11 of the DSU by including
the six-month average yield of the EADS bond in its determination of the corporate
borrowing rate
5.169. We now turn to the European Union's conditional appeal that the Panel acted inconsistently
with Article 11 of the DSU by inclu ding in the calculation of the corporate borrowing rate the
average yield of the EADS bond over the six months prior to the conclusion of each of the
four A350XWB LA/MSF contracts. The European Union's challenge under Article 11 of the DSU is
based on two grounds.
5.170. First, the European Union contends that the Panel failed to provide a reasoned and
adequate explanation for including, as part of the range, the average yield over the six-month
period prior to the co nclusion of each A350XWB LA/MSF contract. The European Union points out
that, even though the Panel had noted that "the six-month average was 'less likely to reflect
expectations during the finalisation period ' of each contract than the one -month average"483,
the Panel "chose to adopt a range of values that included the six-month average".484 The other
part of the range (i.e. the one -month average yield) consisted of a more appropriate proxy.
According to the European Union, the inclusion of what the Panel itse lf considered to be an inferior
benchmark required, at a minimum, an explanation from the Panel. Nonetheless, according to the
European Union, the Panel failed to provide such explanation, let alone a reasoned and adequate
one, in contravention of Article 11 of the DSU.485
5.171. In response, t he United States rejects the European Union's conditional claim under
Article 11 of the DSU by reiterating that the European Union erroneously asserts that the Panel
"failed to provide any explanation for the inclusion of the six-month average yield".486

481 Panel Report, para. 6.389.
482 European Union's appellant's submission, para. 308.
483 European Union's appellant's submission, para. 310 (quoting Panel Report, para. 6.389 (emphasis
added by the European Union)).
484 European Union's appellant's submission, para. 311. (emphasis original)
485 European Union's appellant's submission, para. 311.
486 United States' appellee's submission, para. 213 (quoting European Union's appellant's submission,
para. 311).

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5.172. We begin by closely examining the Panel's analysis. I n the relevant passage of the
Panel Report referred to by the European Union487, the Panel indicated that it would need to
choose yields from among the periods of time provided by D r Jordan – i.e. the average yield over
the six months prior to the conclusion of the relevant contract; the average yield over the month
prior to the conclusion of the relevant contract; and the yield on the day of conclus ion of the
relevant contract. The Panel pointed out that the yield on the day of conclusion of the relevant
contract "may reflect atypical fluctuations". 488 The Panel added that "{p}arties agreeing to a
complex loan contract may rather set the rates in the l ead-up to the conclusion of the contract,
and prior to the actual day on which the contract is signed." 489 Then, the Panel made a few
observations about yields from the other two time periods. With regard to the one -month average
yield, the Panel stated that it "would appear to be a reasonable proxy for the parties'
expectations". In turn, regarding the six-month average yield, the Panel indicated that such
average "may be less likely to reflect expectations during the finalisation period, but may also be a
helpful indication of market expectations". 490 Finally, having made all of the above remarks, the
Panel reached the conclusion that it would "therefore carry out {its} benchmarking assessment
using the average yields one -month prior and six-months prior to th e conclusion of the contract,
in the form of a range".491
5.173. Moreover, w ith respect to the six-month average yield proposed by Dr Jordan, the
European Union correctly notes that the Panel indicated that " {t}he six-month average may be
less likely to reflect expectations during the finalisation period". 492 However, the European Union
omits that, in the same sentence, the Panel added that such a six-month average "may also be a
helpful indication of market expectations". 493 To us, the se stateme nts are consistent with the
Panel's earlier reasoning that "{p}arties agreeing to a complex loan contract may rather set the
rates in the lead-up to the conclusion of the contract, and prior to the actual day on which the
contract is sign ed."494 This understanding is in line with our observation that, in some cases,
parties may have committed to a transaction – or to key aspects thereof – during a finalization
period of the negotiations preceding the moment of formal conclusion of all aspects of that
transaction. We are thus of the view that the Panel did not exceed its margin of appreciation of the
evidence when it included the six-month average yield in the range for determining the corporate
borrowing rate component of the market benchmark . We also agree with the Panel when it found
that the one -month average prior to the conclusion of the transaction "would appear to be a
reasonable proxy for the parties' expectations" and thus gave it more prominence than the
six-month average, which was considered to be only a "helpful indication of market
expectations".495
5.174. In light of these considerations, we do not see grounds for a finding of inconsistency with
Article 11 of the DSU due to the alleged failure by the Panel to provide a reasoned and adequate
explanation. We recall that, although the Panel determined the corporate borrowing rate in the
form of a range of average yields, the Panel rightly gave more prominence to the one -month
average yield of the EADS bond than to the six-month average yield. While further analysis and
explanation may have provided a more robust basis for the Panel's decision to conduct the
benchmarking analysis usin g a range of average yields , we disagree with the European Union's
claim that the Panel's analysis lacks objectivity. Consequently, we find that the European Union
has not established that the Panel ac ted inconsistently with Article 11 of the DSU by failing to
provide a reasoned and adequate explanation for including, as part of its range, the average yield
over the six-month period prior to the conclusion of each of the four A350XWB LA/MSF
contracts.496

487 See Panel Report, para. 6.389.
488 Panel Report, para. 6.389.
489 Panel Report, para. 6.389.
490 Panel Report, para. 6.389.
491 Panel Report, para. 6.389.
492 Panel Report, para. 6.389.
493 Panel Report, para. 6.389.
494 Panel Report, para. 6.389.
495 Panel Report, para. 6.389.
496 European Union's appellant's submission, para. 310.

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5.175. In its second line of argumentation, the European Union considers that the Panel's
acceptance of the six-month average yield is based on inconsistent and incoherent reasoning .497
The European Union puts forward two reasons to substantiate its challenge.
5.176. First, the European Union highlights that, while the Panel c riticized Professor Whitelaw's
use of an average yield over [BCI], due to the possibility that such an approach could result in an
"artificially" lower (or higher) market borrowing rate, the Panel also included the six-month
average yield in the market benchmark. This is despite the fact that the six-month average
demonstrably resulted in an "artificial" increase of the market borrowing rate, which could result in
"misplaced" findings of subsidization. Consequently, the European Union considers that the Panel's
reasoning is "internally inconsistent".498
5.177. The United States rejects the European Union's claim that the Panel acted inconsistently
with Article 11 of the DSU in this regard and points out that the European Union does not state
what is inconsistent or incoherent about the Panel's finding. 499 According to the United States, the
European Union fails to appreciate the actual reason why the Panel rejected Professor Whitelaw's
[BCI] average. This rejection was not based on a concern that [BCI] is "too wide a window" from
which to draw the relevant data. 500 Rather, the Panel criticized Professor Whitelaw's [BCI]
average because it applied a uniform commercial bond yield fro m the time period of [BCI] for
each of the four A350XWB LA/MSF contracts, despite the fact that they were finalized on different
dates. Given that the Panel did not criticize Professor Whitelaw's approach because it is based on
data from a [BCI] time period, the United States maintains that there is nothing inconsistent or
incoherent about rejec ting Professor Whitelaw's [BCI] average while using the one -month and
six-month averages specific to the date of finalization of each A350XWB LA/MSF contract.501
5.178. The European Union's arguments appear to neglect important aspects of the reasoning
provided by the Panel for rejecting the averaging approach proposed by Prof essor Whit elaw.
In particular, the European Union seems to suggest that the sole reason why the Panel rejected
Professor Whitelaw's approach is th at such approach " could result in an 'artificially' lower
(or higher) market borrowing rate, therefore resulting in a 'misplaced ' finding of subsidisation
(or of no subsidisation)". 502 In so doing, the European Union overlooks the specific problems that
the Panel identified regarding the averaging approach proposed by Professor Whitelaw. As noted
above, the Panel's conclusion was based on two main reasons. First, the Panel observed that
"Professor Whitelaw's averaging approach would result in the application of corporate borrowing
rates derived over time periods that are different for the four LA/MSF contracts. "503 Second,
the Panel indicated that "Professor Whitelaw's averaging approach would also incorporate data
from after the conclusion of three of the four contracts."504
5.179. These considerations, in our view, confirm that the Panel di d not take issue with
Professor Whitelaw's averaging approach for the mere reason that it was an average.
We acknowledge t hat, had that indeed been the case, the European Union may have some
legitimate grounds to question the consistency and objectivity of the Panel's decision to include the
six-month average in the market benchmark . Instead, the Panel's misgivings in relation to
Professor Whitelaw's averaging approach stem med from the above -mentioned issues that the
Panel identified. Therefore, we do not consider that the Panel's reasoning was inconsistent or
incoherent for, on the one hand, rejecting Professor Whitelaw's averaging approach and, on the
other hand, including the six-month average as part of the range of average yields it used in
determining the corporate borrowing rate . Consequently, the European Union has not properly
substantiated this challenge under Article 11 of the DSU.

497 European Union's appellant's submission, para. 312.
498 European Union's appellant's submission, para. 313.
499 United States' appellee's submission, para. 214.
500 United States' appellee's submission, para. 215.
501 United States' appellee's submission, para. 215.
502 European Union's appellant's submission, para. 312 (referring to Panel Report, para. 6.385).
(emphasis original; additional text in fn 278 thereto omitted)
503 Panel Report, para. 6.386 (referring to Jordan Reply (Panel Exhibit USA-505 (BCI/HSBI)), para. 27).
(emphasis added; additional text in fn 588 thereto omitted)
504 Panel Report, para. 6.387.

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5.180. Moreover, t he European Union considers that the Panel's reasoning is internally
inconsistent for one additional reason. According to the European Union, o n the one hand,
the Panel rejected the EADS bond yield on the day of conclusion of the A350XWB LA/MSF contracts
based on the mere possibility that it "may" be "distorted", even though the evidence on the record
demonstrated that no such distortion existed. On the other hand, the Panel accep ted the
six-month average yield for the EADS bond as a basis for determining the corporate borr owing
rate, even though that average bore the same risk of being "distorted", and the evidence on the
record demonstrated that this average was, indeed, distorted. Therefore, according to t he
European Union, the Pan el's decision to accept the six-month average yield wa s based on
incoherent and inconsistent reasoning.505
5.181. In our view, this challenge under Article 11 of the DSU does not represent a full and
accurate characterization of the Panel's analysis. The European Union contends that the evidence
on the record demonstrated that there was no distortion in the yield of the EADS bond on the day
of conclusion of the A350XWB LA/MSF contracts, and that the six-month average was , in fact,
distorted. We see no support for the European Union's assertions in the Panel's findings or the
evidence on the record. In particular, we recall that we do not understand the Panel to have based
its finding on speculation that there might have been atypical fluctuations in the yield of the EADS
bond on the day of signature of the A350XWB LA/MSF contracts. Rather, the Panel merely
observed, as a general matter, that choosing the yield on the day of conclusion of the A350XWB
LA/MSF contract at issue might raise some methodological concerns for purposes of con structing
the market benchmark because, on the day of conclusion of a contract, the yield " may reflect
atypical fluctuations". 506 In any event, we observe that the Panel's analysis did not hinge on
whether or not there were any actual distortions on the yiel d of the EADS bond. Instead, the Panel
properly focused on the specific nature and features of the A350XWB LA/MSF financing at issue
and whether aspects thereof were agreed in the lead -up to the formal signing of the legal
instrument providing the financial contribution.
5.182. In addition, the European Union contends that the six-month average yield "bore the same
risk of being 'distorted'" 507 as the yield on the day of conclusion of the A350XWB LA/MSF
contracts. However, the European Union has not substantiated why that would be the case.
It appears to us that there is a clear diff erence in the way "atypical fluctuations" could affect,
on the one hand, a bond's yield observed only on one day and, on the other hand, a six-month
average of that same yield. We do not discount that a six-month average yield can also be
affected by "dis tortions" or "atypical fluctuations". However, without an explanation by the
European Union as to why the six-month average yield bore the sam e risks of being "distorted"
as the yield on the day of conclusion, we consider that the European Union has failed to
substantiate this challenge under Article 11 of the DSU.508
5.183. In light of the above considerations, we find that the European Union has failed to
establish that the Panel erred under Article 11 of the DSU by deciding to observe the EADS bond
yield on the basis of the average yields one month prior and six months prior to the conclusion of
each of the French, German, Spanish, and UK A350XWB LA/MSF contracts, in the form of a range.
5.3.1.6 Conclusion on the Panel's findings regarding the corporate borrowing rate
5.184. In our analysis above, we disagree with t he European Union's principal claims of error
concerning the manner in which the Panel identified the relevant time period from which to draw
the corporate borrowing rate component of the market benchmark. In particular, while we agree
that, in conducting the benefit analysis, the comparison focuses on the moment in time when the
lender and borrower commit to the transaction, we disagree with the European Union to the extent
that it suggests that the Panel was required to limit its analysis to data from "the day of
conclusion" of each A350XWB LA/MSF contract regardless of the time period over which the parties
may have committed to the terms and conditions of that financing instrument. Rather, the Panel

505 European Union's appellant's submission, paras. 314-316.
507 European Union's appellant's submission, para. 315.
508 As stated by the Appellate Body in EC – Fasteners (China), "{i}t is incumbent on a participant raising
a claim under Article 11 on appeal to explain why the alleged error meets the standard of review under that
provision." (Appellate Body Report, EC – Fasteners (China), para. 442 (emphasis omitted))

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was required to take into account the specific financing instrument at issue, including the relevant
circumstances surrounding the conclusion of that instrument, to d etermine the period over which
the terms and conditions of the relevant contract were agreed. The Panel provided two reasons in
support of its decision to determine the corporate borrowing rate using the average yields
one month prior and six months prior to the conclusion of the A350XWB LA/MSF contracts, in the
form of a range. First, the Panel considered that "the yield on the day of the signature of contract
may reflect atypical fluctuations." 509 The Panel's second reason was that " {p}arties agreeing to a
complex loan contract may rather set the rates in the lead -up to the conclusion of the contract,
and prior to the actual day on which the contract is signed ."510 We have found this understanding
to be in line with our observation that, in some c ases, parties may have committed to a
transaction – or to key aspects thereof – during a finalization period of the negotiations preceding
the moment of formal conclusion of all aspects of that transaction . In the present case, the
financial contribution at issue consists of complex financing the terms and conditions of which have
been negotiated and agreed over a certain contracting period. In these circumstances, we find that
the Panel did not err in its application of Article 1.1(b) of the SCM Agreement in finding that the
corporate borrowing rate component of the market benchmark could be based on the average
yields of the EADS bond "one-month prior and six -months prior to the conclusion " of the French,
German, Spanish, and UK A350XWB LA/MSF contracts, "in the form of a range" , attributing more
weight to the former average yields than it did to the latter.511
5.185. Moreover, we reject the European Union's claim that the Panel acted inconsistently with
Article 11 of the DSU because it lacked a sufficient evidentia ry basis for rejecting the EADS bond
yield on the day of conclusion of each A350XWB LA/MSF contract . In addition, the European Union
has not established that the Panel's decision to set the corporate borrowing rate in the form of a
range of average yields, or the fact that such decision was done against the background of a
downward trend in the yield of the EADS bond, reflects a lack of objectivity and even -handedness
contrary to the requirements of Article 11 of the DSU . Consequently, we find that the
European Union has failed to establish that the Panel acted inconsistently with its obligations under
Article 11 of the DSU.
5.186. We also reject the European Union's alternative claims that the Panel erred in its
application of Article 1.1(b) of the SCM Agreement and acted inconsistently with Article 11 of the
DSU by accepting the average yield of the EADS bond over the six months prior to the conclusion
of the French, German, Spanish, and UK A350XWB LA/MSF contract s as part of the range of
average yields that was used to determine the corporate borrowing rate . Although the corporate
borrowing rate was determined in the form of a range of average yields, the Panel rightly gave
more prominence to the one-month average yield of the EADS bond than to the six-month average
yield, which was considered to be only a "helpful indication of market expectations". 512 In these
circumstances, we find that the European Union has failed to establish that the Panel erred in its
application of Article 1.1(b) of the SCM Agreement or act ed inconsistently with Article 11 of the
DSU by deciding to observe the EADS bond yield on the basis of the average yields one month
prior and six months prior to the conclusion of each of the four A350XWB LA/MSF contracts, in the
form of a range, attributing more weight to the former average yields than it did to the latter.
5.187. Accordingly, we uphold the Panel's finding, in paragraph 6.389 of the Panel Report, that
the corporate borrowing rate component of the market benchmark be based on "the average
yields one-month prior and six-months prior to the conclusion of the {French, German, Spanish,
and UK A350XWB LA/MSF contracts}, in the form of a range". Consequently, we also uphold the
Panel's findings related to the corporate borrowing rate in Table 7 at paragraph 6 .430 and
in Table 10 at paragraph 6.632 of the Panel Report. Below, we reproduce Table 7 of the
Panel Report, which sets out the quantitative implications of the Panel's findings on the corporate
borrowing rate:

509 Panel Report, para. 6.389.
510 Panel Report, para. 6.389.
511 Panel Report, para. 6.389.
512 Panel Report, para. 6.389.

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Table 3: Corporate borrowing rate estimates
EU member State
Corporate borrowing rate as
reflected by yield on EADS
bond (range: between
average yield 1-month prior,
and 6-months prior, to date
of individual contract)513
Representative
sum for normal
market fees
Total corporate
borrowing rate
component of market
benchmark rate
France [BCI] to [BCI] [BCI] [BCI] to [BCI]
Germany [BCI] to [BCI] [BCI] [BCI] to [BCI]
Spain [BCI]514 to [BCI] [BCI] [BCI] to [BCI]
United Kingdom [BCI] to [BCI] [BCI] [BCI]515 to [BCI]
Source: Panel Report, Table 7 at paragraph 6.430.
5.3.2 Project-specific risk premium
5.188. The European Union argues that the Panel erred in its identification of the "project-specific
risk premium" component of the market benchmark that was used to determine whether the
French, German, Spanish, and UK A350XWB LA/MSF contracts confer a "benefit" within the
meaning of Article 1.1(b) of the SCM Agreement. The European Union challenges many aspects of
the Panel's analysis by bringing three sets of claims of error allegedly committed by the Panel in
identifying the project -specific risk premium . The overarching critique by the European Union is
that the Panel erred in using the project -specific risk premium that was developed in the original
proceedings for the A380 project as the risk premium for the A350XWB project, "launched at a
different moment in time , and implicating different risks ".516 According to the European Union,
the single, undifferentiated project risk premium selec ted by the Panel does not precisely and
accurately reflect the risks involved in the A350XWB project , and does not reflect the differing
terms of each of the four individual A350XWB LA/MSF contracts.517 We describe below the essence
of the three sets of claims of error brought by the European Union.
5.189. In its first set of claims, the European Union argues that the Panel erred in its application
of Article 1.1(b) of the SCM Agreement and acted inconsistently with Article 11 of the DSU. With
respect to Article 1.1(b), the European Union submits that " {t}he Panel failed to undertake a
'progressive search' for and to adopt the benchmark that shared 'as many elements as possible i n
common with' the A350XWB LA/MSF loans". 518 In addition, the European Union asserts that,
having failed to adopt the benchmark most closely tailored to the risks associated with the
A350XWB project , the Panel failed to make any adjustments to account for ac knowledged

513 We recall that, while the Panel determined the corporate borrowing rate in the form of a range of
average yields, it rightly gave more prominence to the one-month average yield of the EADS bond in its
determination of the corporate borrowing rate. (See para. 5.140 above)
514 The European Union identifies a clerical error made by the Panel in Tables 7 and 10 of the
Panel Report in relation to the one-month average yield prior to the Spanish A350XWB Convenio. In particular,
the European Union points out that "Table 6 of the Panel Report shows, for Spain, the one-month average yield
prior to the date of the contract was [BCI], and not [BCI] as inscribed in Table 10 (and Table 7)".
(European Union's appellant's submission, fn 286 to Table 2 at para. 322 (referring to Panel Report, Table 7 at
para. 6.430 and Table 10 at para. 6.632) (emphasis original)) The European Union is correct in pointing out
that the correct figure in relation to the one-month average yield prior to the Spanish A350XWB Convenio is
[BCI], found in Table 6 of the Panel Report, rather than [BCI], which is the clerical error found in Tables 7
and 10 of the Panel Report. In response to questioning at the oral hearing, the United States agreed that the
figure [BCI] is a clerical error. Consequently, for purposes of the present Report, we proceed on the basis of
the correct figure mentioned by the Panel in Table 6: [BCI].
515 See supra, fn 330.
516 European Union's appellant's submission, para. 333. (emphasis original)
517 European Union's appellant's submission, para. 334. The European Union contends that, consistent
with the guidance provided in the original proceedings, the Panel "should have required the United States to
identify a project risk premium based on the risks associated with the A350XWB project itself, and in light of
the terms of each specific LA/MSF contract". (Ibid. para. 336 (emphasis original))
518 European Union's appellant's submission, para. 380 (quoting Appellate Body Report,
US ‒ Anti-Dumping and Countervailing Duties (China), paras. 476 and 486; referring to Appellate Body Report,

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differences between the selected benchmark and the A350XWB LA/MSF contracts. 519 As a result,
the Panel erred in its application of Article 1.1(b) by failing "to ensure that the benchmark it
selected {was} properly tailored to the specific risks associated with the A350XWB project, and
each of the four LA/MSF contracts for that project". 520 With regard to Article 11 of the DSU, the
European Union claims that the Panel acted inconsistently with this provision, first, by failing to
consider alternativ e, and more appropriate , benchmarks than those proposed by the
United States.521 Second, the European Union contends that, in adopting a constant,
undifferentiated project risk premium not tailored to the risks associated with LA/MSF for the
A350XWB, the Panel inappropriately deviated from the findings of the original panel, which called
for establishing a risk premium that takes into account the risks involved in each specific
LCA project.522
5.190. In its second set of claims, the European Union submits that the Panel acted inconsistently
with Article 11 of the DSU by finding that the project risk premium developed for the A380 project
was a suitable benchmark for the A350XWB project on the basis that the risks associated with
these two projects were similar. 523 In par ticular, the European Union challenges the findings
regarding the three main categories of risk assessed by the Panel: (i) the risk that the A380 or
A350XWB project would fail or not be as successful as anticipated because of a failure to develop
or sell t he aircraft as expected (programme risk) ; (ii) the extent t o which market lenders were,
as a general matter, willing to accept risk at the time of the provision of A380 and A350XWB
LA/MSF (the price of risk); and (iii) the risk associated with the different terms of the A380 LA/MSF
contracts vis-à-vis the four A350XWB LA/MSF contracts, as well as the risks associated with the
different terms of the four individual A350XWB LA/MSF contracts (contract risk).524
5.191. In its third set of claims , the European Union asserts that the Panel erred in finding that
the same risk premium could be applied as a benchmark for each of the four individual A350XWB
LA/MSF contracts. The European Union argues that, in making this finding, the Panel erred in its
application of Article 1.1(b) of the SCM Agreement by failing to make adjustments to account for
differences that exist among the four A350XWB LA/MSF contracts . Moreover, according to the
European Union, the Panel also acted inconsistently w ith Article 11 of the DSU because its
conclusions were based on "internally inconsistent" reasoning.525
5.192. On these bases, the European Union requests us to r everse the Panel's findings,
in paragraphs 6.632 (including Table 10) and 6.633 of the Panel Report, that the French, German,
Spanish, and UK A350XWB LA/MSF contracts confer a "benefit" within the meaning of
Article 1.1(b) of the SCM Agreement, and consequently to r everse the Panel's findings,
in paragraphs 6.656 and 7.1 .c.i of the Panel Report, that the French, German, Spanish,
and UK A350XWB LA/MSF contracts each constitute a "subsidy" within the meaning of Article 1 of
the SCM Agreement.526
5.193. Before addressing the European Union's claims of error, we summarize the Panel's
findings below.

519 European Union's appellant's submission, para. 396.
520 European Union's appellant's submission, para. 339.
521 European Union's appellant's submission, para. 408.
522 European Union's appellant's submission, para. 409.
523 European Union's appellant's submission, para. 340 (referring to Panel Report, paras. 6.487, 6.492,
6.527, 6.539-6.542, 6.579, 6.595, 6.607-6.610, 6.632 (Table 10), and 6.633).
524 Panel Report, para. 6.460.
525 European Union's appellant's submission, para. 341.
526 European Union's appellant's submission, para. 531.

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5.3.2.1 The Panel's findings
5.194. Before the Panel, the parties agreed that , in addition to the corporate borrowing rate, the
market benchmark should include a project -specific risk premium reflecting the risk associated
with providing financing on the same or similar terms as LA/MSF for the A350XWB project.527
5.195. The United States proposed two options for a project -specific risk premium. The first
option, preferred by the United States, was the Jordan Risk Premium (JRP), a figure calculated by
its expert, Dr Jordan. The second option was the risk premium proposed by Professor Whitelaw in
the original proceedings for the A380 project, and was referred to as the Whitelaw Risk
Premium (WRP).528
5.196. The Panel noted that the European Union did not propose a project -specific risk premium
of its own for t he A350XWB project, and rejected both of the risk premia advanced by the
United States. The European Union asserted, first, that the JRP was not used as a project -specific
risk premium in the original proceedings and, second, that the United States had not shown that
the WRP was an appropriate risk premium for the A350XWB.529
5.197. With respect to the first project -specific risk premium submitted by the United States,
the Panel began by noting that the JRP is a figure calculated by Dr Jordan by using "the average of
two very similar risk premia" introduced during the original proceedings in relation to the risk
associated with the A380 project. 530 The Panel observed that neither of the JRP inputs were
accepted or even argued to be an appropriate risk premium for the A380 in the original
proceedings.531 Therefore, the Panel considered that, in these compliance proceeding s,
the United States was required to present additional argumentation and evidence to support their
use as a basis for a risk premium for the A350XWB. 532 The Panel was not persuaded by the
reasons provided by the United States to justify its reliance on the JRP. 533 As a result, the Panel
was unable to accept the JRP as a project-specific risk premium.534
5.198. The Panel then turned to the United States' second option for a project -specific risk
premium: the WRP. In this context, the Panel considered the main question to be whether the
United States had demonstrated that the project -specific risks of the A350XWB project were
"sufficiently similar" to those of the A380 p roject, such that it would be reasonable to conclude
that the WRP could be used as the project -specific risk premium for the A350XWB. 535 The Panel
considered that the parties' arguments concerning the relative project -specific risks associated
with the A380 and A350XWB projects focused on the following issues: (i) programme risk;
(ii) the price of risk; and (iii) contract risk.

527 Panel Report, para. 6.431. The Panel indicated that the second component of the market benchmark
reflects the fact that, rather than being repaid from the firm's general assets, the LA/MSF loans "are
model-specific, that is, they are provided to fund the development of specific aircraft models and are to be
repaid from the cash flows associated with the same specific model and so a commercial lending rate would
reflect not only the riskiness of the borrow but also the riskiness of the individual projects". (Ibid. para. 6.432
(quoting Ellis-Jordan Report (Original Panel Exhibit USA-80; Panel Exhibit USA-474/506 (BCI) (exhibited
twice)), p. 4))
528 Panel Report, para. 6.433 (referring to Jordan Report (Panel Exhibit USA-475 (BCI/HSBI)), para. 15;
Jordan Reply (Panel Exhibit USA-505 (BCI/HSBI)), para. 5). Both the JRP and the WRP use figures that the
United States argued were advanced as project-specific risk premia in the original proceedings. (Ibid.)
529 Panel Report, para. 6.434 (referring to European Union's first written submission to the Panel,
paras. 313-315; second written submission to the Panel, para. 321).
530 Panel Report, para. 6.437 (quoting Jordan Report (Panel Exhibit USA-475 (BCI/HSBI)), para. 14).
531 Panel Report, paras. 6.443 and 6.446-6.447.
532 Panel Report, paras. 6.443 and 6.446.
533 In particular, the Panel was not convinced that the following arguments by the United States justified
relying on the JRP in the present compliance proceedings: (i) the JRP uses the method advanced by the
European Union and Professor Whitelaw in the original proceedings; (ii) the JRP responded to specific criticisms
of the WRP made by the panel and Appellate Body in the original proceedings; (iii) the two figures on which the
JRP is based are "higher" than the WRP; and (iv) the two figures on which the JRP is based are "similar" to one
another. (Panel Report, para. 6.455)
534 Panel Report, para. 6.455.
535 Panel Report, para. 6.459.

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5.199. In the context of the first issue, programme risk , the Panel indicated that the parties
submitted arguments and evidence with regard to two broad categories: "development" risk and
"market" risk.536 Regarding development risk, the Panel understood the parties to consider that
development risk relates to the likelihood that Airbus would not be able to deliver the aircraft as
and when promi sed, covering the entire development of the project from conceptualization to
certification.537 The United States considered that, as a result of the A350XWB project using
"risky new technologies", it entailed "unique and significant technology risks" that made the
A350XWB "at least as risky, if not more risky, than the A380". 538 The European Union disagreed
with this contention and submitted that actions pursued by Airbus mitigated the
technology-related risk for the A350XWB and, in addition, that risks were already lower and
certain maturity levels were reached by the time the A350XWB LA/MSF contracts were
concluded.539 In light of these arguments, the Panel considered that the main factual questions
related to: (i) technical or technology -related risks; and (i i) risk -mitigating or -attenuating
factors.540 The Panel also examined whether there were any risks associated with the A350XWB
arising from problems with the A380 project.
5.200. The Panel concluded that the evidence on the record indicated that the A350XWB was
particularly technologically innovative. 541 The Panel was of the view that, even though the A380
involved its own technological challenges, the A350XWB's technological risk was at least as high as
or higher than that of the A380.542 The Panel also considered that certain aspects of the A350XWB
development programme seem to have further increased development risks as compared to the
A380.543 With regard to the risk -mitigating factors identified by the European Union, the Panel
concluded that these factors would not have fully offset the increased risks associated with the
new "Develop And Ramp-Up Excellence" (DARE) programme and its high level of outsourcing, and
also would not have fully offset the technology risks associated with new materials and their lower
maturity levels at the start of development. 544 Therefore, taking those factors into consideration,
the Panel concluded that "the development risks associated with the A350XWB were at least as
high as, or sufficiently similar to, those associated with the A380".545
5.201. With respect to market risk, both parties agreed that market risk refers to "the risk that
the new aircraft will not sell as well as anticipated". 546 In comparing the market risk associated
with the A380 project against that associated with the A350XWB proj ect, the Panel noted that the
parties' arguments concerned risks regarding: (i) predictions about the size of the respective
markets for the two aircraft models (market forecasts ); and (ii) conditions of competition within
the respective markets.547 As to the risk related to market forecasts, t he Panel observed that the
market demand predictions for the A350XWB were likely to be subject to a negative economic
environment that would affect Airbus' clients, which was known at the time the A350XWB LA/MSF
contracts were concluded. 548 The Panel noted that, while the economic environment appears to
have been taken into account in predictions with regard to the A380549, it was not considered in

536 Panel Report, para. 6.461.
537 Panel Report, para. 6.462.
538 Panel Report, para. 6.464 and fns 656-657 thereto.
539 Panel Report, para. 6.465 (referring to European Union's second written submission to the Panel,
para. 332, in turn referring to Airbus, A350XWB Chief Engineering and Future Projects Office, "A350XWB Chief
Engineering Statement", 3 July 2012 (A350XWB Chief Engineering Statement) (Panel Exhibit EU-18
(BCI/HSBI)), paras. 13-17 and 33-59; first written submission to the Panel, paras. 1110-1129).
540 Panel Report, para. 6.466.
541 Panel Report, para. 6.539.
542 Panel Report, para. 6.539.
543 Panel Report, para. 6.540. The Panel noted that, "{u}nder the ambitious DARE programme, the
larger number of risk sharing suppliers meant that: (a) Airbus decreased control over the development of the
aircraft; and (b) the ramped-up development schedule meant any problems would be 'disastrous'." (Ibid.
(quoting A350XWB Chief Engineering Statement (Panel Exhibit EU-18 (BCI/HSBI)), para. 37 (lines 7-12)))
544 Panel Report, para. 6.542.
546 Panel Report, para. 6.543 (quoting European Union's second written submission to the Panel,
para. 322). (additional text in fn 897 thereto omitted)
547 Panel Report, para. 6.544.
548 Panel Report, para. 6.570.
549 Panel Report, para. 6.568.

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the predictions of market demand for the A350XWB. The Panel considered that a market lender
would have taken these factors into account in determining their market lending rate.550
5.202. With regard to the r isk related to conditions of competition within market segment s,
the Panel was not persuaded by the European Union's argument that the conditions of competition
between Airbus and Boeing were more favourable to Airbus in the context of the A350XWB project
than in that of the A380 project. 551 The Panel was of the view that the A380 and A350XWB
experienced market risks that were different i n nature. While the A380's market success or failure
rested in large part on the correct identification of the existence and size of the market segment ,
the A350XWB's success or failure would depend upon how it would be received by customers in a
market segment that was already relatively well known and served by existing aircraft. 552
Moreover, the A350XWB would need to be competitive not only in terms of i nnovation but,
crucially, in terms of timing. On this basis, the Panel concluded that, while the A380 and A350XWB
experienced market risks that were different in nature, these risks were nevertheless overall
comparable in importance.553
5.203. Turning to the second issue, the price of risk, the Panel began by noting that the price of
risk refers to "risk acceptable to the finance industry at different moments of its own market
cycle".554 The Panel considered that the main question in this regard was whether the financ ial
environment – in particular the global financial and economic crisis – meant that a market lender
would have demanded a higher return at the time financing was being sought for the A350XWB
than at the time it would have been sought for the A380, even i f the aircraft development and
marketing risks were similar.555 Before the Panel, the United States submitted that LA/MSF for the
A350XWB "was finalised at a point in time when lending conditions were historically tight" due to
the lingering effects of the 2008 global financial and economic crisis, with the implication that
"the true A350XWB risk premium should likely be higher than the A380 risk premium" .556
Given that the United States did not provide certain yield spreads to the Panel, the Panel was
unable t o accept the United States' argument that a market lender would have demanded a
higher return at the time financing was being sought for the A350XWB than at the time it would
have been sought for the A380.557
5.204. In the context of the third issue, contract risk, the Panel examined two factors. First, the
Panel addressed the European Union's argument that "differences in the terms of the LA/MSF
agreements for the A380 and the A350XWB reduce{d} the risk for the A350XWB and, hence, the
benchmark."558 The Panel noted that, as the European Union had submitted, "under the [BCI]
LA/MSF contracts for the A350XWB, [BCI] in the event that deliveries are not made (unless
[BCI]); thus some returns may accrue to those member State governments even in the event of
delays to the programme." 559 However, the Panel pointed out that, in the original proceeding s,
"[BCI], which would likewise constitute 'risk -reducing' terms, existed with respect to [BCI]
LA/MSF at issue in that proceeding", and that at least one of the [BCI] LA/MSF contracts
considered in the original proceedings contained a mechanism that similarly "protected" returns.560
In those proceedings, the WRP was nevertheless applied taking into account that it was a
minimum risk premium and would be understated for th at contract. 561 Therefore, the Panel

550 Panel Report, para. 6.570.
551 Panel Report, paras. 6.571-6.572.
552 Panel Report, para. 6.579.
553 Panel Report, para. 6.579.
554 Panel Report, para. 6.580 (quoting Jordan Report (Panel Exhibit USA-475 (BCI/HSBI)), para. 22;
referring to European Union's second written submission to the Panel, para. 344; Whitelaw Response to Jordan
(Panel Exhibit EU-121 (BCI/HSBI)), para. 23).
555 Panel Report, para. 6.580.
556 Panel Report, para. 6.581 (quoting Jordan Report (Panel Exhibit USA-475 (BCI/HSBI)), para. 22.)
557 Panel Report, para. 6.588.
558 Panel Report, para. 6.590 (referring to European Union's second written submission to the Panel,
paras. 339-340; response to Panel question No. 100, paras. 404-405).
560 Panel Report, para. 6.595.
561 Panel Report, para. 6.595 (referring to Original Panel Report, para. 7.481; Appellate Body Report,
EC and certain member States – Large Civil Aircraft, para. 923).

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considered that such features argued by the European Union should not, in and of themselves,
render the WRP inapplicable.562
5.205. Second, the Panel assessed t he European Union's contention that "differences {among}
the terms of the four A350XWB LA/MSF agreements 'could justify th e application of, at least,
two different risk premiums for those agreements'" .563 The Panel recognized that there were some
differences among the risk profiles of the four individual A350XWB LA/MSF contracts, but noted
that this was also the case with respect to the contracts in the original proceedings – including
among the four A380 LA/MSF contracts – for which the same WRP was applied as a minimum
premium for all contracts. 564 Consequently, the Panel was not "persuaded that certain terms
render the agreements significantly different so as to require the application of two or more
different project-specific risk premia in this proceeding."565
5.206. Overall, having reviewed the risk differences that may affect the project -specific risk
premium, the Panel considered that the risks for the A380 and A350XWB projects were sufficiently
similar to allow a valid risk premium applied to the A380 project in the original proceedings to be
applied to the A3 50XWB project.566 Therefore, the Panel concluded that "Professor Whitelaw's risk
premium (the WRP) from the original proceeding could be applied to benchmark LA/MSF for
the A350XWB."567
5.3.2.2 Whether the Panel committed legal error by failing to establish a
project-specific risk premium for the four A350XWB LA/MSF contracts based on the
risks associated with the A350XWB project
5.207. In its first set of claims, the European Union's overarching critique is that, by focusing on
determining whether the risk premium developed to assess the A380 LA/MSF measures (i.e. the
WRP) could be applied to assess the French, German, Spanish, and UK A350XWB LA/MSF
contracts, the Panel failed to establish a risk premium to benchmark the four A350XWB LA/MSF
contracts based on the specific ris ks associated with the A350XWB project. 568 According to the
European Union, in conducting its examination, the Panel erred in its application of Article 1.1(b) of
the SCM Agreement, and failed to make an objective assessment of the matter as required by
Article 11 of the DSU.
5.208. The European Union submits that the Panel erred in its application of Article 1.1(b) of the
SCM Agreement, first, by failing to undertake a progressive search for a market benchmark and to
adopt the most appropriate benchmark.569 Second, the European Union asserts that, to the extent
that an insufficiently tailored benchmark was used , the Panel failed to make adjustments to the
benchmark to ensure comparability. 570 The European Union argues that, "{s}eparately and
collectively"571, these failures by the Panel constitute error in the application of Article 1.1(b).
5.209. In the context of its claim under Article 11 of the DSU , the European Union argues, first,
that the Panel acted inconsistently with this provision by failing to consider alte rnative,
and more appropriate, benchmarks than those proposed by the United States.572 Second,
the European Union contends that, in adopting a constant, undifferentiated project risk premium
not tailored to the risks associated with LA/MSF for the A350XWB, t he Panel inappropriately

562 Panel Report, para. 6.595.
563 Panel Report, para. 6.596 (quoting European Union's response to Panel question No. 100,
para. 406).
564 Panel Report, para. 6.604.
565 Panel Report, para. 6.607.
566 Panel Report, para. 6.608.
567 Panel Report, para. 6.610.
568 European Union's appellant's submission, section V.D.1.
569 European Union's appellant's submission, section V.D.1.a.ii.
570 European Union's appellant's submission, section V.D.1.a.iii.
571 European Union's appellant's submission, para. 406.
572 European Union's appellant's submission, para. 408.

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deviated from the findings of the original panel, which called for establishing a risk premium that
takes into account the risks involved in each specific LCA project.573
5.210. We begin by addressing the European Union's claim that the Pan el erred in its application
of Article 1.1(b) of the SCM Agreement.
5.3.2.2.1 Whether the Panel erred by failing to undertake a "progressive search" for a
market benchmark and to adopt the most appropriate benchmark
5.211. The European Union argues that the Panel focused i ts assessment on whether the same
project risk premium developed to assess the LA/MSF measures for the A380 project in the
original proceedings could be applied to assess the LA/MSF measures for the A350XWB project ,
instead of asking " whether a benchmark comprising, inter alia, a project risk premium tailored to
the risks of financing the A350XWB project itself , was available and could be used" to assess
whether the four A350XWB LA/MSF contracts confer a benefit.574 Therefore, according to the
European Union, the Panel erred in its application of Article 1.1(b) of the SCM Agreement by failing
to establish a project -specific risk premium that properly reflect ed the risks associated with the
A350XWB project itself.575
5.212. The European Union observes that " Article 14(b) of the SCM Agreement provides that the
market benchmark for a government loan must be 'a comparable commercial loan which the firm
could actually obtain on the market'." 576 The Appellate Body has explained that, to be
"comparable", "a commercial loan 'should have as many elements as possible in common with the
investigated loan'."577 The European Union considers that "a benchmark loan must be identified
through 'a progressive search', which must begin by assessing the commercial loan that exhibits
as many similarities as possible to the investigated loan, before progressing to less similar
commercial loans."578 In the European Union's view, "error results if another commercial loan that
shares more elements in common with the investigated loan than th e loan ultimately selected as
the benchmark is not assessed in the course of the panel's 'progressive' consideration". 579 In light
of these considerations, the European Union contends that "{t}he Panel failed to undertake a
'progressive search' for and to adopt the benchmark that shared 'as many elements as possible in
common with' the A350XWB LA/MSF loans, and that was, therefore, most closely tailored to the
risks associated with the A350XWB programme."580
5.213. The European Union points out that the Panel did not, for example, inquire whether
"risk-sharing supplier financing" for the A350XWB project would have been a more appropriate
benchmark. The European Union states that risk-sharing supplier financing for the A350XWB is by
definition more closely tailored to the risks associated with the A350XWB than risk-sharing supplier
financing for the A380 , and reflects market-based pricing at a time considerably more proximate
to the conc lusion of the A350XWB LA/MSF contracts. The European Union contends that, despite
being aware that Airbus had secured risk -sharing supplier financing for the A350XWB project 581,
neither the United States nor the Panel explored whether the terms of risk -sharing supplier
financing arrangements for the A350XWB had more elements in common with A350XWB LA/MSF

573 European Union's appellant's submission, para. 409.
574 European Union's appellant's submission, para. 369. (emphasis original)
575 European Union's appellant's submission, paras. 368-369.
576 European Union's appellant's submission, para. 372 (quoting Article 14(b) of the SCM Agreement
(emphasis added by the European Union)). (additional text in fn 333 thereto omitted)
577 European Union's appellant's submission, para. 372 (quoting Appellate Body Report,
US ‒ Anti-Dumping and Countervailing Duties (China), para. 476 (emphasis added by the European Union);
referring to Appellate Body Report, US – Carbon Steel (India), para. 4.345).
578 European Union's appellant's submission, para. 374. (emphasis original; fn omitted)
579 European Union's appellant's submission, para. 374. The European Union adds that, "{i}f a
properly-executed progressive search for a benchmark nonetheless results in an imperfect match, with the
selection of a commercial loan that reflects differences with the investigated loan, adjustments must be made
to ensure comparability with the investigated loan." (Ibid., para. 377 (referring to Appellate Body Report,
US ‒ Anti-Dumping and Countervailing Duties (China), para. 486) (emphasis original))
580 European Union's appellant's submission, para. 380 (quoting Appellate Body Report,
US ‒ Anti-Dumping and Countervailing Duties (China), paras. 476 and 486; referring to Appellate Body Report,
581 European Union's appellant's submission, para. 384.

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than did risk-sharing supplier financing arrangements for the A380 project. For the above reasons,
the European Union concludes that the Panel erred in its application of Article 1.1(b) of
the SCM Agreement.582
5.214. The United States disagrees. In the United States' view, consistent with Article 1 of the
SCM Agreement, the Panel found that , if the project -specific risks of the A350XWB project were
sufficiently similar to those of the A380 project, then it could also use the A380 project­specific
risk premium for the A350XWB project. 583 To determine if this was the case, the Panel engaged in
a detailed, fact -intensive assessment of the relative risks of the two projects.584 Moreover,
the United States points out that the reason the Panel did not consider risk -sharing supplier
contracts for the A350XWB project is that the European Union never submitted those contracts
and never argued that the Panel should use them to establish the project-specific risk premium.585
Nor did the European Union propose a project -specific risk premium that could serve as an
alternative to those proposed by the United States.586 The United States notes that , in the
"absence of argumentation … a panel cannot intervene to raise arguments on a party's behalf".587
5.215. The United States additionally argues that, contrary to the European Union's argument,
Article 1.1(b) does not require the Panel to have engaged in a "progressive search". According to
the United States, t he requirement to conduct a "progressive search" applies to domestic
investigating authorities in selecting a benchmark under Article 14(b) of the SCM Agreement, and
the European Union incorrectly assumes that the same standard applies to WTO panels. 588
Given that the European Union never proposed any alternative project -specific risk premium,
including the A350XWB risk-sharing supplier contracts, the Panel had no obligation to engage in a
"progressive search". 589 On the contrary, such a "progressive search" would have
"been tantamount to making the case for the {European Union}, and thus would itself have been
inconsistent" with Article 11 of the DSU.590 The United States argues that, even on the assumption
that Article 1.1(b) does require the Panel to have conducted a " progressive search",
the European Union has failed to establish that the Panel's findings are inconsistent with such a
requirement.591 In the United States' view , "by using the A380 {project­specific risk premium},
the Panel constructed a commercial benchmark that was 'closest to' {the} LA/MSF for the
A350XWB – 'a loan to the same borrower that is nearly identical to the investigated loan in terms
of timing, structure, maturity, size and currency.'"592
5.216. We begin by recalling that a meaningful benefit analysis pursua nt to Article 1.1(b) of the
SCM Agreement requires WTO panels to carry out a careful and thorough comparison between the
financial contribution provided by a governmen t and a market benchmark . Pursuant to
Article 14(b) of the SCM Agreement, government loans 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 order to reach an appropriate conclusion as to
whether or not a financial contribution in the form of a loan confers a benefit, it is necessary to
compare the government loan with a market benchmark. In the absence of an actual comparable
commercial loan that is available on the market, a proxy may be used. We reiterate that, in

582 European Union's appellant's submission, paras. 393-395.
584 United States' appellee's submission, para. 222.
585 United States' appellee's submission, para. 228.
586 United States' appellee's submission, para. 228 (referring to Panel Report, para. 6.434).
587 United States' appellee's submission, para. 229 (quoting Appellate Body Report, EC ‒ Fasteners
(China), para. 566 (emphasis original)).
588 United States' appellee's submission, paras. 231-232. In support of this argument, the United States
refers to the "affirmative obligation" of domestic authorities in terms of Article 11.1 of the SCM Agreement, of
which a "progressive search" would be one aspect. (Ibid., para. 232)
589 United States' appellee's submission, para. 233.
590 United States' appellee's submission, para. 233.
591 United States' appellee's submission, para. 234.
592 United States' appellee's submission, para. 234 (quoting Appellate Body Report, US ‒ Anti-Dumping
and Countervailing Duties (China), para. 486). While the United States accepts that "there is a gap in time
between the conferral of the two sets of financing", it emphasizes that, "in all other relevant respects, LA/MSF
for the A380 and the A350 XWB were either identical or very close – and certainly closer than was the case for
any other commercial financing." (Ibid.)

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selecting the comparator – i.e. the benchmark loan – it must be ensured that the government loan
and the benchmark loan are "comparable" because they have "as many elements as possible in
common". In some cases, this may require a WTO panel to make adjustments to the benchmark
loan to reflect differences with the investigated loan in relation to various aspects, such as date of
origination, size, maturity, currency, structure, or borrower's credit risk.593
5.217. The European Union seeks to support its claim by referring to the Appellate Body's findings
in US – Anti-Dumping and Countervailing Duties (China) , and particularly to the statement that
"selecting a benchmark under Article 14(b) involves a progressive search for a comparable
commercial loan". 594 We observe that t his guidance from th e Appellate Body was provided in
response to a specific set of circumstances that arose in that dispute. In particular, the
Appellate Body addressed a claim about the rejection of interest rates in China as benchmarks in a
series of countervailing duties investigations conducted by the United States Department of
Commerce (USDOC), and the use of an external proxy benchmark (i.e. an out -of-country
benchmark) to determine whether Chinese government loans conferred a benefit. 595 Thus,
the specific context in which the Appellate Body stated that the se lection of a benchmark under
Article 14(b) involves a "progressive search " for a comparable commercial loan related to a
domestic authority's recourse to out -of-country benchmarks in conducting the benefit analysis .596
As in the case of Article 14(b), Article 14(a) and Article 14(d) both indicate that the search for a
benefit benchmark begins in the country where the financial transaction takes place. 597 However,
if there are no similar or comparable transactions (including priv ate and governmental prices)
in that country or territory that are undistorted or cannot be properly adjusted to serve as benefit
benchmarks, it is permissible to search for an appropriate benefit benchmark out -of-country or to
construct a proxy.
5.218. The European Union argues that "a benchm ark loan must be identified through
'a progressive search', which must begin by assessing the commercial loan that exhibits as many
similarities as possible to the investigated loan, before progressing to less similar commercial
loans."598 Given the specific context of the Appellate Body's statements in US – Anti-Dumping and
Countervailing Duties (China) , to the extent that the European Union is arguing that a panel
necessarily errs under Article 1.1(b) of the SCM Agreement if it fails to follow a particular,
predefined sequence or " progressive search" for a market benchmark, we disagree. Instead of
hinging on whether the Panel in the present case failed to follow a particular, predefined sequence
or "progressive search" for a market benchmark, our assessm ent should focus on whether,
in identifying the project -specific risk premium, the Panel fulfilled the substantive requirement of
ensuring that the market benchmark is "comparable" to the A350XWB LA/MSF contracts because it
has "as many elements as possible in common with the investigated loan{s}".599
5.219. The European Union further argues that, as a consequence of this requirement to conduct
a "progressive search" for a benchmark, the Panel should have considered whether the A350XWB
risk-sharing supplier contracts we re a better basis for the project -specific risk premium than
the WRP. According to the European Union, instead of exploring whether the terms of risk -sharing

593 Appellate Body Report, US ‒ Anti-Dumping and Countervailing Duties (China), para. 485.
594 European Union's appellant's submission, para. 373 (quoting Appellate Body Report,
US ‒ Anti-Dumping and Countervailing Duties (China), para. 486). (additional text in fn 336 thereto omitted)
595 Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 465.
596 The Appellate Body has also provided similar guidance regarding the provision of equity capital,
pursuant to Article 14(a), and the provision of goods or services or purchase of goods by a government under
Article 14(d) of the SCM Agreement. For instance, in US ‒ Softwood Lumber IV, the Appellate Body first
alluded to this possibility in the context of Article 14(d) by stating that "an investigating authority may use a
benchmark other than private prices in the country of provision, when it has been established that private
prices of the goods in question in that country are distorted, because of the predominant role of the
government in the market as a provider of the same or similar goods." (Appellate Body Report, US – Softwood
Lumber IV, para. 119)
597 We do not mean to suggest that such a "progressive search" for comparable commercial loans is
irrelevant in contexts other than those described in Appellate Body Report, US – Anti-Dumping and
Countervailing Duties (China).
598 European Union's appellant's submission, para. 374. (emphasis original; fn omitted)
599 European Union's appellant's submission, para. 372 (quoting Appellate Body Report,
US ‒ Anti-Dumping and Countervailing Duties (China), para. 476 (emphasis added by the European Union);
referring to Appellate Body Report, US – Carbon Steel (India), para. 4.345).

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supplier contracts for the A350XWB were a better project -specific risk premium than the WRP,
"the Panel followed the United States' proposal, and proceeded immediately to an examination of
the suitability of a single, undifferentiated project risk premium derived from commercial financing
from risk-sharing suppliers for another LCA project (i.e., the A380)".600
5.220. This argument, in our view, mischaracterizes t he Panel's actual analysis.
The European Union appears to suggest that the Panel simply accepted, without scrutiny or
analysis, the United States' proposed project -specific ris k premium for the A350XWB project.
A review of the Panel's findings reveals the opposite. We recall that the United States presented to
the Panel two options for a project -specific risk premium: the JRP and, alternatively, the WRP.
After examining the part ies' arguments and evidence, the Panel rejected the JRP, which was the
United States' preferred premium. Only then did the Panel turn to consider the United States'
alternative premium, the WRP. We highlight that the Panel did not simply assume that the WR P
would serve as an appropriate project -specific risk premium for the A350XWB. Instead, the Panel
decided to conduct an assessment of the relative project -specific risks associated with the A380
and A350XWB projects, focusing on three categories of risk: ( i) programme risk; (ii) the price of
risk; and (iii) contract risk. The purpose of this comparative analysis was, in the Panel's view,
to determine "whether the United States ha{d} demonstrated that the project -specific risks of the
A350XWB programme {were} sufficiently similar to those of the A380 programme such that it
would be reasonable to conclude that the WRP could be used as the project -specific risk premium
for the A350XWB". 601 Thus, contrary to the European Union's assertion, the Panel did not simply
follow the United States' preferred approach. Rather, the Panel sought to engage carefully with the
arguments and evidence presented by the parties regarding the possible risk premia that should
be used in constructing the market benchmark.
5.221. We also note that, before the Panel, the European Union did not propose a project-specific
risk premium of its own for the A350XWB project, and rejected both of the risk premia advanced
by the United States.602 Thus, the European Union did not claim before the Pa nel that the
project-specific risk premium should be determined on the basis of the A350XWB risk -sharing
supplier contracts, as it now claims on appeal.603 We note that a panel is the first trier of facts in a
serious prejudice case under Part III of the SCM Agreement and has a duty to conduct an objective
assessment of the matter pursuant to Article 11 of the DSU on the basis of the parties'
submissions and evidence.604 In particular, in conducting a benefit analysis, a panel should begin
by examining the arguments and evidence presented by the complainant to support its proposed
benchmark. A panel should then turn to assess the responde nt's arguments and evidence.
In assessing the parties' submissions, a panel may need to request further information and make
adjustments to the components of the proposed benchmark. While Article 13 of the DSU allows a
panel to request further information to enable it to make an objective assessment , a panel may
not make the case for either of the parties.605
5.222. We reiterate that the European Union did not request the Panel to explore "whether the
terms of risk -sharing supplier financing arrangements for the A350XWB shared more elements in
common with A350XWB LA/MSF "606 than with the WRP. We do not consider that the
European Union has established its claim of error under Article 1.1(b) of the SCM Agreement given
that the Panel properly assessed the arguments and evidence that were put before it by the
parties. If the European Union considers that an examination of the terms of risk-sharing supplier
financing arrangements was required to ensure a proper deter mination of the A350XWB
project-specific risk premium, it should have pursued this line of argumentation before the Panel,
including by providing the A350XWB risk-sharing supplier contracts and other relevant evidence.

600 European Union's appellant's submission, para. 395. (emphasis original)
601 Panel Report, para. 6.459.
602 Panel Report, para. 6.434. In particular, the European Union asserted that the JRP was not used as a
project-specific risk premium in the original proceedings, and that the United States had not shown that the
WRP was an appropriate risk premium for the A350XWB. (Ibid.)
603 European Union's appellant's submission, para. 383.
604 A panel may seek to exercise its powers under Article 13 of the DSU. We also note the special
process under Annex V to the SCM Agreement on "Procedures for Developing Information Concerning Serious
Prejudice".
605 Appellate Body Report, EC – Fasteners (China), para. 566.
606 European Union's appellant's submission, para. 394.

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In any event, and as noted by the United States, the Appellate Body's findings from the original
proceedings indicate that LA/MSF depresse s the rates of return demanded by risk -sharing
suppliers because it transfers programme risk from Airbus to the lending governments .607
As the Appellate Body explained in the original proceedings, " risk-sharing suppliers would be
expected to demand a lower rate of return on their participation in an LCA project than they would
have demanded in the absence of LA/MSF " and, thus, "deriving the project risk from the rate of
return of the risk -sharing suppliers will underestimate the project risk premium that woul d be
demanded by a market lender in the absence of LA/MSF."608
5.223. For the foregoin g reasons, we disagree with the European Union that "the Panel failed to
adopt the most appropriate benchmark, tailored to the risks associated with the A350XWB, based
on a 'progressive search' for the benchmark that shared 'as many elements as possible in common
with' the A350XWB LA/MSF loans ."609 Consequently, we find that the European Union has not
established that the Panel erred in its application of Article 1.1(b) of the SCM Agreement.
5.3.2.2.2 Whether the Panel erred by failing to make adjustments to the benchm ark to
ensure comparability
5.224. As we see it, in its second argument that the Panel erred under Article 1.1(b) of the
SCM Agreement, the European Union does not appear to take issue with the Panel's decision to
use the WRP as a basis for the project-specific risk premium . Instead, the European Union
contends that, to the extent that an insufficiently tailored benchmark in the form of the WRP was
used, the Panel failed to make adjustments to the benchmark to ensure comparability. According
to the European Union, the Panel applied a single, undifferentiated project risk premium derived
from LA/MSF financing for the A380 project to LA/MSF financing for the A350XWB project without
making adjustments to account for the differ ences between the two projects in terms o f market
risk, development risk, and contract risk.610
5.225. The European Union asserts that the Panel found that the two projects posed different
market risks. According to the European Union, the Panel acknowledged that the market risk for
the A350XWB project was lower than the market risk for the A380 project.611 Moreover, the Panel
found that the two projects posed different development risks by stating that "the development
risks associated with the A350XWB 'were approximately similar to, if not slightly higher than,
{those of} the A380'."612 In addition, the Panel found that the A350XWB project offered "some"
risk mitigation that partially offset the development risk, while such risk mitigation was not present
for the A380 project. Finally, with respect to contract risk, the European Union contends that the
Panel's findings reveal differences between the terms of the A350XWB LA/MSF contracts and the
A380 LA/MSF contracts. 613 The European Union points out that the Panel failed to make any
adjustments to the risk premium to account for these differences in market risk, development risk,
and contract risk.614 Consequently, in the European Union's view, the Panel's failure to account for
these acknowledged differences amounts to an error in the application of Article 1.1(b) of
the SCM Agreement.615

607 United States' appellee's submission, para. 235 (referring to Appellate Body Report, EC and certain
member States – Large Civil Aircraft, para. 921).
608 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 921.
609 European Union's appellant's submission, para. 405 (quoting Appellate Body Report,
US ‒ Anti-Dumping and Countervailing Duties (China), paras. 476 and 486; referring to Appellate Body Report,
610 European Union's appellant's submission, para. 396.
611 European Union's appellant's submission, para. 397 (referring to Panel Report, para. 6.608).
612 European Union's appellant's submission, para. 398 (quoting Panel Report, para. 6.608 (emphasis
added by the European Union)).
613 The European Union observes that, for example, risk-reducing terms in the [BCI] A350XWB LA/MSF
contract were more extensive than in any of the A380 LA/MSF contracts. (European Union's appellant's
submission, para. 400)
614 European Union's appellant's submission, paras. 397-400.
615 European Union's appellant's submission, para. 403.

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5.226. We begin by noting that t he passage in the Appellate Body report in US – Anti-Dumping
and Countervailing Duties (China) that the European Union relies upon in support of this line of
argumentation reads:
{S}electing a benchma rk under Article 14(b) involves a progressive search for a
comparable commercial loan, starting with the commercial loan that is closest to the
investigated loan (a loan to the same borrower that is nearly identical to the
investigated loan in terms of tim ing, structure, maturity, size and currency) and
moving to less similar commercial loans while adjusting them to ensure comparability
with the investigated loan.616
5.227. As noted in the previous section of this Report617, the Appellate Body made this statement
in addressing a claim concerning the rejection of interest rates within China as benchmarks in a
series of countervailing duty investigations conducted by the USDOC. In that context ,
the Appellate Body provided guidance on the conditions and sequence that domestic investigating
authorities should follow before resorting to out -of-country benchmarks and constructed proxies
for purposes of determining the appropriate market benchmark to conduct the benefit analysis.
5.228. Given the specific context of the Appellate Body's guidance, we recall that, in the present
case, the focus of our assessment should be on whether, in identifying the project -specific risk
premium, the Panel fulfilled the substantive requirement of ensuring that the market benchmark is
"comparable" because it has "as many elements as possible in common with the investigated
loan".618 In this sense, we agree with the European Union that, "{i}f a properly -executed
progressive search for a benchmark nonetheless results in an imperfect match, with the selection
of a commercial loan that reflects differences with the investigated loan, adjustments must be
made to ensure comparability with the investigated loan."619 Indeed, adjustments may be required
in situations where the differences between the government loan and the benchmark loan are such
that the benchmark loan is no longer "comparable" to the government loan (e.g. in terms of
timing, structure, maturity, size, or currency).620
5.229. While we agree that relevant differences between a government loan and the benchmark
loan may require adjustments, the European Union seems to assume that the fact that the Panel
found certain differences in the risks at issue necessarily means that adjustments were required .
As explained below, we do not consider this to be correct in the present case. As a starting point,
in assessing the risk differences between the A350XWB and A380 projects , the Panel explained
why, despite certain differences in the categories of risk examined, it did not necessarily follow
that adjustments to the WRP were justified. We recall that, i n assessing the United States'
alternative project -specific risk premium (i.e. the WRP), the Panel set out to examine the
risk differences that "may affect the project -specific risk premium". In light of the parties'
arguments, the Panel focused its analysis on three main issues, or categories of risk:
(i) programme risk; (ii) the price of risk; and (iii) contract risk. The nature of this analysis shows
that the Panel was not assessing whether the risk s associated with the A350XWB and A380
projects were similar in the abstract . Rather, the Panel sought to make an overall assessment of
the relative risk categories and risk profiles between the A350XWB and A380 projects with one
specific objective: to determine whether the overall project-specific risks between the two projects
were sufficiently similar, "such that it would be reasonable to conclude that the WRP could be used
as the project -specific risk premium for the A350XWB".621 Had the Panel intended to carry out
such an analysis without the mentioned specific objective, then the existence of differences among
the categories of risk may well have merited adjustments. However, as noted, the Panel was
scrutinizing whether the project-specific risks of the A350XWB project were sufficiently similar to

616 Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 486. (emphasis
added)
617 See section 5.3.2.2.1 of this Report.
618 European Union's appellant's submission, para. 372 (quoting Appellate Body Report,
US ‒ Anti-Dumping and Countervailing Duties (China), para. 476 (emphasis added by the European Union);
referring to Appellate Body Report, US – Carbon Steel (India), para. 4.345).
619 European Union's appellant's submission, para. 377 (referring to Appellate Body Report,
US ‒ Anti-Dumping and Countervailing Duties (China), para. 486). (emphasis original)
620 Appellate Body Report, US ‒ Anti-Dumping and Countervailing Duties (China), para. 485.
621 Panel Report, para. 6.459.

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those of the A380 project such as to warrant use of the WRP to measure the risks associated with
the former project while ensuring that it did not make a "false" finding that a benefit existed,
where there was none.
5.230. Having said that, we observe that, in the present case, it is not possible to determine
in the abstract whether the Panel ought to have made adjustments to the WRP to ensure that it
had as many elements as possible in common with the A350XWB LA/MSF co ntracts. Instead,
this determination requires examining whether the Panel found specific differences in the risk
profiles of the A350XWB and A380 projects that would affect the comparability of the WRP as the
project-specific risk premium. We will undertake this assessment when we address the
European Union's criticism of the extensive analysis conducted by the Panel in comparing the risks
associated with the A350XWB project with those of the A380 project. Indeed, the European Union
challenges under Article 11 of the DSU the Panel's findings regarding the three main categories of
risk assessed by the Panel: (i) programme risk; (ii) contract risk; and (iii) the price of risk. 622
Our analysis of the Panel's comparative assessment of the risk dif ferences between the A350XWB
and A380 projects is found in section 5.3.2.3 below.
5.231. The European Union also asserts that "the Panel failed to make any adjustments to
account for the{} differences {in terms of market risk, development risk, and contract risk} ,
leading to the potential for distortion, imprecision and inaccuracies that risk false positive 'benefit'
findings."623 We recognize that difficulties may arise in situations where a panel looks at different
aspects of risks and combines them all into a cumulative or overall finding of "sufficient similarity".
In these circumstances, a panel has the obligation to engage in a rigorous and critical analysis of
all relevant evidence and arguments. Moreover, in conducting the benefit analysis, a panel must
fulfil the substantive requirement of ensuring that the market benchmark is "comparable " because
it has "as many elements as possible in common with the investigated loan" .624 While we agree
with the European Union that the Panel was required to avoid imprecision in its selection of the
project-specific risk premium, it is important to bear in mind that the Panel itself also recognized
that the European Union's internal rates of return ( IRRs) – which were used as a basis for the
Panel's benefit analysis – may overstate the expected rates of return.625 In any event, we highlight
that the f ocus of our assessment is whether the Panel met the substantive requirement of
conducting a benefit analysis on the basis of comparable government and benchmark loans
or proxies.
5.232. Furthermore, to the extent that the European Union argues that applying a
"single, undifferentiated project risk premium" 626 to several families of Airbus aircraft constitutes
per se legal error under Article 1.1(b), we disagree. In the original proc eedings, Professor
Whitelaw derived the WRP from the risk -sharing supplier contracts for the A380, and applied this
project risk premium also to the A320, A330/A340, A330-200, and A340-500/600 projects without
making any adjustments.627 The original panel took issue with the notion of applying a "constant
risk premium to all LCA projects"628, but did not a priori see a problem with the application of the
same risk premium to groups of aircraft. Indeed, the original panel divided the LCA pr ojects into

622 European Union's appellant's submission, para. 340 (referring to Panel Report, paras. 6.487, 6.492,
6.527, 6.539-6.542, 6.579, 6.595, 6.607-6.610, 6.632 (Table 10), and 6.633).
623 European Union's appellant's submission, para. 396. (emphasis original)
624 European Union's appellant's submission, para. 372 (quoting Appellate Body Report,
US ‒ Anti-Dumping and Countervailing Duties (China), para. 476 (emphasis added by the European Union);
referring to Appellate Body Report, US – Carbon Steel (India), para. 4.345).
625 In assessing other aspects of the benefit analysis, such as the expected rates of return (i.e. the
IRRs), the Panel held that it could not "be certain that those expected IRRs {were} correct and {were} not
overstated". (Panel Report, para. 6.345) Importantly, however, the Panel considered it preferable to proceed
on the basis of the European Union's unvalidated IRRs rather than to use the rates of return advanced by the
United States. (Ibid., para. 6.347)
626 European Union's appellant's submission, para. 396. We note that the European Union argues that:
the Panel applied the single, undifferentiated project risk premium derived from financing for the
A380 project to financing for the A350XWB project, without making adjustments in light of
differences between the two projects.
(Ibid. (emphasis original))
627 Original Panel Report, para. 7.470.
628 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 870. (emphasis
added)

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three groups: (i) the A300 and A310; (ii) the A320, A330/A340, A330 -200, and A340 -500/600;
and (iii) the A380. The Appellate Body did not fault the original p anel for doing so. In fact, the
Appellate Body indicated that it was not "inappropriat e per se for the {original panel} to have
arranged the LCA projects into groups and to have det ermined a range for the project-specific risk
premium applicable to the LCA projects within each group". 629 Moreover, provided that the
government loan a nd the ben chmark loan or proxy have "as many elements as possible in
common"630, it is possible to design a project -specific risk premium for a project in one group of
aircraft (e.g. twin-aisle LCA such as the A350XWB) on the basis of information related to another
group of aircraft (e.g. VLA such as the A380), when it is established that the risk profiles of both
projects are either sufficiently similar or appropriate adjustments are made. Therefore, applying a
single, undifferentiated project risk premium derived fro m the A3 80 project to financing for
the A350XWB project does not constitute per se legal error under Article 1.1(b).
5.233. In sum, we find that the European Union has not established that the Panel erred in its
application of Article 1.1(b) of the SCM Agreement merely because it applied a single,
undifferentiated project risk premium derived from the A380 project to the A350XWB project .
Whether such a risk premium could be used "without making adjustments in light of differences
between the two projects "631 depended on whether the risk profile of the A380 project was
sufficiently similar to the risk profile of the A350XWB project so as to be "comparable". We return
to this question in section 5.3.2.3 below, which addresses the European Union's claim that the
Panel acted inconsistently with Article 11 of the DSU by finding that the project risk premium
developed for the A380 project is a suitable benchmark for the A350XWB project on the basis that
the risks posed by the A380 and A350XWB projects are similar.632
5.3.2.2.3 Whether the Panel acted inconsistently with Article 11 of the DSU
5.234. The European Union also claims that the Panel acted inconsistently with Article 11 of the
DSU by failing to establish a project risk premium for A350XWB LA/MSF based on the risks
associated with the A350XWB project. The European Union advances two lines of argumentation in
support of its claim . First, the Panel failed to consider alternative, and more appropriate ,
benchmarks than those proposed by the United States. Second, the Panel inappropriately deviated
from the original panel's findings when it adopted a constant, undifferentiated project risk
premium not tailored to the risks associated with LA/MSF for the A350XWB.633 We examine each of
these two lines of argumentation below.
5.235. In its first line o f argumentation, t he European Union alleges that, when accepting the
A380 project risk premium as a benchmark for the four A350XWB LA/MSF contracts , the Panel
failed to consider alternative , and more appropriate , benchmarks than those proposed by the
United States. The European Union maintains that this is inconsistent with the Appellate Body's
guidance that a panel's mandate is not limited to assessing the benchmarks proposed by the
parties and, instead, includes an obligation to consider alternatives, so as to identify and adopt the
most appropriate benchmark.634
5.236. In response, the United States disagrees with the European Union that, in accepting the
WRP as a benchmark for the four A350XWB LA/MSF contracts, the Panel acted inconsistently with
Article 11 of th e DSU by failing to consider alternative , and more appropriate , benchmarks.
The United States notes that, in support of its argument, the European Union cites the

629 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 883.
630 Appellate Body Report, US ‒ Anti-Dumping and Countervailing Duties (China), para. 476.
631 European Union's appellant's submission, para. 396. (emphasis original)
632 European Union's appellant's submission, para. 340 (referring to Panel Report, paras. 6.487, 6.492,
6.527, 6.539-6.542, 6.579, 6.595, 6.607-6.610, 6.632 (Table 10), and 6.633).
633 European Union's appellant's submission, para. 423.
634 European Union's appellant's submission, para. 410 (referring to Appellate Body Report, EC and
certain member States – Large Civil Aircraft, para. 883). The European Union argues that the Panel's failure to
engage in a search for the most appropriate benchmark is particularly surprising because the Panel was fully
aware that Airbus had secured large amounts of risk-sharing supplier financing for the A350XWB that, in the
case of the A380, served as the basis for the project risk premium for A380 LA/MSF. Moreover, the
European Union highlights that the Panel failed to seek information about the terms of risk-sharing supplier
financing for the A350XWB, despite having exercised its discretion, under Article 13 of the DSU, to seek from
the European Union documents memorializing the terms of the A350XWB LA/MSF contracts. (Ibid., para. 414)

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Appellate Body's statement in the original proceedings that the original panel had a "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".635 According to the United States, the European Union overlooks the fact
that the Appellate Body's statement indicates that the appropriate benchmark must be "based on
the evidence on record".636 For the United States, this means that, in determining the appropriate
project-specific risk premium, the Panel had "a duty to consider the range of approaches that were
possible based on the evidence before it. However, it did not have a duty to consider approaches
that were not possible given the evidence before it, or to add to the record by conducting its own
information-gathering exercise".637 According to the United States, given that the European Union
did not submit the risk­sharing supplier contracts for the A350XWB project, the Panel "bore no
obligation to explore", using these contracts, in constructing the project-specific risk premium.638
5.237. We begin our analysis by noting that the European Union's first line of argumentation
under Article 11 of the DSU seems to be largely based on the same ground as its first claim of
error in the application of Article 1.1(b) of the SCM Agreement, namely, that the Panel erred by
failing to undertake a "progressive search" for a market benchmark. The European Union itself
appears to recognize that there is a degree of overlap between its claim of error under
Article 1.1(b) and its claim under Article 11 of the DSU. 639 The European Union nevertheless
"maintains both grounds of appeal to explain why the Panel's failure to consider alternative
approaches amounts to inconsistencies with both Article 1.1(b) of the SCM Agreement,
and Article 11 of the DSU".640
5.238. It is well established that , in most cases, an issue "will either be one of application of the
law to the facts or an issue of the objective assessment of facts, and not both ".641 In US – Large
Civil Aircraft (2 nd complaint), the Appellate Body found that, while "{a} party is free to frame its
claim on appeal as it sees fit", "important consequences flow from that choice, including the
standard of review that will apply in adjudicating that claim".642 In that dispute, the Appellate Body
further reasoned that, "{w}here there is ambiguity, it will fall on the Appellate Body to determine
whether a finding – and a related challenge to it on appeal – is properly characterized as legal or
factual, in the circumstances of a specific case".643

635 United States' appellee's submission, paras. 237 (quoting European Union's appellant's submission,
para. 410, in turn quoting Appellate Body Report, EC and certain member States – Large Civil Aircraft,
para. 883).
636 United States' appellee's submission, paras. 238-239 (quoting Appellate Body Report, EC and certain
member States – Large Civil Aircraft, para. 883).
637 United States' appellee's submission, para. 238.
638 United States' appellee's submission, para. 239. The United States further questions the significance
of the contrast drawn by the European Union between the Panel's decision to exercise its discretion under
Article 13 of the DSU to request the European Union to submit the LA/MSF contracts for the A350XWB project,
and the Panel's failure to request the European Union to submit the relevant risk-sharing supplier contracts. In
the former case, the United States specifically requested the Panel to ask the European Union to submit the
LA/MSF contracts, and the Panel partially did so having heard arguments on the matter from both sides. In the
latter case, neither party requested the Panel to exercise its discretion under Article 13. In any event, the
European Union "had ample opportunity" to submit the relevant contracts. (Ibid., paras. 240-241)
639 See European Union's appellant's submission, fn 366 to para. 408.
640 European Union's appellant's submission, fn 366 to para. 408. (emphasis added)
641 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 872. (emphasis
original)
642 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 956. See also Appellate Body
Reports, Canada – Wheat Exports and Grain Imports, para. 177; Japan – Apples, para. 136.
643 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 958.

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5.239. As we see it, the basis for the European Union's claim under Article 1.1(b) of the
SCM Agreement and its claim under Article 11 of the DSU are, by and large, the same. 644
Thus, the question arises whether the European Union's challenge to the Panel's findings should be
analysed either as a claim of error in the application of Article 1.1(b) or as a claim of inconsistency
with Article 11 of the DSU. In our view, the European Union's critique of the Panel's failure to
undertake its benefit inquiry in a particular manner and following a particular sequence of analysis
is more appropriately addressed as a matter of application of the legal standard established by
Article 1.1(b) of the SCM Agreement. Since we have already addressed above th e
European Union's claim that the Panel erred under Article 1.1(b)645, we do not consider it
necessary to address further the European Union's claim that the Panel acted inconsistently with
Article 11 of the DSU by failing to conside r alternative, and more appropriate, benchmarks than
those proposed by the United States.
5.240. We now turn to the European Union's second line of argumentation under Article 11 of the
DSU. The European Union argues that, in adopting a constant, undifferentiated project risk
premium, the Panel "inappropriately deviated" from the findings of the original panel, which called
for establishing a risk premium that takes into account the risks involved in " each specific LCA
project".646 Despite the original panel's findings, the Panel applied the risk premium established for
the A380 LA/MSF contract in the original proceedings to the four A350XWB LA/MSF contracts,
without making any adjustments. Thus, in the European Union's view, without any explanation,
the Panel adopted the very approach tha t the original panel rejected. Consequently, the
European Union submits that the Panel's deviation from the original panel's approach constitutes a
failure to make an objective assessment of the matter, as required by Article 11 of the DSU.647
5.241. In response, t he United States disagrees with the European Union that the Panel, in
adopting a constant, undifferentiated project -specific risk premium, inappropriately deviated from
the findings of the original panel. In the United States' view, "{n}o such deviation oc curred".648
The original panel found that it was appropriate – and the Appellate Body upheld its approach on
appeal – to use a constant project -specific risk premium for three separate groups of LA/MSF. 649
The United States argues that "the Panel followed the same approach, in effect, grouping the A380
and the A350 XWB into the same category for purposes of the {project -specific risk premium}
based on a detailed and lengthy analysis of the relevant facts ."650 Consequently, the United States
disagrees with the European Union's claim that the Panel acted inconsistently with Article 11
of the DSU.
5.242. According to the European Union, the findings of the original panel called for establishing a
risk premium that takes into account the risks involved in "each specific LCA project".651 We do not
agree with the European Union's reading of the original panel's findings and their endorsement by
the Appellate Body. While the original panel took issue with the application of "a constant risk
premium to all LCA projects", inclu ding all pre-A350 LA/MSF projects 652, and " expressed a

644 In the context of its claim of error in the application of Article 1.1(b), the European Union asserts
that, by focusing on whether the project-specific risk premium developed for the A380 project could be applied
to assess the LA/MSF loans for the A350XWB project, the Panel failed to undertake a "progressive search" for a
benchmark that had "as many elements as possible in common with" the A350XWB LA/MSF loans, and that
was, therefore, most closely tailored to the risks associated with the A350XWB project. In turn, under
Article 11 of the DSU, the European Union contends that the Panel acted inconsistently with this provision by
limiting its analysis to a review of whether the use of either of the two benchmarks proposed by the
United States (the JRP and the WRP) would be reasonable, rather than posing questions to the parties and
constructing a risk premium that best reflected the risks associated with the A350XWB project on an
independent basis. (European Union's appellant's submission, paras. 380 and 411)
645 See section 5.3.2.2.1 of this Report.
646 European Union's appellant's submission, para. 416. (emphasis original)
647 European Union's appellant's submission, para. 422.
648 United States' appellee's submission, para. 243.
649 United States' appellee's submission, para. 243. The first group consisted of two projects (the A300
and A310 projects), the second four projects (the A320, A330/A340, A330-200, and A340-500/600 projects),
and the final group of the A380 project alone. (Ibid. (referring to Appellate Body Report, EC and certain
member States – Large Civil Aircraft, para. 882))
650 United States' appellee's submission, para. 244.
651 European Union's appellant's submission, para. 416. (emphasis original)
652 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 870. (emphasis
added)

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preference for a variable risk premium that took into account the particularities of the specific LCA
projects"653, we do not understand it to have suggested that it was necessary to establish a risk
premium that takes into account the risks involved in " each specific LCA project".654 In our view,
the approach that the original panel followed is quite different from the European Union's
understanding of the original panel report. Indeed, as noted, the original p anel divided the LCA
projects into three groups : (i) the A300 and A310; (ii) the A320, A330/A340, A330 -200,
and A340-500/600; and (iii) the A380 655, and determined ranges for the risk premium applicable
to each group of LCA projects. In turn, the Appellate Body endorsed this general approach by
indicating that "it was {not} inappropriate per se for the {original panel} to have arranged the
LCA projects into groups and to have determined a range for the project -specific risk premi um
applicable to the LCA pr ojects within each group". 656 Thus, as we see it, in the original
proceedings, the original panel and the Appellate Body did not find that it was necessary to
identify a specific risk premium with respect to each of the Airbus LCA projects at issue.
5.243. In addition, we note that, in the context of this claim under Article 11, the European Union
also takes issue with the fact that the Panel applied the risk premium established for the A380 in
the original proceedings to the four A350XWB LA/MSF contracts, " without making any
adjustments".657 This argument is essentially the same as the European Union's earlier claim of
error in the application of Article 1.1(b) of the SCM Agreement that we have examined above.658
We fail to see any reason why the outcome of this analysis would be different in the context of the
present claim under Article 11 of the DSU.
5.244. In light of the above considerations, we disagree with the European Union that the Panel
"deviated" from the approach taken by the original panel regarding the id entification of the
project-specific risk premium, in a manner inconsistent with Article 11 of the DSU.
5.245. To conclude, t he European Union advanced two lines of argumentation in support of its
claim of inconsistency with Article 11 of the DSU. With regard to the first, given that we have
already addressed and rejected the European Union's claim tha t the Panel erred under
Article 1.1(b) of the SCM Agreement by failing to undertake a "progressive search" for a market
benchmark659, we consider it unnecessary to add ress further the European Union's claim that the
Panel acted inconsistently with Article 11 of the DSU by failing to consider alternative, and more
appropriate, benchmarks than those proposed by the United States. Regarding the second line of
argumentation, we disagre e with the European Union's claim that the Panel acted inconsistently
with Article 11 because it allegedly deviated from the original panel's findings by adopting a
"constant, undifferentiated project risk premium " for the A350XWB.660 Consequently, we find that
the European Union has failed to establish that the Panel acted inconsistently with Article 11 of
the DSU.
5.3.2.3 Whether the Panel acted inconsistently with Article 11 of the DSU in its
assessment of the risk differences that may affect the project-specific risk premium
5.246. Having addressed the European Union's claims that the Panel erred in its application of
Article 1.1(b) of the SCM Agreement and acted inconsistently with Article 11 of the DSU by failing
to establish a project -specific risk premium for the four A350XWB LA/MSF contracts based on the
risks associated with the A350XWB project , we turn next to address the European Union's second
set of claims challenging the Panel's findings. Specifically, t he European Union argues that the
Panel acted inconsistently with Article 11 of the DSU in its assessment of the three categories of

653 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 870.
654 European Union's appellant's submission, para. 416. (emphasis original)
655 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 882 (referring to
Original Panel Report, paras. 7.469, 7.481, and 7.485-7.487).
656 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 883.
657 European Union's appellant's submission, para. 421.
658 We recall that, in section 5.3.2.2.2 of this Report, we reject the European Union's claim that the
Panel erred under Article 1.1(b) by applying a single, undifferentiated project risk premium derived from the
A380 project to the A350XWB project, without making adjustments in light of differences between the two
projects. (European Union's appellant's submission, para. 396)
659 See section 5.3.2.2.1 of this Report.
660 European Union's appellant's submission, para. 423.

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risk examined in relation to the risk profiles of the A380 and A350XWB projects : (i) programme
risk; (i i) contract risk ; and (iii) the price of risk .661 The European Union challenges the Panel's
analysis regarding these three categories of risk on the basis of multiple claims of inconsistency
with Article 11 of the DSU. These claims are all, in one way or another, related to the question of
whether the risk pr ofiles of the A350XWB and A380 projects were o verall sufficiently similar,
or whether any adjustments would have been required to use the WRP as the A350XWB
project-specific risk premium.
5.247. In addressing this set of claims under Article 11 of the DSU, we begin our analysis with the
European Union's challenge against the Panel's findings in relation to programme risk. This will be
followed by the European Union's claims regarding the Panel's findings on contract risk . Finally,
we conclude by examining the challenges against the Panel's analysis of the price of risk.
5.3.2.3.1 Programme risk
5.248. The European Union argues that the Panel acted inconsistently with its obligations under
Article 11 of the DSU in comparing the programme risks involved in the A350XWB and A380
projects. The European Union observes that programme risk encompasses two different types of
risk: "development" risk662; and "market" risk.663 In the European Union's view, the Panel failed to
make an objective assessment of the matter , as required by Article 11 of the DSU, in the context
of the analysis of development risk; the analysis of market risk; and the comparison of the
development and market risks posed by the A350XWB and A380 projects. We begin by addressing
the European Union's claim regarding developmen t risk. We then examine together the claims
concerning market risk and the comparison of the development and market risks.
5.3.2.3.1.1 Development risk
5.249. The European Union submits that the Panel committed three distinct errors under
Article 11 of the DSU in finding tha t "the A350XWB project involved development risks that were
'at least as high or higher' than the development risks related to the A380 project."664
5.250. First, t he European Union notes that "{t}he Panel found that the A380 and A350XWB
projects gave rise to disti nct development risks, as they 'involved different technological
challenges'."665 In particular , the A380 was "an aircraft of unprecedented size", whereas the
A350XWB made extensive use of "new materials". 666 However, despite assessing the different
technological challenges involved in the A380 and A350XWB projects, the Panel failed to reduce
these different development risks to common terms susceptible to comparison, that is, in terms of
the price that would be demanded by a commercial lender as a risk premium to bear each of the
distinct development risks – the unprecedented size of the A380 and the use of new materials in
the A350XWB. Therefore, the European Union maintains that there is no evidence , and
no reasoned or adequate explanation, to support the Panel's conclusion that the development risks
faced by both projects, albeit different in nature, would nonetheless be similarly priced from a
commercial lender's perspective. 667 The European Union asserts that, as a result of this "missing
link" in the Panel's analysis, the record provides no basis for the Panel's finding that the A350XWB
project involved development risks that were " at least as high or higher " than the development

661 European Union's appellant's submission, paras. 355 and 424.
662 According to the European Union, development risk relates to the "likelihood that Airbus will not be
able to deliver the aircraft as and when promised", including due to technological risks. (European Union's
663 Market risk is the "risk that the new aircraft will not sell as well as anticipated". (European Union's
664 European Union's appellant's submission, para. 442 (quoting Panel Report, paras. 6.485, 6.487,
and 6.539 (emphasis original)).
665 European Union's appellant's submission, para. 447 (quoting Panel Report, para. 6.487
(emphasis added by the European Union)).
666 European Union's appellant's submission, para. 447 (quoting Panel Report, paras. 6.466 and 6.482).
(emphasis omitted)
667 European Union's appellant's submission, para. 444.

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risks related to the A380 project.668 Consequently, the European Union argues that, by making this
finding regarding the development risks, the Panel acted inconsistently with Article 11 of the DSU.
5.251. The United States maintains that the Panel's findings were based primarily on qualitative
rather than quantitative elements. 669 However, " Article 11 requires that the Panel make an
objective assessment of the facts – not that it express its intermediate findings quantitatively ."670
Therefore, the United States asserts that the Panel' s objectivity cannot be called into question
simply because most of the evidence examined by the Panel was qualitative in nature.671
5.252. We begin by analysing the thrust of the European Union's claim . As we see it,
the European Union's claim is that the Panel should have analysed the A380's development risk
(resulting from its unprecedented size) and the A350XWB's development risk (resulting from the
use of new materials) from the perspective of the price that a commercial lender would have
charged to assume each of the se distinct risks. The Panel's failure to carry out this specific
assessment resulted, in the European Union's view, in a breach of Article 11.
5.253. The European Union's argument appears to be premised on the assumption that the legal
standard under Article 1.1(b) of the SCM Agreement and Article 11 of the DSU require the Panel to
have examined, for both the A380 and the A350XWB project, the specific issue of the development
risks in terms of the price that a commercial lender would have charged to assume the specific
risks at issue . While we agree that the main issue before the Panel was whether a commercial
lender would have imposed similar terms for assuming the risk associated with each project
(i.e. the A350XWB and the A380) , we do not consi der that the Panel was required to reach a
"similarity finding" on the basis of "what a commercial lender would have charged" with respect to
each of the individual categories of risk that the parties had presented. Rather, the Panel was
required to provid e a reasoned and adequate explanation as to why the risk profiles of the
A350XWB and A380 projects were overall sufficiently similar such that the WRP could be used –
without making adjustments – as a project-specific risk premium for the A350XWB project.
5.254. To the extent that it would have been possible to quantify in the present case what a
commercial lender would have charged as a risk premium to assume each of the individual
categories of risk examined by the Panel, this type of analysis would have provid ed a more robust
basis for the Panel's ultimate finding regarding the project-specific risk premium to be used for the
A350XWB. Nonetheless, and even accepting that the Panel could have explained more clearly how
it came to its conclusion , the Panel's eval uation of the various aspects of risk associated with the
A350XWB and A380 projects provided a sufficient basis for it to find that " the overall
project-specific risks {were} sufficiently similar to allow the risk premium applied for A380 LA/MSF
in the original proceeding to be applied to A350XWB LA/MSF."672 In particular, as examined below,
the Panel's analysis demonstrates that it took into account each of the various aspects of risk in its
overall analysis and that it did not find any differences that requ ired adjustments to be made to
the WRP, either downwards – as argued by the European Union – or upwards, as argued by
the United States.
5.255. The Panel likewise did not consider that it was required to examine what a commercial
lender would have charged with respect to each of the individual categories of risk that the parties
had presented. Rather, the Panel was making an overall assessment and comparison of the
relative risk profiles of the A350XWB and A380 projects. Therefore, instead of seeking to base and
quantify its conclusions on any one type of risk alone, the Panel decided to undertake a holistic

668 European Union's appellant's submission, para. 450 (quoting Panel Report, paras. 6.485 and 6.487
(emphasis original)). According to the European Union, the missing link in the Panel's analysis is particularly
troubling given that the Panel's benefit findings are highly dependent on accuracy and precision in the
benchmarking exercise. Even a small change in the project risk premium could potentially change the results
for one or more of the A350XWB LA/MSF loans, from a finding of subsidization to a finding of no subsidization.
(Ibid., para. 451)
669 United States' appellee's submission, para. 253.
670 United States' appellee's submission, para. 250. The United States points out that, in any event, the
Panel did take account of certain quantitative elements, such as the research and development (R&D) costs
associated with the two projects. (Ibid., paras. 251 and 253)
671 United States' appellee's submission, para. 253.
672 Panel Report, para. 6.608.

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assessment of the risk differences between the A350XWB and A380 projects with the spe cific
objective in mind of determining whether the risk profiles were sufficiently similar such that it
would be "reasonable" for the Panel to use the WRP as the project -specific risk premium for the
A350XWB. In conducting this assessment, the Panel examin ed the arguments and evidence
regarding the categories of risk put forward by the parties – which included programme risk
(development and market risks), contract risk, and the price of risk – and came to the conclusion
that "the overall project-specific risks {were} sufficiently similar to allow the risk premium applied
for A380 LA/MSF in the original proceeding to be applied to A350XWB LA/MSF."673
5.256. Moreover, we observe that, before the Panel, the European Union does not appear to have
argued that the Panel was required to undertake an assessment of the specific risks at issue in
terms of "the price that a commercial lender would have charged" to assume each of the specific
risks at issue. Rather, the European Union's argumentation more broadly addressed the
differences in the various risks at issue (development risk, market risk, the price of risk, and
differences in the terms of the contracts) to support its position that the United States had failed
to show that the risks of the A350XWB project were "likely" to be higher than those of the A380
project.674 Therefore, it appears that the parties' arguments and evidence before the Panel gave
rise to an analysis focusing on an overall comparison of the risk profiles associated with the
A350XWB and A380 projects.
5.257. In any event, in the specific context of development risk, the Panel provided a detailed
examination of the parties' arguments and evidence regarding whether the A350XWB project was
at least as risky, if not more risky, than the A380 project. The Panel beg an this assessment by
noting that the evidence provided by both parties indicated that there were a number of
technological leaps involved with the A350XWB that were primarily associated with the use of new
materials and structural concepts employed to mak e a lighter and more efficient aircraft. 675
In terms of the volume and extensive use of new materials, the Panel observed that the
United States had submitted evidence showing that the use of carbon fibre reinforced plastics and
other new composites technolo gy in the A350XWB was new and unprecedented. 676 In the Panel's
view, this novelty and its challenges were known at the time of the aircraft's launch, and thus
would have informed the assessment of risk at the time of the conclusion of the A350XWB LA/MSF
contracts.677 The Panel examined further evidence assessing the impact of new materials and
structural concepts to the development risk associated with the A350XWB project. For instance,
the Panel observed that, "{d}ue to the use of new materials with the A350XW B, other innovations
were made in regards to new adaptations and integration" 678, and that "the choice of composites

673 Panel Report, para. 6.608.
674 For instance, with respect to development risk, the European Union argued that the "relevant
question is whether the development risk of the A350XWB programme relative to the development risk of the
A380 programme warrants application to the A350XWB of a project-specific risk premium associated with the
A380". (European Union's comments on the United States' response to Panel question No. 90, para. 709) With
regard to market risk, the European Union faulted the United States for failing to provide forecasts for the
A350XWB and A380 projects and to undertake a comparison of those forecasts, which would have allowed the
Panel to assess comparative market risks as between the two projects. (Ibid., para. 685) Finally, with regard to
the price of risk, the European Union argued that the United States had failed to provide any basis to support
the conclusion that the price of risk is at least the same as or more expensive than it was at the time the
675 Panel Report, para. 6.468 (referring to A350XWB Chief Engineering Statement (Panel Exhibit EU-18
(BCI/HSBI)); Statement by Gordon McConnell, Michel Lacabanne, Chantal Fualdes, François Cerbelaud and
Burkhard Domke, A350XWB Chief Engineering, 13 December 2012 (A350XWB Chief Engineering Rebuttal)
(Panel Exhibit EU-128 (BCI/HSBI)); A350XWB Production Statement (Panel Exhibit EU-129 (BCI/HSBI));
Declaration of Larry Schneider, Senior Vice President of Product Development, Boeing Commercial Aircraft,
"The Relevance of Prior Commercial Experience to Existing Model Improvements and New Aircraft
Developments", 17 October 2012 (Schneider Declaration) (Panel Exhibit USA-354 (BCI)); Declaration of
Michael Bair: Products and Competition in the ICA Industry (16 August 2012) (Bair Declaration) (Panel Exhibit
USA-339 (BCI))).
676 Panel Report, para. 6.470. The Panel pointed out that the new composites technology in the
A350XWB related to over half of the fuselage and wings, passenger doors, and flap support structures. (Ibid.
(referring to "A350XWB – Technology", Airbus website, accessed 3 October 2012 (Panel Exhibit USA-427);
European Commission, State aid N 414/2010 – Belgium – Aid to SABCA 'Flap Support Structures' project,
677 Panel Report, para. 6.470.
678 Panel Report, para. 6.473.

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also had a knock -on effect on the choice (and integration) of systems in the composite
fuselage".679 The Panel also pointed to statements by Ai rbus indicating that "there were skills and
resource challenges associated with the A350XWB's use of new materials and concepts." 680
The Panel additionally observed that "{t}he use of new materials necessitated new testing and
gathering of data" 681, and that " the move from aluminium to composite materials … also
necessitated many changes and adaptations to production facilities, at the level of component
production, sub-assembly and final assembly".682
5.258. The Panel then turned to compare the technological challenges associated with the
A350XWB project to those associated with the A380 project. The Panel found that "the A380
aircraft also represented a break with previous aircraft", but noted that "this was mainly in terms
of its unprecedented size."683 However, the Panel pointed out that, while novel in size and design,
the A380 was mainly made of traditional metal and fibreglass, which would not have involved the
same unknowns, or necessitated enhanced testing, as the new materials extensively used for the
A350XWB.684 For instance, the Panel observed that "Airbus' engineers specifically contrast{ed} the
new composites and how little is known about them, to 'aluminium structures, where more than
six decades of experience have resulted in highly -optimized structures with li ttle margin for
improvement'."685 Moreover, the Panel added that, while several variants were envisaged under
the A380 project, the evidence on the Panel record suggested that the parallel development of
multiple variants in the A350XWB project was more ambi tious.686 The Panel also pointed out that
"the A350XWB was expected to have a higher relative programme cost than the A380, due to
higher research and development (R&D) costs."687
5.259. Having conducted this comparative assessment of the development risks associate d with
the A350XWB and A380 projects, the Panel found that:
higher R&D costs, combined with the evidence of the extent to which the new design
and use of new materials would necessitate the development of specialised
equipment, expertise and testing, is co nsistent with a view that, from a lender's
perspective, the A350XWB involved significant novelty, greater cost, greater
investment, and therefore technology -related development risks that were at least as
high or higher than the risk involved with the tech nology involved in the development
of the A380.688
5.260. In light of the above considerations, including the nature of the arguments and evidence
that were before the Panel, we disagree with t he European Union's arguments that there is a

679 Panel Report, para. 6.473 (quoting A350XWB Chief Engineering Statement (Panel Exhibit EU-18
(BCI/HSBI)), para. 26).
680 Panel Report, para. 6.474. By way of example, the Panel notes that:
a design engineer specialized in a very specific aspect of systems installation for aluminium
fuselage structures … has to learn new requirements and design principles to perform design
tasks on a CFRP composite fuselage. According to Airbus, such a fuselage "requires a completely
different set of skills and know-how to be applied, including, for example, the design solutions for
lightning strike protection and systems that are not required on aluminium structures."
(Ibid. (quoting A350XWB Chief Engineering Statement (Panel Exhibit EU-18 (BCI/HSBI)), para. 26))
681 Panel Report, para. 6.475.
682 Panel Report, para. 6.476 (quoting A350XWB Production Statement (Panel Exhibit EU-129
(BCI/HSBI)), para. 11).
683 Panel Report, para. 6.480 (referring to European Union's comments on the United States' response
to Panel question No. 104, para. 810). (emphasis original) The Panel observed that the unprecedented size of
the A380 posed various technological challenges, particularly, in terms of aerodynamics, structure, noise and
emission limits, and airport infrastructure constraints. (Ibid.)
684 Panel Report, para. 6.482.
685 Panel Report, para. 6.482 (quoting A350XWB Chief Engineering Rebuttal (Panel Exhibit EU-128
686 Panel Report, para. 6.483 (referring to, inter alia, Max Kingsley-Jones, "Paris Air Show: A350 XWB
Ready to Rock", FlightGlobal News, 5 June 2009 (Panel Exhibit USA-428)).
688 Panel Report, para. 6.485. (emphasis original; fn omitted) The Panel further stated that, while the
A380 and the A350XWB projects involved "different technological challenges", it was satisfied that "the
technological risk associated with the A350XWB was at least as high or higher than the technological risk
associated with development of the A380". (Ibid., para. 6.487 (emphasis original))

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"missing link" in the Panel's analysis and that the record provides no basis for the Panel's finding
that the A350XWB project involved development risks that were " at least as high or higher " than
the development risks related to the A380 project. 689 Consequently, we reject the
European Union's first argument with regard to its claim that the Panel acted inconsistently with
Article 11 of the DSU.
5.261. In its second line of argumentation, the European Union contends that, in finding that the
development risks posed by the A380 and A350XWB projects were sufficiently similar, the Panel
acted inconsistently with Article 11 of the DSU because this finding was based on internally
inconsistent reasoning. 690 According to the European Union, this is because the Panel
found: (i) that the development risks involved in the two projects were similar 691; (ii) that the
development risks posed by the A350XWB project were mitigated to some extent at the time the
A350XWB LA/MSF contracts were concluded, while the development risks posed by the A380
project were not 692; and (iii) despite having made these findings, that the development risks
assumed by the LA/MSF lenders to the two projects were sufficiently similar.693
5.262. In order to determine whether the European Union is correct in asserting that the Panel's
analysis was based on internally inconsistent reasoning, we turn to review the Panel's findings.
Before the Panel, the European Union disagreed that the development risk was higher fo r the
A350XWB project than for the A380 project. For the European Union, this was because actions
pursued by Airbus mitigated technology-related risk for the A350XWB. 694 Thus, in addition to
examining the parties' arguments comparing the technology -related risks of the A350XWB and
A380 projects, the Panel also examined the European Union's arguments regarding
two risk-mitigating factors.695
5.263. We recall that, with respect to the technology -related risks of the A350XWB and A380
projects, the Panel began by noting that the evidence provided by both parties indicated that there
were a number of technological leaps involved with the A350XWB that were primarily associated
with the u se of new materials and structural concepts employed to make a lighter and more
efficient aircraft. 696 As noted above 697, the Panel conducted a comparative assessment of the
development risks associated with the A350XWB and A380 projects, which included examining the
use of new materials and the extent to which such use would have an impact on the development
of each aircraft, and R&D costs. The Panel noted, in particular, that the A350XWB would involve
higher R&D costs, and that the new design and use of new m aterials would necessitate the
development of specialized equipment, expertise, and testing. 698 On the basis of this examination ,
the Panel found that "the A350XWB involved significant novelty, greater cost, greater investment,
and therefore technology -related development risks that were at least as high or higher than the
risk involved with the technology involved in the development of the A380."699
5.264. Having made this finding, the Panel turned to assess the two main factors that, in the
European Union's view, mitigated the A350XWB risks as compared to the A380 risks. According to
the European Union, the first risk mitigation factor was that actions pursued by Airbus , such as
those taken under the DARE programme, reduced the A350XWB development risks in compariso n
to the A380 project .700 The Panel indicated that the DARE development process aimed " to reduce

689 European Union's appellant's submission, para. 450 (quoting Panel Report, paras. 6.485 and 6.487
(emphasis original)).
690 European Union's appellant's submission, para. 453.
691 European Union's appellant's submission, para. 462 (referring to Panel Report, paras. 6.485
and 6.487).
692 European Union's appellant's submission, para. 462 (referring to Panel Report, para. 6.527).
693 European Union's appellant's submission, para. 462 (quoting Panel Report, para. 6.608).
694 Panel Report, para. 6.465.
695 Panel Report, para. 6.466.
696 Panel Report, para. 6.468 (referring to A350XWB Chief Engineering Statement (Panel Exhibit EU-18
(BCI/HSBI)); A350XWB Chief Engineering Rebuttal (Panel Exhibit EU-128 (BCI/HSBI)); A350XWB Production
Statement (Panel Exhibit EU-129 (BCI/HSBI)); Schneider Declaration (Panel Exhibit USA-354 (BCI));
Bair Declaration (Panel Exhibit USA-339 (BCI))).
697 See para. 5.257 above.
698 Panel Report, para. 6.485.
699 Panel Report, para. 6.485. (emphasis original; fn omitted)
700 Panel Report, para. 6.466.

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the time taken to design and build new aircraft from seven and a half years to less than six". 701
This rapid pace of development would be achieved, in part, by outsourcing a large amount of the
plane's development to suppliers from quite early on in the process .702 The Panel also observed
that the DARE programme also involved a high number of risk -sharing suppliers to whom key
components were outsourced, who were geographically widely distributed.703 The Panel considered
that, while certain financial risks of delay or failure to develop aspects of the A350XWB project
might have been shifted to suppliers, this would not mitigate the likelihood of failure or delay. 704
In the Panel's view, the existence of a high number of suppliers working on a large share of the
project created a development risk for Airbus. 705 Therefore, the Panel considered that "the DARE
process involved a very strong element of outsourcing, fragmentatio n of the supply -chain, and
significant pressure to develop quickly, with potentially disastrous consequences for time schedules
if one part of the supply chain were to experience problems." 706 The Panel pointed out that these
aspects would have contributed t o development risks associated with the A350XWB project and
that this degree of risk did not exist with the A380 given that there were fewer suppliers and more
of the work was completed by Airbus. 707 For the foregoing reasons, t he Panel rejected the
European Union's argument by finding that "the attempts to improve supply -chain integration do
not appear to have cancelled out the enhanced risks from complexity and technological novelty
involved with the A350XWB."708
5.265. Regarding the second risk mitigation factor, t he European Union asserted that "much of
the technology -related development risk had already been mitigated by the time that the
A350XWB LA/MSF contracts were concluded more than [BCI] years into the development process
of the A350XWB." 709 The European Union contrasted this with the A380 project: " At the time the
A380 financing agreements were concluded, Airbus was [BCI] the development process for the
programme, with many technological challenges yet to be identified and addressed ."710 The Panel
considered that the question of whether technology risk had been mitigated because the A350XWB
LA/MSF contracts were signed relatively later, compared to the A380 LA/MSF contracts, had to be
examined in light of the materials novelty and the fac t that multiple variants were in parallel
development.711 In this regard, the Panel observed that, "as the A350XWB LA/MSF contracts were

701 Panel Report, para. 6.499 (quoting UK House of Commons Trade and Industry Committee, "Recent
Developments with Airbus", Ninth Report of Session 2006-07, Vol. I: Report and formal minutes, 19 June 2007
(Panel Exhibit USA-562), p. 10).
702 Panel Report, para. 6.500 (referring to A350XWB Chief Engineering Statement (Panel Exhibit EU-18
(BCI/HSBI)), para. 40 (lines 4-5)).
703 Panel Report, para. 6.500.
704 Panel Report, para. 6.501.
705 Panel Report, para. 6.502.
706 Panel Report, para. 6.505.
707 Panel Report, para. 6.505.
708 Panel Report, para. 6.513. In this regard, the Panel stated:
{I}t is apparent that the DARE process involved a very strong element of outsourcing,
fragmentation of the supply-chain, and significant pressure to develop quickly, with potentially
disastrous consequences for time schedules if one part of the supply chain were to experience
problems. These aspects would have contributed to development risks associated with the
A350XWB programme. This degree of risk did not exist with the A380 where there were fewer
suppliers and more work was completed by Airbus.
(Ibid., para. 6.505)
709 Panel Report, para. 6.514 (quoting European Union's second written submission to the Panel,
para. 332, in turn referring to A350XWB Chief Engineering Statement (Panel Exhibit EU-18 (BCI/HSBI)),
paras. 13-17 and 33-59).
710 Panel Report, para. 6.514 (quoting European Union's second written submission to the Panel,
para. 332, in turn referring to A350XWB Chief Engineering Statement (Panel Exhibit EU-18 (BCI/HSBI)),
paras. 13-17 and 33-59; first written submission to the Panel, paras. 1110-1129).
711 Panel Report, para. 6.522.

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being negotiated, significant development challenges remained." 712 The Panel found that, "when
the {A350XWB} LA/MSF contracts were being negotiated, it appears that significant development
tasks were not only still yet to be resolved, but were also ambitious and time -critical."713 For the
Panel, this meant that "the picture {was} more complicated than the European Union's submission
that A350XWB development risk was mitigated, as compared to the A380, by the comparatively
later point after launch at which A350XWB LA/MSF was concluded ."714 On this basis, the Panel
found that, "at least with respect to materials novelty, the fact tha t the A350XWB LA/MSF
contracts were signed after the project's launch does not necessarily imply reduced development
risk compared to the A380."715
5.266. In light of these considerations, t he Panel concluded that "{t}he fact that the A350XWB
LA/MSF contracts were concluded at a relatively later point during the development programme
would have had some risk -mitigating effect when compared against the A380 ".716 However, the
Panel emphasized that "this must be viewed in the light of the extensive use of new materials used
on the A350XWB and the initial lower maturity of those materials compared to more traditional
materials, and the increased outsourcing and faster development programme."717 Therefore, in the
Panel's view, "the mitigation factors identified by the European Union (i) would not have fully
offset the increased and better understood risks associated with the ramped-up DARE
development programme and high level of outsourcing, and (ii) would not have fully offset the
technology risks associated with new materials and their lower maturity levels at the start
of development."718
5.267. Based on our review of the Panel's analysis, we do not consider that the Panel can be
faulted for internally inconsistent reasoning, as the European Union's suggests. We recall that the
Panel conducted a comparative assessment of the development risks associated with the A350XWB
and A380 projects, which included examining the use of new materials and the extent to which
such use would have an impact on the development of each aircraft, and R&D costs.719 The Panel
noted, in particular, that the A350XWB would i nvolve higher R&D costs, and that the new design
and use of new materials would necessitate the development of specialized equipment, expertise,
and testing. 720 On the basis of this examination , the Panel found that "the A350XWB involved
significant novelty, greater cost, greater investment, and therefore technology -related
development risks that were at least as high or higher than the risk involved with the technology
involved in the development of the A380 ."721 The Panel then addressed the European Union's
argument that certain factors mitigated the A350XWB risks as compared to the A380 risks .
As noted, the Panel disagreed that the mitigation factors identified by the European Union would
have fully offset the increased and better understood risks associated with the DARE programme
and high level of outsourcing, and the technology risks associated with new materials and their
lower maturity levels at the start of development.722
5.268. In light of the Panel's analysis of the nature and extent of the risk -mitigating fa ctors
identified by the European Union, we see no incoherence in the Panel's initial assessment of the

712 Panel Report, para. 6.524. The Panel specified that, "{i}n June 2009, commentators noted that
Airbus was to 'undertake an intense development programme of the A350 XWB over the next 24 months,
the likes of which it ha{d} not seen for decades. Between {then} and mid-2011, when final assembly
beg{an}, the A350 engineering teams {had to} complete the detailed design lead variant, the -900, and prove
the carbonfibre production plan for construction to begin, while firming up the baseline specification for the
two derivatives.'" (Ibid. (quoting Max Kingsley-Jones, "Paris Air Show: A350 XWB ready to rock",
FlightGlobal News, 5 June 2009 (Panel Exhibit USA-428))) The Panel added that "{t}he same commentators
noted that a similar development process had not been undertaken with respect to the A380: 'Not since it
introduced the A330/A340 family of twin and quadjets in 1993 ha{d} the airframer undertaken such ambitious
multi-variant parallel development'." (Ibid. (quoting Max Kingsley-Jones, "Paris Air Show: A350 XWB ready to
rock", FlightGlobal News, 5 June 2009 (Panel Exhibit USA-428)))
713 Panel Report, para. 6.525.
714 Panel Report, para. 6.525.
716 Panel Report, para. 6.541.
717 Panel Report, para. 6.541.
719 See para. 5.257 above.
720 Panel Report, para. 6.485.
721 Panel Report, para. 6.485. (emphasis original; fn omitted)
722 Panel Report, para. 6.542.

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development risks associated with the two projects, its subsequent analysis of risk mitigation
factors, and its final conclusion that "the development ri sks associated with the A350XWB were
at least as high as, or sufficiently similar to , those associated with the A380." 723 Thus, we fail to
see any internal inconsistency in the Panel's assessment of development risks , let alone one that
would call the Panel's objectivity into question.
5.269. Finally, in its third line of argumentation, the European Union argues that, in the Panel's
assessment of development risks, there is an inconsistency between its benefit findings and its
subsequent adverse effects findin gs. The European Union explains that, in support of its finding
that A350XWB LA/MSF constitutes a subsidy, the Panel emphasi zed in the context of benefit how
different the A350XWB technologies were from those applied on the A380. 724 However, in its
assessment of adverse effects, the Panel stressed the extent to which the A350XWB technologies
were derived from the A380, such that A380 and earlier LA/MSF measures were a substantial
cause of the market presence of the A350XWB. 725 Thus, in the European Union's view , in the
"benefit" section of its Report, the Panel highlighted the novelty of the A350XWB project, whereas,
in the " adverse effects" section, the Panel emphasi zed the continuity of the A350XWB project in
light of previous LCA projects, and especially the A380 project.726 In the European Union's view,
these inconsistent findings reveal a lack of even -handedness on the part of the Panel. 727
Consequently, the European Union contends that the Panel's treatment of the evidence was not
objective and is thus inconsistent with Article 11 of the DSU.728
5.270. We begin by noting that, before the Panel, the European Union put forward a very similar
argument to the one now raised on appeal. Indeed, the European Union maintained before the
Panel that it was difficult to reconcile t he United States' arguments concerning the adverse effects
of LA/MSF – e.g. the indirect effects of the A380 LA/MSF measures on Airbus' ability to launch and
develop the A350XWB – with the United States' contention, in the context of the proposed benefit
benchmark for the A350XWB, that the A350XWB involved a greater technological risk compared
with the A380 and other Airbus LCA. The European Union submitted that "{a} neutral,
even-handed review {could not} reconcile these two arguments ."729 In response,
the United States asserted that "'the fact that the A350XWB incorporates new applications of
composites material' does not eliminate the 'valuable lessons learned' or 'critical technologies,
processes and knowledge that Airbus applied' from its prior programme."730
5.271. In the Panel's view, the United States was not arguing that "the challenges involved with
extensive use of composites mean that there were no significant learning effects from the A380,
and indeed all earlier Airbus aircraft ."731 The Panel specified that the United States identified both
general learning effects in aircraft manufacturing, and also carry -over of specific components that
likely benefitted from Airbus' prior LCA experience. 732 On this basis, the Panel did not see any
logical reason why there could not be incremental improvements from one aircraft to t he next
(e.g. building on experience of the use of composites in various ways and in particular areas) ,
and also a technology jump (such as the use of composites for more than half the materials in the

724 According to the European Union, the A350XWB was thus considered by the Panel to be "technically
very different" from the A380, involving particular technological challenges not previously faced by Airbus, and
worthy of a project risk premium at least as sizable as the project risk premium due for A380 LA/MSF.
(European Union's appellant's submission, para. 465 (quoting Panel Report, para. 6.487))
725 European Union's appellant's submission, para. 466. The European Union recalls that, in the section
of its Report dealing with the "effects of the subsidies", "the Panel concluded that the A350XWB project
'significantly benefitted from Learning Effects', in particular from the A380 project." (Ibid., para. 471 (quoting
Panel Report, para. 6.1747 (emphasis added by the European Union))) In the European Union's view,
"{a}ssuming these findings are correct, these significant learning effects must have a bearing on – and
decrease – the development risks involved in the A350XWB project and, accordingly, the project risk premium
a market lender would demand as compensation for bearing those risks." (Ibid., para. 471)
726 European Union's appellant's submission, para. 468.
727 European Union's appellant's submission, para. 464.
728 European Union's appellant's submission, para. 473.
729 Panel Report, para. 6.489 (quoting European Union's comments on the United States' response to
Panel questions Nos. 91-107, para. 713).
730 Panel Report, para. 6.490 (quoting United States' second written submission to the Panel, para. 565;
in turn referring to European Union's first written submission to the Panel, para. 1160).
731 Panel Report, para. 6.491.
732 Panel Report, para. 6.491.

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fuselage and wings), with the enhanced risks s uch novelty presents. For instance, the Panel noted
that Airbus stated that "it 'evolved' its 'step by step gain of composite experience' in previous
aircraft and declare{d} … that the degree to which composites were used on the A350XWB aircraft
involved very significant novelty ."733 Therefore, the Panel did not consider that the
United States' arguments were necessarily contradictory. 734 The Panel thus accepted that there
were incremental improvements from one aircraft to the next but found at the same time that the
launch of the A350XWB involved novelty. In light of these considerations, we see no lack of
even-handedness in this approach, or basis to fault the Panel under Article 11 of the DSU.
5.272. Furthermore, we observe that the Panel's analysis in the "benefit" and "adverse effects"
sections of its Report actually appears to reflect a combination of both continuity with previous
Airbus models (reflecting incremental improvements) and novelty (representing "technological
jump"). In other words, contrary to the European Union's assertion, we do not consider that, on
the one hand, the benefit analysis refers only to novelty and, on the other hand, the adverse
effects analysis mentions only continuity. For instance, in the context of its benefit analysis, the
Panel found that, while the A350XWB and A380 were technically very different to what had come
before, both types of aircraft built on "certain expertise in aircraft construction and incorporat ing
individual components that had been developed in relation to previous aircraft". 735 Similarly, in its
adverse effects analysis, the Panel noted that , "{c}ompared to the Original A350, the A350XWB
was expected to have a wider and composite fuselage, large r composite wings, higher cruise
speed, and more powerful engines"736, and that "{p}ress reports characterized the A350XWB as a
'major' and 'dramatic' redesign of the Original A350 that would prin cipally compete with the
Boeing 777 and the 787". 737 Therefore, in our view, the Panel's reasoning in the "adverse effects"
section of its Report accounts for, and is in consonance with, its reasoning in the "benefit" section
of its Report.
5.273. Consequently, we are not persuaded by the European Union's third line of argume ntation
with regard to its claim that the Panel acted inconsistently with Article 11 of the DSU.
5.274. For the foregoing reasons, the European Union has not established that the Panel acted
inconsistently with Article 11 of the DSU in its assessment of development risk.
5.3.2.3.1.2 Market risk and comparison of development risk and market risk
5.275. The European Union brings claims of inconsistency with Article 11 of the DSU in relation to
the Panel's analysis of market risk and the Panel's comparison of development risk and marke t
risk. These claims are based on the same premise, namely, that the Panel should have focused its
assessment on the price that would be charged by a commercial lender for assuming the specific
risks at issue. Given the interrelated nature of these claims, we address them together below.
5.276. With regard to market risk 738, the European Union argues that the Panel's findings suffer
from flaws similar to those identified with respect to the Panel's analysis of development risk.
The European Union maintains that the Panel again failed to state the differences regarding market
risks associated with the A380 and the A350XWB projects in terms that are both relevant under
Article 1.1(b) of the SCM Agreement and susceptible to comparison (i.e. in terms of the impact
that the particular market risks posed by each project would have on the project risk premium that

734 Panel Report, para. 6.492.
735 Panel Report, para. 6.487.
736 Panel Report, para. 6.1546 (referring to Guy Norris, "Airline criticism of Airbus A350 forces airframer
to make radical changes to fuselage, wing and engines", Flight International, 8 May 2006 (Panel Exhibit
USA-26)).
737 Panel Report, para. 6.1546 (quoting and referring to, respectively, Goldman Sachs Investment
Analysis, A350: Not an option but essential for Airbus' future, in our view, 21 November 2006 (Panel
Exhibit USA-30), pp. 20-22; Guy Norris, "Airline criticism of Airbus A350 forces airframer to make radical
changes to fuselage, wing and engines", Flight International, 8 May 2006 (Panel Exhibit USA-26); Scott
Hamilton, "A350 Redesign Threatens Boeing 777; Boeing prepares 787 for Challenge", Leeham.net,
6 June 2006 (Panel Exhibit USA-27)).
738 The European Union observes that "market risk" refers to the "risk that the new aircraft will not sell
as well as anticipated". (European Union's appellant's submission, para. 476 (referring to Panel Report,
para. 6.543))

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would be charged by a commercial lender for assuming that risk).739 In the European Union's view,
given that the Panel identified no evidence showing that a commercial lender would price similarly
the particular market risks fa ced by each of the two projects, the Panel identified no basis on the
record for its finding that, while the market risks experienced by the projects were different in
nature, they were overall "comparable in importance".740
5.277. Similarly, with respect to the Panel's overall comparison of development and market risk s,
the European Union takes issue with the following Panel finding regarding each component of
programme risk:
With respect to development risks (the risk that Airbus will not be able to deliver the
planned aircraft as and when anticipated), we consider that the risks associated with
the A350XWB were approximately similar to, if not slightly higher than , the A380.
With respect to market risk (the risk that the aircraft will not sell as well as
anticipated), we consider that the A350XWB marketing risks would not have been
much lower than A380 marketing risks.741
5.278. In the European Union's view, this finding served a s the basis for the Panel's conclusion
that the project risks were sufficiently similar to apply the WRP used in the A380 LA/MSF contracts
to the A350XWB LA/MSF contracts. As in the case of market risks, the European Union emphasizes
that, to reach this fi nding, the Panel should have assessed whether the development risks and
market risks, while different for the A350XWB and A380 projects, would nonetheless lead a market
lender to demand the same project risk premium for bearing those different risks.742
5.279. We begin by highlighting that the Panel had the obligation to engage in a rigorous and
critical analysis of all relevant evidence and arguments to determine whether the four A350XWB
LA/MSF contracts confer a benefit. In particular, the Panel was required to av oid imprecision in its
selection of the project -specific risk premium and to ensure that it did not make a false finding of
benefit when there was none. Moreover, in the present case, the market benchmark chosen for
purposes of the benefit comparison was required to be "comparable " to the A350XWB LA/MSF
financing at issue.743
5.280. As noted above, the European Union's challenges to the Panel's analysis on market risks,
and the comparison of development and market risks, share the same premise as its earlier claim
against the Panel's findings concerning development risk.744 The common thread in all these claims
is the European Union's contention that the Panel should have analysed the risk at issue
(development or market) associated with the A350XWB and A380 projects from the perspective of
the price that a commercial lender would have charged to assume each of these risks . In light of
the similar nature of these claims of inconsistency with Article 11, we consider that our earlier
reasoning is also applicable in this context.
5.281. As indicated above, the main issue before the Panel was whether a commercial lender
would have imposed similar terms for assuming the risk associated with each project
(i.e. the A350XWB and the A380). To the extent that it would have been possible to quantify in the
present case what a commercial lender would have charged as a risk premium to assume each of
the individual categories of risk examined by the Panel, this type of analysis would have provided a
more robust basis for the Panel's conclusions. However, the Panel was not required to determine
what a commercial lender would have charged with respect to each of the individual categories of
risk that it examined as long as the risk profiles of the A350XWB and A380 projects were overall
sufficiently similar.

739 European Union's appellant's submission, para. 478.
740 European Union's appellant's submission, para. 479 (quoting Panel Report, para. 6.579).
741 European Union's appellant's submission, para. 484 (quoting Panel Report, para. 6.610 (emphases
added by the European Union)).
742 European Union's appellant's submission, para. 485.
743 European Union's appellant's submission, para. 372 (quoting Appellate Body Report,
US ‒ Anti-Dumping and Countervailing Duties (China), para. 476).
744 The European Union argues that the Panel's findings regarding the second type of programme risk
(i.e. market risk) "suffer from flaws similar to those identified … with respect to development risk".
(European Union's appellant's submission, para. 475)

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5.282. As in the conte xt of development risks, we highlight that, before the Panel, the
European Union does not appear to have argued that the Panel was required to undertake an
assessment of market risks in terms of "the price that a commercial lender would have charged" to
assume this specific type of risk.745 Nor does the European Union appear to have argued that the
Panel was required to undertake the comparison of the specific risks at issue in terms of "the price
that a commercial lender would have charged ".746 Rather, the European Union's argumentation
more broadly addressed the differences in the various risks at issue, including development and
market risks, to demonstrate that the United States had failed to show that the risks of the
A350XWB project were "likely" to be higher than those of the A380 project.
5.283. In any event, we note that, in assessing programme risk, the Panel provided a detailed
examination of the parties' arguments and evidence regarding development risk and market risk.
As noted above 747, the Panel conducted a comparative assessment of the development risks
associated with the A350XWB and A380 projects, which included examining the use of new
materials and the extent to which such use would have an impact on the development of each
aircraft, and R&D costs. The Panel noted, in particular, that the A350XWB would involve higher
R&D costs, and that the new design and use of new materials would necessitate the development
of specialized equipment, expertise, and testing. 748 On the basis of this examination , the Panel
found that "the A350XWB involved significant novelty, greate r cost, greater investment,
and therefore technology-related development risks that were at least as high or higher than the
risk involved with the technology involved in the development of the A380."749
5.284. With regard to market risk, the Panel also conducted a comparative assessment of the
market risk associated with the A350XWB and A380 projects. The Panel began its analysis with the
risk related to market forecas ts. In this context, the European Union argued before the Panel that
the aerospace industry has considerably more experience in forecasting demand for the middle to
large wide-body aircraft market segment than for the VLA market.750 In light of this argument, the
Panel decided to compare the market predictions for the A380 and the A350XWB at the time of the
respective LA/MSF contracts. After examining considerable evidence, the Panel noted that, at the
time of the A350XWB LA/MSF contracts, there were signific ant predictions that client airlines, and
therefore the market, would be affected by a negative financial and economic environment. 751
The Panel additionally found that downward trends in demand were also evident when
the A380 LA/MSF contracts were being con cluded.752 In comparing the two projects, the Panel
observed that "the economic environment appears to have been taken into account in predictions
of market demand at the time the A380 LA/MSF contracts were concluded." 753 By contrast, the
Panel found that, whi le the A350XWB market demand predictions were likely to be subject to a
negative economic environment that would affect Airbus' clients, that negative economic
environment was not taken into account in the market demand predictions on which the A350XWB
LA/MSF contracts appear to have been based.754 The Panel specified that demand predictions used
in the A350XWB Business Case appear to be those prepared for the industrial launch of the
A350XWB in 2006 – i.e. predictions that predate the 2007-2009 financial and economic crisis.755
The Panel considered that a market lender would have taken this into account in establishing a
market lending rate.
5.285. The Panel then turned to examine the risk related to conditions of competition within the
relevant market segment. In thi s context, the European Union argued that conditions of

745 European Union's appellant's submission, para. 448. (emphasis omitted)
746 European Union's appellant's submission, para. 448. (emphasis original)
747 See paras. 5.257-5.259 above.
748 Panel Report, para. 6.485.
749 Panel Report, para. 6.485. (emphasis original; fn omitted)
750 Panel Report, para. 6.545 (quoting European Union's second written submission to the Panel,
paras. 323-326).
751 Panel Report, para. 6.565.
752 Panel Report, para. 6.567.
753 Panel Report, para. 6.568.
754 Panel Report, para. 6.570.
755 Panel Report, para. 6.569 (referring to "Presentation to the EADS Board", [BCI] (slides 1-45) and
"A350XWB Business Case: Assumptions, Sensitivities and Limitations, Presentation to EADS BoD – status",
2 November 2006 (slides 46-68) (A350XWB Business Case presentation) (Panel Exhibit EU-130 (HSBI)), slides
50-51).

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competition between Airbus and Boeing were more favourable to Airbus for the A350XWB project
than for the A380 project. 756 The Panel was not persuaded by the European Union's argument.
On the one hand, the Panel observed that "{t}he A380 was far larger than any existing aircraft,
and its clearest competitor was the Boeing 747, a model near the end of its programme life which
would likely need to be redesigned in order to improve its competitiveness." 757 On the other hand,
the Panel pointed out that the A350XWB family was launched to compete directly in a market
segment that already comprised several modern, successful competitor models: the already
successful Boeing 777 and the new 787, as well as Airbus' o wn existing twin -aisle aircraft, the
A330 and A340. 758 Therefore, the Panel was of the view that "the existence of several modern,
already successful competitor aircraft in the A350XWB's market segment would mean that, even if
market demand forecasts were accurate, Airbus would have more difficulty achieving its hoped -for
market share in the case of the A350XWB than … in the case of the A380." 759 Moreover, the Panel
added that "any A350XWB development risks would have had serious consequences in relation to
market demand in view of the competition in the segment." 760 Therefore, for the Panel, "at the
time of the conclusion of the respective LA/MSF contracts, this competition was a factor that would
have increased the market risks for the A350XWB relative to the A380's market risks."761
5.286. On this basis, the Panel reached the following conclusion:
{T}he A380 and A350XWB experienced market risks that were of a different nature.
At the relevant points in time, the A380's market success or failure rested in large
part on th e correct identification of the existence and size of the market segment,
whereas the A350XWB's success or failure would depend upon how it would be
received by customers in a market segment that was already relatively well known
and served by existing air craft, including the 787. Moreover, the A350XWB would
need to be competitive not only in terms of innovation but, crucially, in terms of
timing. Competition within the sector would mean that the consequences of any
delays could be very detrimental to marke t success. For these reasons, we consider
that while the "market" or "marketing" risks experienced by the A380 and A350XWB
were different in nature, they were overall comparable in importance.762
5.287. In light of the above, we consider that the Panel had a suffic ient basis for its finding that
the A350XWB project involved market risks that, while different in nature from those of the A380
project, were "overall comparable in importance".763 Thus, the European Union has not established
that the Panel acted inconsiste ntly with Article 11 of the DSU because there is allegedly
"no evidence to support its finding that a commercial lender would price similarly the differences in
development risks and market risks posed by each project".764 Consequently, we disagree with the
European Union that the Panel acted inconsistently with Article 11 of the DSU in its assessment of
market risk or in its comparison of development and market risks.
5.3.2.3.1.3 Overall conclusion on programme risk
5.288. The European Union has raised several lines of argumentation under Article 11 of the DSU
challenging the Panel's analysis of programme risk. In particular, the European Union has criticized
the analysis of development risk , the analysis of market risk , and the comparison of the
development and market risks posed by the A350XWB and A380 projects.

757 Panel Report, para. 6.572 (referring to Amro Aerospace & Defence Sector Research, "EADS: Results
Analysed – A3XX Project Review – Recommendation Upgrade", 13 December 2000 (Panel Exhibit USA-490),
pp. 9-10).
758 Panel Report, para. 6.573 (referring to Scott Hamilton, "A350 Redesign Threatens Boeing 777;
Boeing prepares 787 for Challenge", Leeham.net, 6 June 2006 (Original Panel Exhibit US-141; Panel Exhibit
USA-27); Guy Norris, "Airline criticism of Airbus A350 forces airframer to make radical changes to fuselage,
wing and engines", Flight International, 8 May 2006 (Panel Exhibit USA-26); Dominic Gates, "Airplane Kingpins
tell Airbus: Overhaul A350", The Seattle Times, 29 March 2006 (Panel Exhibit USA-24)).
759 Panel Report, para. 6.576.
761 Panel Report, para. 6.578.
762 Panel Report, para. 6.579.
763 Panel Report, para. 6.579.
764 European Union's appellant's submission, para. 488.

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5.289. The overarching criticism raised by the European Union relates to the Panel's alleged
failure to conduct the examination of development risk, market risk, and the comparison of
development and market risks in terms of the price that would have been demanded by a
commercial lender as a risk premium to assume each of these types of risks. While we agree that
the main issue before the Panel was whether a commercial lender would have imposed similar
terms for assuming the risk associated with each project (i.e. the A350XWB and the A380) , we do
not consider that the Panel was required to reach a "simil arity finding" on the basis of what
"a commercial lender would have charged" with respect to each of the individual categories of risk
that the parties had presented as long as the risk profiles of the A350XWB and A380 projects were
overall sufficiently similar . Therefore, we do not consider that the Panel was required to conduct
the kind of analysis suggested by the European Union.
5.290. The European Union has raised two additional lines of argumentation in relation to the
Panel's analysis of development risk. First, the European Union maintains that, in finding that the
development risks posed by the A380 and A350XWB projects were sufficiently similar, the Panel
acted inconsistently with Article 11 of the DSU because this finding was based on internally
inconsistent reasoning. Given that the Panel disagreed with the natu re and extent of the
risk-mitigating factors identified by the European Union, we see no incoherency in the Panel's
initial assessment of the development risks associated with the two projects, its subsequent
analysis of risk mitigation factors and its final conc lusion that "the development risks associated
with the A350XWB were at least as high as, or sufficiently similar to , those associated with the
A380."765 In addition, the European Union has argued that the Panel's benefit findings and its
subsequent adverse e ffects findings reveal a lack of even -handedness on the part of the Panel
contrary to Article 11 of the DSU. In particular, t he European Union asserts that, in the "benefit"
section of its Report , the Panel highlighted the novelty of the A350XWB project, w hereas, in the
"adverse effects" section of its Report , the Panel emphasi zed the continuity of the A350XWB
project in light of previous LCA projects, and especially the A380 project. 766 We are not persuaded
that the Panel's finding that there were incremental improvements from one aircraft to the next ,
while also finding that the launch of the A350XWB involved novelty, reflected a lack of
even-handedness contrary to Article 11 of the DSU.
5.291. For the foregoing reasons, we find that the European Union has failed to establish that the
Panel acted inconsistently with its obligations under Article 11 of the DSU in its analysis of
programme risk , in particular, in its analysis of development risk, market risk, and in its
comparison of the development and market risks.
5.3.2.3.2 Contract risk
5.292. The European Union argues that, in rejecting its argument that there are differences
arising from the terms of certain of the A350XWB LA/MSF contracts compared to the A380 LA/MSF
contracts, the Panel committed two distinct error s under Article 11 of the DSU. First, the
European Union contends that the Panel failed to compare properly the risk -reducing terms of the
A350XWB LA/MSF contracts to the risk -reducing terms of the A380 LA/MSF contracts .
Second, according to the European Union, the Panel failed to compare the terms of the A350XWB
LA/MSF contracts to the terms of the A380 risk-sharing supplier contracts, which were used in the
original proceedings to derive the risk premium for the A380 LA/MSF contracts (i.e. the WRP) .767
We address each of these claims below.
5.3.2.3.2.1 Whether t he Panel failed to compare properly the terms of the A350XWB
LA/MSF contracts to the terms of the A380 LA/MSF contracts
5.293. The European Union contends that the Panel's comparison of the four A350XWB LA/MSF
contracts with the A380 LA/MSF contracts does not comply with the requirements of Article 11 of
the DSU because such comparison lacks a sufficient evidentiary basis. In particular,
the European Union requests us "to reverse the Panel's findings, at paragraphs 6.595 and 6.609
of its Report , that 'the A350XWB LA/MSF contracts containing such 'risk-reducing' terms are

766 European Union's appellant's submission, para. 468.
767 European Union's appellant's submission, para. 492.

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no less risky than at least [BCI] for A380 LA/MSF that also contained similar terms in the original
proceeding', such that there was ' no reason why the same risk premium {could not} also apply to
the A350XWB LA/MSF measures' ".768 The European Union provides three main arguments in
support of its claim.
5.294. First, according to the European Union, "the evidence shows that no A380 contract
contained risk-reducing terms as extensive as those included in the [BCI] A350XWB contract."769
The European Union elaborates:
Under the [BCI] A350XWB LA/MSF contract, [BCI]. No such mechanism was present
in any of the A380 LA/MSF contracts. The [BCI] A380 contract included a mechanism
that [BCI].770
5.295. The European Union contends that the evidence shows that, as a result of more extensive
risk-reducing terms, [BCI] of the A350XWB LA/MSF contracts "[BCI] than any of the
A380 LA/MSF contracts ", including the [BCI] A380 LA/MSF contract. 771 Therefore, in the
European Union's view, the Panel lacked a sufficient evidentiary ba sis to find that "similar"
risk-reducing terms were present in certain A350XWB LA/MSF contracts, compared to the [BCI]
A380 LA/MSF contract.772
5.296. In or der to assess the European Union's claim, we describe below key aspects of the
Panel's analysis. Before the Panel, the European Union argued that "differences in the terms of the
LA/MSF agreements for the A380 and the A350XWB reduce the risk for the A350XW B and, hence,
the benchmark."773 The European Union focused its argumentation on a comparison between the
[BCI] and the [BCI] by arguing that, "{f}or example, the [BCI], whereas the [BCI]".774
In response, the United States asserted that "[BCI]."775 The United States added that "there is no
basis for the European Union to conclude that the existence of [BCI] 'may justify a significantly
lower risk premium for the A350XWB financing agreements , as a whole, than for the
A380 financing agreements, as a whole'".776 Consequently, in the United States' view, "in respect
of ' [BCI]', the A380 LA/MSF contracts and the A350XWB LA/MSF contracts are, as a whole,
[BCI]."777
5.297. In light of these arguments, the Panel acknowledged that, "under the [BCI] LA/MSF
contracts for the A 350XWB, [BCI] in the event that deliveries are not made (unless [BCI])".778
At the same time, the Panel pointed out that, in the original proceedings, " [BCI], which would
likewise constitute 'risk -reducing' terms, existed with respect to [BCI] LA/MSF at issu e in that
proceeding".779 We highlight that, on this basis, the Panel held that "{a}t least [BCI] of the A380
contracts considered in the original proceeding – [BCI] – contained a mechanism that similarly
'protected' returns."780

768 European Union's appellant's submission, para. 505 (quoting Panel Report, paras. 6.595 and 6.609
(emphasis added by the European Union)).
769 European Union's appellant's submission, para. 496 (referring to Panel Report, para. 6.594 and
fn 1065 thereto, paras. 6.602 and 6.606). (emphasis original)
770 European Union's appellant's submission, para. 497 (referring to Panel Report, paras. 6.602
and 6.606). (emphases original; additional text in fn 453 thereto omitted)
771 European Union's appellant's submission, para. 496. (emphasis original)
772 European Union's appellant's submission, para. 498.
773 Panel Report, para. 6.590 (referring to European Union's second written submission to the Panel,
paras. 339-340; response to Panel question No. 100, paras. 404-405).
774 Panel Report, para. 6.591 (quoting European Union's second written submission to the Panel,
para. 340; referring to European Union's response to Panel question No. 100, para. 405).
775 Panel Report, para. 6.592 (referring to United States' comments on the European Union's response
to Panel question No. 100, paras. 276-280).
776 Panel Report, para. 6.592 (quoting European Union's response to Panel question No. 100,
para. 405).
777 Panel Report, para. 6.592 (quoting United States' comments on the European Union's response to
Panel question No. 100, para. 280).
779 Panel Report, para. 6.595.

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5.298. At this point, we point out that the Panel used broad language when comparing the
[BCI] A350XWB and [BCI] A380 LA/MSF contracts. Contrary to the European Union's
characterization of the Panel's findings, the Panel did not find that the [BCI] "contained risk -
reducing terms as extensi ve as those included in the [BCI] A350XWB contract". 781 Rather, the
Panel made the broader finding that "the [BCI] A380 contract – contained a mechanism that
similarly 'protected' returns ."782 Having made this comparative assessment, the Panel noted that
"Professor Whitelaw's risk premium was nevertheless applied in that proceeding and, moreover, on
the understanding that it was a minimum risk premium and would be understated for that
contract."783 On this basis, the Panel did not "consider that such features in this proceeding should
in and of {themselves} render the WRP inapplicable".784
5.299. Having examined key aspects of the Panel's analysis, we highlight that the European Union
fails to point to any specific error regarding the objectivity of the Panel's assessment, a
requirement that an appellant must fulfil to make out a claim successfully under Article 11 of the
DSU.785 The European Union simply states that "the Panel lacked a sufficient evidentiary basis to
find that 'similar' risk -reducing terms were present in ce rtain A350XWB {LA/MSF} contracts,
compared to the [BCI] A380 {LA/MSF} contract."786 However, a determination as to whether the
Panel had enough evidence on the record to support its findings depends on how one understands
the finding that risk-reducing terms present in certain A350XWB LA/MSF contracts and the [BCI]
A380 LA/MSF contract similarly "protected" returns.787 On appeal, the European Union attributes a
very specific meaning to the notion of "similar risk reducing terms ", namely, one in which both
contracts establish that "[BCI]."788 In contrast, in comparing the contracts at issue, the Panel did
not focus on contract terms as specific as the ones referred to by the European Union. Rather,
given the existence of a clause concerning "[BCI]", which in the Panel's view would likewise
constitute "risk-reducing" terms, the Panel concluded that "the [BCI] A380 {LA/MSF} contract –
contained a mechanism that similarly 'protected' returns ."789 As will be elaborated below,
the Panel's approach to comparing the risk -reducing terms in the relevant LA/MSF contracts may
well be a reflection of the arguments advanced by the parties during the Panel proceedings.
5.300. On appeal, the European Union attaches significant weight to the fact that:
{u}nder the [BCI] A350XWB LA/MSF contract, [BCI]. No such mechanism was
present in any of the A380 LA/MSF contracts. The [BCI] A380 contract included a
mechanism that [BCI].790
5.301. While, in principle, this may seem like a valid distinction, we highlight that these subtle
nuances regarding the terms of the contracts on which the European Union is currently basing its
claim of inconsistency under Article 11 do not seem to have been sufficiently developed before the
Panel. For instance, whereas the European Union did argue that the [BCI] A350XWB LA/MSF
contract's clause on [BCI] should be taken into account when assessing the differences between
the A350XWB LA/MSF contracts and the A380 LA/MSF contracts 791, the European Union did not
compare the [BCI] A350XWB LA/MSF contract with the [BCI] A380 LA/MSF contract , which
contrasts with its position on appeal . Rather, before the Panel, the European Union made a
comparison between [BCI].792 Moreover, it appears that, before the Panel, the European Union did

781 European Union's appellant's submission, para. 496. (emphasis added; fn omitted)
783 Panel Report, para. 6.595 (referring to Original Panel Report, para. 7.481; Appellate Body Report,
EC and certain member States – Large Civil Aircraft, para. 923).
784 Panel Report, para. 6.595.
785 Appellate Body Report, EC – Fasteners (China), para. 442.
786 European Union's appellant's submission, para. 498.
787 Panel Report, para. 6.595.
788 European Union's appellant's submission, para. 497. (emphasis original)
790 European Union's appellant's submission, para. 497 (referring to Panel Report, paras. 6.602
and 6.606). (emphases original; additional text in fn 453 thereto omitted)
791 European Union's second written submission to the Panel, paras. 339-342; response to Panel
question No. 100, paras. 401-407.
792 European Union's second written submission to the Panel, para. 340; response to Panel question
No. 100, para. 405.

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not make the distinction between [BCI] and [BCI], as it now do es on appeal. 793 The
European Union's arguments were more general in nature. For instance, the European Union
maintained that a "rigorous assessment of the provisions of the financing agreements overall" may
"justify a significantly lower risk premium for the A350XWB financing agreements, as a whole,
than for the A380 financing agreements, as a whole".794
5.302. A claim that a panel has failed to conduct an objective assessment of the matter before it
is "a v ery serious allegation" 795, and the Appellate Body will not "interfere lightly" with a panel's
fact-finding authority.796 We do not consider that the European Union has successfully established
that the Panel's assessment lacks objectivity. To establish that t he Panel acted inconsistently with
Article 11, the European Union must demonstrate that the Panel exceeded the bounds of its
discretion as the trier of facts, including in its treatment of the evidence. 797 We consider that the
European Union has not done so in the present case, particularly given that the Panel examined in
detail the limited argumentation and evidence put forward by the parties, as discussed above.
5.303. For the foregoing reasons, we do not consider that the European Union has made out its
Article 11 claim by arguing that "the Panel lacked a sufficient evidentiary basis to find that 'similar'
risk-reducing terms were present in certain A350XWB {LA/MSF} contracts, compared to the [BCI]
A380 {LA/MSF} contract."798
5.304. In its second line of argumentation, th e European Union contends that the Panel's
reasoning ignores the undisputed fact that a higher number of A350XWB LA/MSF contracts contain
certain risk-reducing terms than do the A380 LA/MSF contracts. According to the European Union,
it is undisputed that [BCI] A350XWB LA/MSF contracts contain certain risk -reducing terms (the
[BCI] contracts).799 Together, these contracts account for approximately [BCI]% of all LA/MSF
for the A350XWB project. 800 In contrast, under the A380 project, it is undisputed that only [BCI]
of the LA/MSF [BCI] contained certain risk -reducing terms (the [BCI]), which accounted for
approximately [BCI]% of all LA/MSF for the A380. 801 In the European Union's view, the fact that
significantly more LA/MSF for the A350XWB project is provided thro ugh contracts containing risk -
reducing terms implies that, relative to the A380 project, it has become more important to take
into account risk -reducing terms when establishing the risk premium for the A350XWB. 802 The
European Union contends that the Panel a cted inconsistently with Article 11 because it failed to
take this objective factor into account.
5.305. Having reviewed the Panel record, we observe that the European Union does not appear to
have argued before the Panel that the fact that significantly more A35 0XWB LA/MSF is provided
through contracts containing risk -reducing terms implies that, relative to the A380 project, it is
more important to take into account risk -reducing terms when establishing the risk premium for
the A350XWB, as the European Union now contends on appeal. It may possibly be correct that,
relative to the A380, more LA/MSF for the A350XWB project is provided through contracts
containing risk -reducing terms . However, w e do not consider that the European Union has
established its claim of i nconsistency with Article 11, given that the Panel properly assessed the
arguments and evidence that the parties had presented . In any event, even assuming that more
A350XWB LA/MSF may have been provided through contracts containing risk -reducing terms than
was the case in the context of the A380 project, we understand the Panel to have taken this into
account in its overall consideration of whether the overall project-specific risks between the

793 European Union's appellant's submission, para. 497.
794 European Union's response to Panel question No. 100, para. 405.
795 Appellate Body Reports, China – Rare Earths, para. 5.227 (quoting Appellate Body Report,
EC ‒ Poultry, para. 133).
796 Appellate Body Reports, EC – Sardines, para. 299 (quoting Appellate Body Report, US ‒ Wheat
797 Appellate Body Report, US – Wheat Gluten, para. 151.
798 European Union's appellant's submission, para. 498.
799 European Union's appellant's submission, para. 500 (referring to Panel Report, para. 6.598).
800 The European Union adds that [BCI] A350XWB LA/MSF contract did not contain risk-reducing terms.
(European Union's appellant's submission, para. 500)
801 European Union's appellant's submission, para. 501. The European Union notes that the [BCI] other
LA/MSF [BCI] (the [BCI]), which accounted for approximately [BCI]% of all LA/MSF, did not contain risk-
reducing terms. (Ibid.)
802 European Union's appellant's submission, para. 502.

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two projects were sufficiently similar, "such that it would be reasonable to conclude that the WRP
could be used as the project-specific risk premium for the A350XWB."803
5.306. In its third line of argumentation, the European Union argues that, in its comparison of the
risk-reducing terms in the LA/MSF contracts for the A350XWB and A380 projects, the Panel
ignored the relative importance of these risk-reducing terms in light of the particular risks to which
each project was considered to be exposed . According to the European Union, the Panel failed to
consider tha t, in comparison with the A380 LA/MSF contracts, the lenders' (slightly) higher
exposure to "development risk" under the A350XWB LA/MSF contracts is reduced precisely as a
result of the risk -reducing terms in those A350XWB LA/MSF contracts. Thus, for the
European Union, the risk -reducing terms in the A350XWB LA/MSF contracts are more
consequential than the risk-reducing terms in the A380 LA/MSF contracts.804
5.307. Again, we note that the European Union did not argue before the Panel that the
risk-reducing terms in the A350XWB LA/MSF contracts are more consequential than those in the
A380 LA/MSF contracts because the lenders' (slightly) higher exposure to "development risk"
under the A350XWB LA/MSF contracts is reduced precisely as a result of the risk -reducing terms.
We do not consider that the European Union has established its claim of inconsistency with
Article 11 given that the Panel properly assessed the arguments and evidence that were put before
it by the parties.805
5.308. For the foregoing reasons, we find that the European Union has failed to establish that the
Panel's comparison of the A350XWB LA/MSF contracts with the A380 LA/MSF contracts lacks a
sufficient evidentiary basis in a manner inconsistent with the requirements of Article 11
of the DSU.
5.3.2.3.2.2 Whether the Pane l failed to compare the terms of the A350XWB LA/MSF
contracts to the terms of the A380 risk-sharing supplier contracts
5.309. The European Union submits that the Panel also acted inconsistently with Article 11 of the
DSU by failing to compare the terms of the A35 0XWB LA/MSF contracts to the terms of the A380
risk-sharing supplier contracts, which were used in the original proceedings to derive the project
risk premium for the A380 LA/MSF contracts (i.e. the WRP). According to the European Union, the
problem with the Panel's approach is that, without a proper examination of the terms of the A380
risk-sharing supplier contracts, the Panel could not have known whether they were "dissimilar" to
the terms of the A350XWB LA/MSF contracts. 806 The European Union highlights t hat, since
the A380 risk-sharing supplier contracts do not form part of the record, the Panel evidently failed
to compare the terms of the A350XWB LA/MSF contracts to those of the A380 risk-sharing supplier
contracts.807
5.310. The United States disagrees with the European Union's claim that the Panel acted
inconsistently with Article 11 of the DSU. 808 According to the United States, t he Panel assessed
whether the relevant risks for the A350 XWB project were comparable to those for the A380
project. In doing so, it was unnecessary for the Panel to re -examine the basis for the A380 risk
premium from the original panel proceedings.809

803 Panel Report, para. 6.459.
804 European Union's appellant's submission, paras. 503-504.
805 Appellate Body Report, US – Wheat Gluten, para. 151.
806 European Union's appellant's submission, para. 514. In the European Union's view, the Panel appears
implicitly to have assumed that the similarity between the A350XWB LA/MSF contracts and the A380
risk-sharing supplier contracts could be inferred from the fact that the A350XWB LA/MSF contracts were
sufficiently similar to the terms of the A380 LA/MSF contracts and the fact that the A380 LA/MSF contracts
were sufficiently similar to the terms of the A380 risk-sharing supplier contracts. (Ibid., para. 511)
807 European Union's appellant's submission, paras. 508 and 511.
808 United States' appellee's submission, para. 259. The United States asserts that "{i}t is unclear why
the {European Union} believes this outcome suggests some lack of objectivity on the Panel's part." Indeed,
the United States further notes, the European Union itself "struggles to identify the supposed error". (Ibid.
(fn omitted))
809 United States' appellee's submission, para. 260.

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5.311. Based on o ur review of the Panel record , it appears that, before the Panel, the
European Union did not request the Panel to compare the A350XWB LA/MSF contracts with the
A380 risk-sharing supplier contracts. Moreover, as acknowledged by the European Union itself,
"the A380 {risk-sharing supplier} contracts do not form part of the record."810 The European Union
did not provide these A380 risk-sharing supplier contracts to the Panel. It appears that, even
though in the original proceedings Professor Whitelaw derived the WRP from the A380 risk-sharing
supplier contracts811, the European Union had only submitted one of these contracts to the original
panel.812 Had the European Union considered that this inquiry was required to ensure the proper
determination of the A350XWB project -specific risk premium , it should have pursued this line of
argumentation before the Pane l, including by providing the necessary evidence.
The European Union did not do so. In light of this fact, we do not consider that the Panel's analysis
would reflect a lack of objectivity contrary to Article 11.
5.312. For the foregoing reasons, we find that the European Union has failed to establish that the
Panel acted inconsistently with Article 11 of the DSU by failing to compare the terms of the
A350XWB LA/MSF contracts to the terms of the A380 risk-sharing supplier contracts.
5.3.2.3.3 The price of risk
5.313. The European Union argues that, given its analysis of the price of risk 813, the Panel acted
inconsistently with Article 11 of the DSU in finding that "the overall project -specific risks {were}
sufficiently similar to allow the risk premium applied for A380 LA/MS F in the original proceeding to
be applied to A350XWB LA/MSF."814 First, the European Union submits that the Panel's finding that
the risks associated with the A350XWB and A380 projects were overall sufficiently similar was
based on incoherent reasoning. This is because, with respect to the price of risk , the Panel found
that the United States "did not discharge its evidentiary burden" 815, such that the United States
had not established that the price of risk in the context of the A380 project was sufficiently similar
to the price of risk in the context of the A350XWB project. According to the European Union,
"{t}his finding simply does not support, and is left by the Panel unreconciled with, the Panel's
finding, in the very next sentence of its Report, that the {overall} risks posed by the two projects
'{were} sufficiently similar'."816 Second, the European Union asserts that the Panel's overall finding
of "sufficient similarity" in relation to the A350XWB and A380 projects does not have an
evidentiary basis.817 The European Union considers that, given the Panel's own factual finding that
the United States had failed to demonstrate the similarity of the price of risk at the time of the
provision of A380 and A350XWB LA/MSF, "there was no basis for the Panel to find that the A380
and A350XWB risks {were} 'sufficiently similar' for the A380 -based project risk premium to apply
to the A350XWB."818
5.314. In response, the United States maintains that the European Union "mischaracterizes" the
Panel's findings by stating that the Pa nel found that the United States had not demonstrated the
similarity of the price of risk between the two LCA projects. Rather, according to the United States,

810 European Union's appellant's submission, para. 508.
811 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 100.
812 Indeed, the original panel stated 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". (Appellate Body Report, EC and certain member
States – Large Civil Aircraft, para. 100 (quoting Original Panel Report, para. 7.480)) This contract is found in
Original Panel Exhibit EC-117 and is HSBI.
813 The Panel defines "price of risk" by reference to "the extent to which market lenders were, as a
general matter, willing to accept risk at the time of the provision of A380 and A350XWB LA/MSF".
(Panel Report, para. 6.460)
814 European Union's appellant's submission, para. 434 (quoting Panel Report, para. 6.608
(emphasis added by the European Union omitted)).
815 European Union's appellant's submission, para. 436 (quoting Panel Report, para. 6.608).
816 European Union's appellant's submission, para. 436 (quoting Panel Report, para. 6.608).
817 European Union's appellant's submission, para. 437.
818 European Union's appellant's submission, para. 437 (quoting Panel Report, paras. 6.608 and 6.610
(emphasis added by the European Union)).

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the Panel found that the risks for the A380 and A350XWB projects were overall sufficiently similar
on the basis of types of risk other than price risk.819
5.315. As we see it, both lines of argumentation brought by the European Union are based on
very similar grounds. In essence, the European Union is challenging under Article 11 the Panel's
ultimate finding that the risks associated with the A350XWB and A380 projects were overall
sufficiently similar given that the Panel did not make a finding that th e individual category of
"price of risk" was "similar" at the time of the provision of LA/MSF to the A350XWB a nd A380
projects, respectively. In its first line of argumentation, the European Union takes issue with the
Panel's ultimate finding of "sufficient similarity" by contending that such finding was based on
incoherent reasoning . In the European Union's view, this is eviden ced in that the Panel found,
on the one hand, that the United States "did not discharge its evidentiary burden" 820 with respect
to the price of risk and, on the other hand, "that the risks posed by the two projects ' {were}
sufficiently similar'."821 In its second line of argumentation , the European Union contends that the
Panel's ultimate finding of "sufficient similarity" does not have an evidentiary basis. In particular,
the European Union asserts that, given the Panel's own factual finding that the United States
"had failed to demonstrate the similarity of the price of risk" at the time of the provision of A380
and A350XWB LA/MSF, "there was no basis for the Panel to find that the A380 and A350XW B risks
{were} 'sufficiently similar' for the A380-based project risk premium to apply to the A350XWB ."822
Since both lines of argumentation are based on essentially the same grounds, we address them
together below.
5.316. We recall that, in this part of its benefi t analysis, the Panel understood the main question
before it to be "whether the United States ha{d} demonstrated that the project -specific risks of
the A350XWB programme {were} sufficiently similar to those of the A380 programme such that it
would be reasonable to conclude that the WRP could be used as the project -specific risk premium
for the A350XWB ."823 The parties' arguments before the Panel concerning the differences in the
risk profiles of the A380 and A350XWB projects focused on the following issues: ( i) programme
risk; (ii) contract risk; and (iii) the price of risk.824
5.317. Turning to examine the Panel's findings regarding the price of risk, we begin by noting that
the Panel did not make a finding that the category of "price of risk" was similar in relation to the
A350XWB and A380 projects. In this regard, t he European Union correctly indicates that the
Panel's actual finding was that, "{w}ith respect to the price of risk … {it was} unable to accept the
United States' arguments because it did not discharge its evidentiary burden ."825
However, the European Union fails to mention other important aspects of the Panel's analysis
related to this conclusion. In particular, the European Union overlooks the legal question that the
Panel set out to examine, namely, "wh ether the financial environment – in particular the global
financial and economic crisis prevailing at the time – meant that a market lender would have
demanded a higher return at the time financing was being sought for the A350XWB than at the
time it would have been sought for the A380, even if the aircraft development and marketing risks
were similar ."826 The Panel examined this issue in addressing the United States' argument that
"LA/MSF for the A350XWB 'was finalised at a point in time when lending condit ions were
historically tight' with the implication that 'the true A350XWB risk premium should likely be higher
than the A380 risk premium'." 827 In particular, the United States argued be fore the Panel that,
"at the time of the A350XWB {LA/MSF} contracts, the effects of the 2008 global financial and

819 United States' appellee's submission, para. 249 (referring to Panel Report, para. 6.608).
The United States also points out that, in reaching this conclusion, the Panel considered and rejected
arguments made by the United States and the European Union "that the financial environment at the time of
the conclusion of the A350 XWB {project} would have altered the project-specific risk". (Ibid. (referring to
Panel Report, paras. 6.580 and 6.583­6.584))
820 European Union's appellant's submission, para. 436 (quoting Panel Report, para. 6.608).
821 European Union's appellant's submission, para. 436 (quoting Panel Report, para. 6.608).
822 European Union's appellant's submission, para. 437 (quoting Panel Report, paras. 6.608 and 6.610
(emphasis added by the European Union)).
823 Panel Report, para. 6.459.
824 Panel Report, para. 6.460.
825 Panel Report, para. 6.608.
826 Panel Report, para. 6.580.
827 Panel Report, para. 6.581 (quoting Jordan Report (Panel Exhibit USA-475 (BCI/HSBI)), para. 22
(emphasis added)).

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economic crisis continued to linger and constrain the availability of credit, which would have
affected lending conditions for the A350XWB project."828
5.318. In addressing this argument by the United States, the Panel agr eed with the
European Union that "the high yield spread between investment-grade and below -investment
grade debt in [BCI] when the A350XWB LA/MSF agreements were finalised, relative to levels
in 2006/2007, does not show the price of risk was 'at least' as expensive, or 'more' expensive than
it was at the time the A380 LA/MSF agreements were finalised in [BCI]."829 The Panel then
elaborated that "{t}he peak in the spread at the time of the A350XWB LA/MSF contracts provides
information about how risk was priced at that point, but d{id} not enable {it} to judge whether
the spread was more marked than that existing at the time of the A380 LA/MSF contracts." 830 On
the basis of the above considerations, the Panel concluded that, "{g}iven the United States ha{d}
not provided the yield spreads that would allow {it} to make a full evaluation of the merits of its
submission, {it was} unable to accept its argument that a market lender would have demanded a
higher return at the time financing was being sought for the A350XWB than at the time it would
have been sought for the A380."831
5.319. On appeal, the European Union contends that the Panel found that "the United States had
not established that the price of risk in the context of the A380 project was sufficiently similar to
the price of risk in the context of the A350XWB project ."832 However, the Panel did not find that,
with respect to t he price of risk, the United States had failed to establish "sufficient similarity "
between the A350XWB and A380 projects. Rather, the Panel addressed and dismissed the
United States' argument that, due to the financial environment existing at the time of the
conclusion of the A350XWB LA/MSF, the price of risk was higher because "a market lender would
have demanded a higher return at the time financing was being sought for the A350XWB than at
the time it would have been sought for the A380 ."833 In other words , the Panel's analysis was
mainly devoted to rejecting the United States' contention that the project -specific risk premium
applicable to the A350XWB LA/MSF should be higher.
5.320. On the basis of the actual findings made by the Panel , we fail to see any incoherence
between, on the one hand, the Panel's rejection of the United States' argument that the
project-specific risk premium applicable to the A350XWB LA/MSF should be higher because LA/MSF
for the A350XWB was finali zed at a time when lending conditions were historically tight and,
on the other hand, the Panel's ultimate conclusion that "the overall project -specific risks {were}
sufficiently similar to allow the risk premium applied for A380 LA/MSF in the original proceeding to
be applied to A350XWB LA/MSF ."834 In other words, the fact that the Panel rejected the
United States' argument that project -specific risk premium applicable to the A350XWB LA/MSF
should be higher in the context of its analysis of price of risk does not undermin e the Panel's
ultimate conclusion that the overall project -specific risks were sufficiently similar .
This understanding contradicts the European Union's assertion that the Panel's findings regarding
the price of risk do not support the Panel's ultimate con clusion th at the risks of the A350XWB

828 Panel Report, para. 6.581 (referring to United States' comments on the European Union's response
to Panel question No. 100, para. 277). The United States substantiated its position in the following manner:
The United States submit{ted} evidence presented by Dr Jordan concerning the yield spread
between investment-grade and below-investment grade debt, showing the additional yield that
investors demand to invest in the lower-rated debt. According to Dr Jordan, "because the risks
related to providing project-specific financing for the A350XWB are undoubtedly much higher
than {those} related to investment-grade debt, non-investment grade debt provides a better
assessment of the effect of credit conditions on potential financing for the A350XWB". The
United States point{ed} to Dr Jordan's statements that this yield spread remained high in [BCI]
when the LA/MSF agreements were finalised, relative to pre-2007 ("pre-crisis") levels.
Specifically, the United States note{d} Dr Jordan's evidence that the yield spread between
investment-grade industrial companies and below-investment grade industrial companies ranged
from 1% to 2% in a pre-crisis period (2006-2007), peaked at almost 7% during the financial
crisis (late 2008-early 2009), and then remained elevated at 3.5% to 5% in the [BCI].
(Ibid. (fns omitted))
829 Panel Report, para. 6.585.
830 Panel Report, para. 6.585.
831 Panel Report, para. 6.588.
832 European Union's appellant's submission, para. 436. (emphasis original)
833 Panel Report, para. 6.588.
834 Panel Report, para. 6.608.

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and A380 projects were sufficiently similar. We therefore see no incoherence in the Panel's
reasoning, let alone one that rises to the level of an inconsistency with Article 11 of the DSU.
5.321. Similarly, the above misgivings regarding the European Union's understanding of the
Panel's analysis are also relevant in relation to the European Union's second line of argumentation
that the Panel's ultimate finding of "sufficient similarity" does not enjoy an evidentiary basis.
As noted, contrary to the European Union's assertion, the Panel never found that the United States
"had failed to demonstrate the similarity of the price of risk". 835 Rather, the Panel's analysis
focused on dismissing the United States' argument that, due to t he financial environment existing
at the time of the conclusion of the A350XWB LA/MSF, the "price of risk" was higher because
"a market lender would have demanded a higher return at the time financing was being sought for
the A350XWB than at the time it wo uld have been sought for the A380" .836 Moreover, we recall
that, the Panel did not actually seek to make individual findings of "similarity" between the
A350XWB and A380 projects with respect to each of the three risk categories it examined. Rather,
the Panel sought to make an overall assessment of the relative risks between the A350XWB and
A380 projects to determine whether "the project -specific risks of the A350XWB programme
{were} sufficiently similar to those of the A380 progr amme such that it would be reasonable to
conclude that the WRP could be used as the project -specific risk premium for the A350XWB ."837
Given the focus of the Panel's analysis in relation to the price of risk and the nature of the Panel's
overall assessment, we disagree that, as a result of the Panel's findings in that context, there is no
evidentiary basis for the Panel's ultimate conclusion that "the overall project-specific risks {were}
sufficiently similar to allow the risk premium applied for A380 LA/MSF in the original proceeding to
5.322. For the foregoing reasons, we find that the European Union has failed to establish that
the Panel acted inconsistently with Article 11 of the DSU in its analysis of the price of risk.
5.3.2.3.4 Overall c onclusion on the European Union's claim that the Panel acted
inconsistently with Article 11 of the DSU in its assessment of the risk differences that
may affect the project-specific risk premium
5.323. The European Union has brought multiple claims of inconsistency with Article 11 of
the DSU, challenging the Panel's assessment of three aspects of risk related to the risk profiles of
the A380 and A350XWB projects: (i) programme risk; (ii) contract risk; and (iii) the price of risk.
5.324. In the context of programme risk , we find that the European Union has failed to establish
that the Panel acted inconsistently with its obligations under Article 11 of the DSU in its analysis of
development risk , market risk , or in its comparison of the development and market risks .
With regard to contract risk, we find that the European Union has failed to establish that the
Panel's comparison of the A350XWB and A380 LA/MSF contracts lacks a sufficient evidentiary basis
in a manner inconsistent with the requirements of Article 11 of the D SU. We also find that the
European Union has failed to establish that the Panel acted inconsistently with Article 11 of the
DSU by failing to compare the terms of the A350XWB LA/MSF contracts to the terms of the A380
risk-sharing supplier contracts. Finally, we find that the European Union has failed to establish that
the Panel acted inconsistently with Article 11 of the DSU in its analysis of the price of risk.
5.3.2.4 Whether the Panel erroneously adopted a single, undifferentiated project risk
premium to benchmark all four of the A350XWB LA/MSF contracts
5.325. In this section, we address the third and final set of claims brought by the European Union
against the Panel's findings related to the project -specific risk premium. In this context, the
European Union argues that the Panel erroneously adopted a single, undifferentiated project risk
premium (i.e. the WRP) as a benchmark for all four of the A350XWB LA/MSF contracts . According
to the European Union, the terms of the four A350XWB LA/MSF contracts are similar in some
ways, but also differ in other ways. Thus, the European Union asserts that, in adopting a single,

835 European Union's appellant's submission, para. 437.
836 Panel Report, para. 6.588.
838 Panel Report, para. 6.608.

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undifferentiated project-specific risk premium that did not account for the differing allocation of
risk flowing from the differing contract terms, t he Panel erred in its application of Article 1.1(b) of
the SCM Agreement, and also failed to make an objective assessment of the matter as required by
Article 11 of the DSU.839 We address each of these claims in turn.
5.3.2.4.1 Whether the Panel erred in its application of Article 1.1(b) of the
SCM Agreement by adopting a single, undifferentiated project risk premium to
benchmark all four of the A350XWB LA/MSF contracts
5.326. The European Union observes that Article 1.1(b) of the SCM Agreement requires the
selection of a benchmark loan that has as many elements as possible in common with the
investigated loan, with adjustments made in every instance to account for any differences. 840
In light of this legal standard, the European Union points out that the Panel's own factual findings
reveal that there are important differences in the terms of the government loans at issue that
affect the risk profile – and hence the market price – of each loan.841 For the European Union, the
four A350XWB LA/MSF contra cts themselves are not similar in terms of their risk profile s.
Consequently, a market benchmark that matches the risk profile of one A350XWB LA/MSF contract
might not match the risk profile of another, at least without adjustments to account for differenc es
that impact the market price of each A350XWB LA/MSF contract.842
5.327. According to the European Union, the Panel acknowledged that differences in risk profiles
among the four A350XWB LA/MSF contracts exist, and that these differences could affect the risk
premium demanded by a market lender. However, the Panel decided that these differences could
be ignored because the original panel had allegedly ignored differences in the risk profiles of the
A380 LA/MSF contracts at issue in the original proceedings . In the European Union's view,
in applying a single, undifferentiated project risk premium, the Pan el failed even to consider,
let alone adjust for, differences among the risk profiles of the four A350XWB LA/MSF contracts that
could affect their market price, which amounts to an erroneous application of Article 1.1(b).843
5.328. The United States rejects the European Union's claim that the Panel err ed under
Article 1.1(b) by adopting a single project-specific risk premium as a benchmark for all four of the
A350XWB LA/MSF contracts. According to the United States, t he European Union's claim is
premised on an incorrect understanding of the legal standard. Article 14(b) of the SCM Agreement
requires that the benchmark be "comparable ", rather than "identical " or "as close as possible",
to the government loan at issu e. For the United States, given that the European Union has not
substantiated that the benchmark adopted by the Panel is not "comparable " to any of the
four instances of LA/MSF for the A350XWB, this claim of error must fail.844
5.329. The European Union's claim of error appears to be based on the assumption that the mere
fact that the Panel applied the "single, undifferentiated project risk premium" without making
adjustments necessarily constitutes error in the application o f Article 1.1(b).845 We recall that the
fact that the Panel did not make any such adjustments does not, in and of itself, constitute legal
error under Article 1.1(b).846 Indeed, c ontrary to the European Union's suggestion, it is not
possible to determine in the abstract whether the Panel ought to have made adjustments to the
WRP to ensure that it ha d as many elements as possible in common with each of the
four A350XWB LA/MSF contracts.

839 European Union's appellant's submission, paras. 517-518.
840 European Union's appellant's submission, para. 522.
841 By way of example, the European Union observes that "[BCI] A350XWB LA/MSF [BCI] protected
the government against [BCI] (i.e., the [BCI] LA/MSF contract), whereas other A350XWB LA/MSF contracts
provided no such protection (i.e., the [BCI] LA/MSF contract)." (European Union's appellant's submission,
para. 519 (referring to Panel Report, paras. 6.594 and 6.598))
842 European Union's appellant's submission, para. 519.
843 European Union's appellant's submission, paras. 521-522.
844 United States' appellee's submission, para. 262. The United States also notes that the original panel
used a uniform project-specific risk premium for all four instances of LA/MSF for the A380, even though they
exhibited variations similar to those at issue for the A350XWB. (Ibid.)
845 European Union's appellant's submission, para. 522.
846 See para. 5.229 above.

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5.330. As we see it, the key premise underlying the European Union's claim is that the Panel
acknowledged that "differences in risk profiles {among} the A350XWB LA/MSF contracts exist" and
that "these differences could affect the risk premium ".847 In or der to examine this premise,
we analyse below relevant aspects of the Panel Report.
5.331. In response to arguments by the European Union, the Panel actually examined whether
the four A350XWB LA/MSF contracts should have different risk premia. In particular, the
European Union argued before the Panel that "the four individual A350XWB {LA/MSF} contracts
involve different amounts of risk because the [BCI] contracts protect against risks related to
[BCI], whereas the [BCI] contract does not."848
5.332. As noted by the European Union, the Panel did "recognise that there are some differences
{among} the risk profiles of the four A350XWB {LA/MSF} contracts".849 However, the Panel went
on to examine and to explain why, despite some differences among the risk profiles of the
four A350XWB LA/MSF contracts, it would not be necessary to apply two or more project -specific
risk premia. The Panel noted, for example, that in the original proceedings there were also
differences among the four A380 LA/MSF contracts for which the same premium was used (i.e. the
WRP). In particular, the Panel explained that, although in the original proceedings [BCI], which
would constitute "risk-reducing" terms, existed in at least [BCI] for A380 LA/MSF ,
Professor Whitelaw's risk premium was nevertheless applied in those proceedings as a minimum
premium for all contracts.850
5.333. Moreover, the Panel provided additional reasons why the differences among the terms of
the four A350XWB LA/MSF contracts at issue would not, in this case, "justify the application of,
at least, two different risk premiums for those agreements".851 In particular, the Panel noted that,
"for the [BCI] contract, the contractual terms that the European Union has identified as
'risk reducing' apply in circumstances involving [BCI]. That is, if foreseen development risks, such
as technology risks, were to eventuate, it appears that the 'risk reducing' terms may not apply."852
Furthermore, the Panel found it difficult to accept the European Union's argument that
"the [BCI]."853 In the Panel's view, "[BCI]."854 Based on its analysis, the Panel was not persuaded
that "certain terms render the agreements significantly different so as to require the application of
two or more different project-specific risk premia in this proceeding."855
5.334. Moreover, we observe that, w hile the European Union argued before the Panel that there
were differences among the risk profiles of the A350XWB LA/MSF contracts, it appears that the
European Union did not elaborate on the adjustments that it considered would be required to
account for such differences.
5.335. Pursuant t o th e legal standard under Article 1.1(b) of the SCM Agreement, a panel is
required to determine whether, in light of the differences that are found to exist in a given case
between the government loan and the benchmark loan, adjustments are needed to ensure that the
loans at issue are "comparable". 856 Given the Panel's analysis and the arguments that were put
before it, we find that the European Union has not established that the Panel erred under
Article 1.1(b) of the SCM Agreement by applying a "single, undifferentiated project risk premium"

847 European Union's appellant's submission, para. 521. (emphasis added; fn omitted)
848 Panel Report, para. 6.598.
849 Panel Report, para. 6.604.
850 Panel Report, para. 6.604.
852 Panel Report, para. 6.602.
854 Panel Report, para. 6.603.
856 In this regard, we observe that, in US – Anti-Dumping and Countervailing Duties (China), the
Appellate Body held:
{A} certain degree of flexibility also applies under Article 14(b) in the selection of benchmarks,
so that such selection can ensure a meaningful comparison for the determination of benefit. At
the same time, when an investigating authority resorts to a benchmark loan in another currency
or to a proxy, it must ensure that such benchmark is adjusted so that it approximates the
"comparable commercial loan".
(Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 489)

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without making adjustments for differences among the risk profiles of the A350XWB LA/MSF
contracts.857
5.3.2.4.2 Whether the Panel acted inconsistently with Article 11 of the DSU by adopting
a single, undifferentiated project risk premium to benchmark all four of the A350XWB
LA/MSF contracts
5.336. The European Union argues that the Panel acted inconsistently with Article 11 of the DSU
by applying a "single, undifferentiated project risk premium" to all four of the A350XWB LA/MSF
contracts. In particular, the European Union maintains that there is an inconsistency between ,
on the one hand, the Panel's approach to the identification of the first component of the market
benchmark for the A350XWB (i.e. the corporate borrowing rat e), for which the Panel adopted a
differentiated rate for the four A350XWB LA/MSF contracts and , on the other hand, the Panel's
subsequent identification of the second component of the market benchmark (i.e. the risk
premium), for which the Panel adopted a n undifferentiated rate for the four A350XWB LA/MSF
contracts.858 The European Union observes that, although the Panel found relevant differences
among the four A350XWB LA/MSF contracts with regard to both components of the market
benchmark, the Panel's appr oach to addressing these differences was inconsistent, contrary to
Article 11 of the DSU.859
5.337. The United States rejects the European Union's claim that the Panel acted inconsistently
with Article 11 of the DSU. The United States maintains that the Panel had good reason to use a n
undifferentiated project-specific risk premium for the four A350XWB LA/MSF contracts: the original
panel had also used a single project­specific risk premium for t he A380 LA/MSF contracts,
"even though [BCI] A380 LA/MSF contract contained similar terms as the so -called 'risk-reducing'
terms in the [BCI] A350XWB LA/MSF contracts". 860 Moreover, the United States argues that the
Panel was justified in its adoption of a contract -specific approach to the corporat e borrowing rate
because such approach ensured that the benchmarking exercise was based on information pre -
dating the finalization of the terms and conditions of each of the LA/MSF contracts.861
5.338. We begin by examining the reasons provided by the Panel for its approach to examining
the two components of the market benchmark. W ith regard to the use of an undifferentiated
project-specific risk premium for the four A350XWB LA/MSF contracts, the Pa nel reasoned why,
despite some differences among the risk profiles o f the four A350XWB LA/MSF contracts, it would
not be appropriate to apply two or more project -specific risk premia. In particular, the Panel
rejected the European Union's contention that different risk premia should apply on the basis of
guidance from the original proceedings and the limited extent of some of the "risk-reducing" terms
referred to by the European Union. The Panel therefore disagreed with the view that "certain terms
render the agreements significantly different so as to require the applicati on of two or more
different project-specific risk premia in this proceeding ."862 As noted above, we do not consider
the Panel to have erred in reaching this conclusion.
5.339. As to the adoption of a "contract-specific approach" in determining the corporate borrowing
rate, we recall that the Panel decided not to follow Professor Whitelaw's averaging approach
proposed by the European Union.863 The Panel took issue with the fact that "Professor Whitelaw's
averaging approach would result in the appl ication of corporate borrowing rates derived over time

857 European Union's appellant's submission, para. 522.
858 European Union's appellant's submission, para. 525.
859 European Union's appellant's submission, para. 529.
860 United States' appellee's submission, para. 263 (referring to Panel Report, para. 6.609).
861 United States' appellee's submission, para. 263.
863 Professor Whitelaw's average (i.e. his proposed corporate borrowing rate) was obtained by averaging
the EADS bond's yield to maturity over [BCI] months. He took as his starting point [BCI] (the date of the
French A350XWB Convention), and his end point was [BCI], the date of the UK A350XWB LA/MSF contract
[BCI]. (Panel Report, para. 6.378) Professor Whitelaw indicated that the average YTM on the bond was
computed for the [BCI] for each of the three euro denominated LA/MSF contracts, with an adjustment based
on the average EUR to GBP swap rates being made for the UK A350XWB LA/MSF contract. (Ibid. (referring to
Whitelaw Response to Jordan (Panel Exhibit EU-121 (BCI/HSBI)), fn 12 to para. 12))

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periods that are different for the four {A350XWB} LA/MSF contracts"864, and would incorporate
data from after the conclusion of three of the four contracts. 865 In rejecting Professor Whitelaw's
averaging approach, the Panel observed that such approach would go against the Appellate Body's
guidance of comparing the LA/MSF measures and the benchmark loan on an ex ante basis.
Indeed, the Appellate Body has indicated that, instead of conducting an ex post analysis, a panel is
required to determine whether a benefit has been conferred on the basis of an ex ante
examination of "how the loan is structured and how risk is factored in".866
5.340. We further note that, after rejecting Professor Whitelaw's averaging approach, t he Panel
opted for relying on "the yields from a consistent time -period up to the date of the conclusion of
the individual contract, as calculated by Dr Jordan". 867 As noted by the Panel, the individual
contracts were [BCI]868 [BCI].869 As we see it, since the Panel sought to rely on " the yields from
a consistent time -period up to the date of the conclusion of the individual contract" 870
in conducting an ex ante examination, there is a clear explanation to support the Panel's decision
of using a different corporate borrowing rate for each of the four LA/MSF contracts.
5.341. Based on our analysis of the Panel Report and the Panel record, we see no error in the
Panel's decision to adopt, on the one hand, a n undifferentiated project-specific risk pr emium for
the four A350XWB LA/MSF contracts and, on the other hand, a contract -specific approach to the
corporate borrowing rate. In particular, we fail to see any inconsistency in the Panel's reasoning in
this regard, let alone one that would call the Panel's objectivity into question.
5.342. For the foregoing reasons, we find that the European Union has failed to establish that,
by applying a single, undifferentiated project risk premium to all four of the A350XWB LA/MSF
contracts, the Panel acted inconsistently with Article 11 of the DSU.
5.3.2.5 Conclusion on the Panel's findings regarding the project-specific risk premium
5.343. The European Union argues that the Panel erred in the identification of the project-specific
risk premium component of the market benchmark u tilized to determine whether the French,
German, Spanish, and UK A350XWB LA/MSF contracts conferred a benefit within the meaning of
Article 1.1(b) of the SCM Agreement. In particular, the European Union contends that the Panel
erred in using the project -specific risk premium developed in the or iginal proceedings for the
A380 project as the risk premium to benchmark the four A350XWB LA/MSF contracts.
The European Union has brought multiple challenges under Article 1.1(b) of the SCM Agreement
and Article 11 of the DSU against various aspects of the Panel's analysis.
5.344. We disagree with the three sets of claims of error raised by the European Union in relation
to the Panel's analysis of the project-specific risk premium.
5.345. First, we disagree that the Panel erred in its application of Article 1.1(b) by failing to
assess "whether a benchmark comprising, inter alia, a project risk premium tailored to the risks of
financing the A350XWB project itself , was available and could be used to assess whether the
A350XWB LA/MSF loans conferred 'benefits' ."871 We also disagree that the Panel erred in its
application of Article 1.1(b) of the SCM Agreement by applying a single, undifferentiated project

864 Panel Report, para. 6.386 (referring to Jordan Reply (Panel Exhibit USA-505 (BCI/HSBI)), para. 27).
(emphasis added) By way of example, the Panel explained that:
the market rate for the UK loan agreement, coming later, would be distorted upwards by higher
yields from the time when the French agreement was concluded – some [BCI] earlier (according
to Professor Whitelaw). The market rate for the French loan agreement, however, would not be
judged against market rates from [BCI] prior to its conclusion, when the bond yields were even
higher and would have likewise distorted the rates upwards.
(Ibid. (emphasis original))
865 Panel Report, para. 6.387.
866 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 836.
867 Panel Report, para. 6.388.
868 [BCI]
870 Panel Report, para. 6.388.
871 European Union's appellant's submission, para. 369. (emphasis original)

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risk premium derived from the A380 project to the A350XWB project without making adjustments.
Moreover, since we have already addressed and rejected the European Union's claim that the
Panel erred under Article 1.1(b) by failing to undertake a "progressive search" for a market
benchmark872, we consider it unnecessary to a ddress further the European Union's claim that the
Panel acted inconsistently with Article 11 of the DSU by failing to consider alternative, and more
appropriate, benchmarks than those proposed by the United States. In addition, we disagree with
the European Union's claim that the Panel acted inconsistently with Article 11 of the DSU because
it allegedly deviated from the original panel's findings when it adopted a constant, undifferentiated
project risk premium not tailored to the risks associated with LA/MSF for the A350XWB.873
5.346. Second, we disagree with the European Union's claim that the Panel acted inconsistently
with Article 11 of the DSU in its examination of the risk profiles of the A380 and A350XWB
projects, including in its assessment of : (i) programme risk; (ii) contract risk; and (iii) the price of
risk. Contrary to the European Union's view, the Panel did not simply assume that the WRP would
serve as an appropriate project -specific risk premium for the A350XWB . Instead, the Panel
assessed the relative project -specific risks associated with the A380 and A350XWB projects.
The purpose of this comparative analysis was, in the Panel's view, to determine "whether the
United States ha{d} demonstrated that the project -specific risks of the A350XWB programme
{were} sufficiently similar to those of the A380 programme such that it would be reasonable to
conclude that the WRP could be used as the project -specific risk premium for the A350XWB". 874
Thus, the Panel sought to engage carefully with the argume nts and evidence presented by the
parties regarding the possible risk premia that should be used in constructing the market
benchmark. Regarding the Panel's analysis of programme risk, we find that the European Union
has failed to establish that the Panel acted inconsistently with its obligations under Article 11 of
the DSU in its analysis of development risk , market risk, or in its comparison of the development
and market risks . With regard to contract risk, we find that the European Union has failed to
establish that the Panel's comparison of the A350XWB and A380 LA/MSF contracts lacks a
sufficient evidentiary basis in a manner inconsistent with the requirements of Article 11 of the
DSU. We also find that the European Union has failed to establish that the Panel acted
inconsistently with Article 11 of the DSU by failing to compare the terms of the A350XWB LA/MSF
contracts to the terms of the A380 risk -sharing supplier contracts . Finally, we find that the
European Union has failed to establish that the Panel acted inconsistently with Article 11 of the
DSU in its analysis of the price of risk.
5.347. Finally, we disagree with the third set of claims against the Panel's findings related to the
project-specific risk premium. In particular, we reject the European Union's claims that , in
adopting a single, undifferentiated project-specific risk premium for each of the four A350XWB
LA/MSF contracts, the Panel erred in its application of Article 1.1(b) of the SCM Agreement, and
also failed to make an objective assessment o f the matter as required by Article 11 of the DSU.875
The Panel recogni zed that there were some differences amon g the risk profiles of the
four A350XWB LA/MSF contracts.876 However, based on its analysis, the Panel was not persuaded
that the terms of those con tracts rendered them significantly different so as to require the
application of two or more different project -specific risk premia in this proceeding . Given the
Panel's analysis and the arguments that were put before it, we find that the European Union has
not establish ed that the Panel erred under Article 1.1(b) of the SCM Agreement by applying a
"single, undifferentiated project risk premium" without making adjustments for differences among
the risk profiles of the A350XWB LA/MSF contracts.877 Moreover, contrary to the European Union's
claim under Article 11 of the DSU, we see no error in the Panel's decision to adopt, on the one
hand, an undifferentiated project-specific risk premium for the four A350XWB LA/MSF contracts
and, on the other hand , a contract -specific approach to the corporate borrowing rate.
Thus, we find that the European Union has failed to establish that, by applying a single,
undifferentiated project risk premium to all four of the A350XWB LA/MSF contracts , the Panel
acted inconsistently with Article 11 of the DSU.

872 See section 5.3.2.2.1 of this Report.
873 European Union's appellant's submission, para. 423.
874 Panel Report, para. 6.459.
875 European Union's appellant's submission, paras. 517-518.
876 Panel Report, para. 6.604.
877 European Union's appellant's submission, para. 522.

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5.348. For the foregoing reasons, we uphold the Panel's finding, in paragraphs 6.487 and 6.542 of
its Report, that the development risks associated with the A350XWB were at least as high as, or
sufficiently similar to , those associated with the A380; the Panel's findings, in paragraphs 6.579
and 6.608 of its Report, that the market risks experienced by the A380 and A350XWB were overall
comparable in importance and that the A350XWB market risks would not have been much lower
than the A380 market risks; the Panel's finding, in paragraphs 6.595 and 6.609 of its Report, that
the A350XWB LA/MSF contracts containing such "risk -reducing" terms are no less risky than at
least [BCI] for A380 LA/MSF that also contained similar terms in the original proceeding s; the
Panel's findings, in paragraphs 6.607 and 6.609 of its Report, that it was not persuaded that the
differences in certain terms affecting the risk profiles of the individual A350XWB LA/MSF contracts
would require the application of two or more different pro ject-specific risk premia;
and, consequently, the Panel's finding, in paragraphs 6.608 and 6.610 of its Report, that the
overall project-specific risks of the A380 and A350XWB projects were sufficiently similar to al low
the risk premium applied to the A380 LA/MSF in the original proceedin gs to be applied to
the A350XWB LA/MSF.
5.3.3 Overall conclusions on the Panel's findings regarding "benefit" under
Article 1.1(b) of the SCM Agreement
5.349. The European Union has appealed the P anel's findings concerning the assessment of
whether the French, German, Spanish, and UK A350XWB LA/MSF contracts confer a benefit within
the meani ng of Article 1.1(b) of the SCM Agreement. In particular, the European Union has
claimed that the Panel erred under Article 1.1(b) of the SCM Agreement and Article 11 of the DSU
in its analysis of the two components of the market benchmark rate of return: (i) the calculation of
a corporate borrowing rate that Airbus would have had to pay to a commercial lender to borrow
money; and (ii) the calculation of a project -specific risk premium that represents the additional
rate of return that a commercial lender would have required for offering financing to Airbus on the
particular terms of the relevant A350XWB LA/MSF contracts.878
5.350. We have rejected the European Union's claims against the Panel's benefit analysis. For this
reason, we uphold the Panel's findings, in paragraphs 6.632 (including Table 10) and 6.633 of
its Report, that Airbus paid a lower interest rate for the A350XWB LA/MSF than would have been
available to it on the market and that, consequently, a benefit has thereby been conferred within
the meaning of Article 1.1(b) of the SCM Agreement. Consequently, we also uphold the Panel's
findings, in paragraphs 6.656 and 7.1.c.i. of its Report, that the French, German, Spanish, and
UK A350XWB LA/MSF contracts each constitute a subsidy within the meaning of Article 1.1 of the
SCM Agreement and, thus, that the United States has demonstrated that the French, German,
Spanish, and UK A350XWB LA/MSF contracts are specific subsidies within the meaning of Articles 1
and 2 of the SCM Agreement. Finally, the quantitative implications of the Panel's findings that we
have just upheld above are the following, as set out in Table 10 at paragraph 6.6 32 of
the Panel Report:

878 Panel Report, para. 6.350.

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Table 4: Approximate difference between rates of return and market benchmark rate
EU member
State
Expected
Internal Rate
of Return
(IRR) of
LA/MSF
contracts
Corporate borrowing
rate as reflected by
yield on EADS bond879
Normal
market
fees
WRP Amount by which
benchmark
exceeds IRR
 A B C D (B+C+D)-A
France [BCI] [BCI] to [BCI] [BCI] WRP ([BCI]+WRP)-
[BCI] to
([BCI]+WRP)-
[BCI]
Germany [BCI] [BCI] to [BCI] [BCI] WRP ([BCI]+WRP)-
[BCI] to
([BCI]+WRP)-
[BCI]
Spain [BCI] [BCI] to [BCI]880 [BCI] WRP ([BCI]+WRP)-
[BCI] to
([BCI]+WRP)-
[BCI]
United Kingdom [BCI] [BCI] to [BCI] [BCI] WRP ([BCI]+WRP)-
[BCI] to
([BCI]+WRP)-
[BCI]
5.4 Article 7.8 of the SCM Agreement
5.4.1 Introduction
5.351. Before the Panel, the European Union argued that it had no obligation to adopt compliance
measures with respect to subsidies that had ceased to exist prior to the DSB's adoption of the
panel and Appellate Body recommendations and ru lings in the original proceedings in EC and
certain member States – Large Civil Aircraft on 1 June 2011 .881 The Panel rejected the
European Union's argument, finding that:
it follows from the effects-based nature of the disciplines in Article 5 and the role that
Article 7.8 is intended to play in bringing an implementing Member into conformity
with its obligations under the SCM Agreement, that there may well be particular
factual circumstances when the obligation to "take appropriate steps to remove the
adverse effects" or "withdraw the subsidy" will apply to subsidies found to have
caused adverse effects in an original proceeding, irrespective of whether those
subsidies continue to exist in the implementation period.882

879 We recall that, while the Panel determined the corporate borrowing rate in the form of a range of
average yields, it rightly gave more prominence to the one-month average yield of the EADS bond in its
determination of the corporate borrowing rate. See para. 5.140 above.
880 As noted, the European Union identifies a clerical error made by the Panel in Tables 7 and 10 of its
Report in relation to the one-month average yield prior to the Spanish A350XWB Convenio. In particular, the
European Union points that "Table 6 of the Panel Report shows, for Spain, the one-month average yield prior to
the date of the contract was [BCI], and not [BCI] as inscribed in Table 10 (and Table 7)." (European Union's
appellant's submission, fn 286 to Table 2 at para. 322 (referring to Panel Report, Table 7 at para. 6.430 and
Table 10 at para. 6.632) (emphasis original)) The European Union is correct in pointing out that the correct
figure in relation to the one-month average yield prior to the Spanish A350XWB Convenio is [BCI] found in
Table 6 of the Panel Report, rather than [BCI], which is the clerical error found in Tables 7 and 10 of the Panel
Report. In response to questioning at the oral hearing, the United States agreed that [BCI] is a clerical error.
Consequently, for purposes of the present Report, we proceed on the basis of the correct figure mentioned by
the Panel in Table 6: [BCI].
881 Panel Report, para. 6.794.

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5.352. The Panel therefore considered that compliance under Article 7.8 of the SCM Agreement
can be achieved only if "an implementing Member no longer causes adverse effects through the
use of subsidies, within the meaning of Article 5 of the SCM Agreement."883 According to the Panel,
"the passive 'expiry' events the European Union relie{d} upon as the sole basis to demonstrate
that it ha {d} 'withdrawn' the relevant subsidies for the purpose of Article 7.8 {could not} be
characterized as such, because the very same subsidies were found in the original proceeding to
cause adverse effects over a period of time that followed the full or partial 'expiry' of almost all of
those subsidies."884 Based on its analysis, while the Panel agreed with the European Union that
most of the pre-A380 LA/MSF subsidies 885 had expired before the adoption of the
recommendations and rulings of the DSB in the original proceedings, it found that the
European Union nonetheless remained under an obligation to withdraw such expired subsidies by
removing their adverse effects.886
5.353. The European Union requests us to reverse the Panel's findings on the ground that the
Panel erred in its interpretation of Article 7.8 by requiring that an implementing Member
"remove the adverse effects" of past subsidies irrespective of whether such subsidies continued to
exist in the implementation period. 887 In the event that we reverse the Panel's interpretation of
Article 7.8 and seek to complete the legal analysis, the United States argues that the Panel erred
in finding that the French, German, and Sp anish LA/MSF subs idies for the A300B/B2/B4,
A300-600, A310, A320, and A330/A340, and the UK LA/MSF subs idies for the A320 and
A330/A340888 had "expired" prior to the beginning of the implementation period in this dispute. 889
For its part, the European Union conditionally appeals the Panel's rejection of its argument that the
French and Spanish LA/MSF subsidies for the A300B/B2/B4, A300 -600, A310, A320,
and A330/A340, and the UK LA/MSF subsidies for the A320 and A330/ A340 came to an end when
Airbus completed rep ayment of the relevant financial contribution s.890 We will address
the participants' claims on appeal in turn below, beginning with the European Union's challenge to
the Panel's interpretation of Article 7.8 of the SCM Agreement.
5.4.2 Whether the Panel erred in its interpretation of Article 7.8 of the SCM Agreement
5.4.2.1 Claims and arguments on appeal
5.354. The European Union claims that the Panel erred in interpreting Article 7.8 of the
SCM Agreement to require an implementing Member to "remove the adverse effects" of past
subsidies irrespective of whether such subsidies continued to exist in the implementation period.891
The European Union submits that Article 7.8 provide s an implementing Member with the option
either to "remove the adverse effects " or to " withdraw the subsi dy", and that withdrawal of a
WTO-inconsistent measure, through expiry of that measure or otherwise, constitutes
compliance.892 The European Union contends that the Panel's interpretati on of Article 7.8 was
driven not by the customary rules of interpretation in Article 31 of the Vienna Convention on the

883 Panel Report, para. 6.1085.
885 The Panel found that all pre-A380 LA/MSF subsidies had expired prior to the implementation period,
save the LA/MSF subsidies for the A330-200 and A340-500/600. (Panel Report, para. 6.879 and fn 1547
thereto) As discussed in below, we note that the Panel did not make findings specifically relating to the effects
of these two subsidies. (See fn 2030 and para. 5.719 of this Report)
886 Panel Report, paras. 6.1078-6.1103. The Panel found that the lives of most pre-380 LA/MSF
subsidies expired prior to 1 June 2011, but considered that this "cannot alone support a finding that the
European Union and certain member States have 'withdrawn' the relevant subsidies for the purpose of
restoring conformity with their obligations under Article 5 of the SCM Agreement." (Ibid., para. 6.1102
(emphasis original)) On this basis, the Panel found that "the European Union ha{d} failed to demonstrate that
any of the subsidies challenged by the United States in this compliance dispute have been 'withdrawn' for the
purpose of Article 7.8 of the SCM Agreement." (Ibid., fn 1848 to para. 6.1104 (emphasis original))
887 See European Union's appellant's submission, para. 11 (quoting Panel Report, para. 6.822).
888 Panel Report, paras. 6.872-6.879.
889 United States' appellee's submission, para. 8. For the condition underlying the appeal, see
section 5.4.3 below.
890 European Union's appellant's submission, para. 191. For the condition underlying the appeal, see
section 5.4.4 below.
891 See European Union's appellant's submission, para. 11 (quoting Panel Report, para. 6.822).
892 European Union's appellant's submission, para. 30.

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Law of Treaties893, but instead "by its desire to avoid a particular outcome that it considered would
make its findings in the original proceedings 'purely declaratory' in nature". 894 The European Union
argues, however, that the Panel's concern was not warranted, because it is not uncommon for
temporarily lingering market effects of a WTO-inconsistent measure to persist following withdrawal
of the measure. 895 The European Union highlights that, under the Panel's inte rpretation,
temporarily lingering effects of a subsidy found to cause adverse effects must be removed even if
the subsidy itself had been withdrawn, whereas for all other policy instruments withdrawal would
suffice to achieve compliance regardless of any l ingering effects in the market place. 896 In the
European Union's view, this would raise significant systemic concerns, because actionable
subsidies would face a "uniquely exacting compliance obligation" not present with regard to any
other measure, including prohibited subsidies. 897 The European Union further contends that the
Panel committed the following specific errors. First, the Panel's interpretation is not rooted in the
terms of Article 7.8, nor supported by its context. Moreover, the Panel's interpretat ion collapses
the substantive obligations under Article 5 of the SCM Agreement and the implementation
obligations under Article 7.8, thereby depriving the terms of Article 7.8 of independent meaning.898
The European Union adds that the Panel's interpretation is inconsistent with the design and
structure of the SCM Agreement, and frustrates its object and purpose.899
5.355. By contrast, the United States maintains that the Panel correctly interpreted Article 7.8 in
finding that a n implementing Member has an ongoing compliance obligation under this provision
with respect to adverse effects caused through the use of subsidies that have ceased to exist. 900
The United States further submits that the Panel rightly recognized that the effec ts-based nature
of the obligation imposed by Article 5 of the SCM Agreement was critical to an understanding of
the remedy contained in Article 7.8 of this Agreement.901 According to the United States,
the European Union's reading of Article 7.8 would allow Members to structure subsidies so that
they cause adverse effects well beyond the end of the life of the subsidy, and then claim that they
were in compliance with Article 7.8 after the relevant subsidy has come to an end . In the
United States' view, t his would allow a Member to use subsidies in the specific circumstances in
which Article 5 seeks to prevent their use, contrary to the object and purpose of
the SCM Agreement.902
5.356. In its third participant's submission, Brazil supports the Panel's finding that Article 7.8 of
the SCM Agreement should be interpreted to require an implementing Member to come into
conformity with its obligations under Article 5 of the SCM Agreement.903 Referring to the reasoning
of the Appellate Body and the panel in the original proceeding s904, Brazil submits that an
implementing Member may "withdraw" a subsidy found to have caused adverse effects "by taking
affirmative action to modify the subsidy " or by allowing it "to expire, provided such modified or
expired subsidies are no longer a genuine and substantial cause of adverse effects during the
implementation period".905
5.357. Canada, in contrast, maintains that the Panel's interpretation of Article 7.8 is
"deeply flawed".906 For Canada, the plain language of Article 7.8 indicates that the existence of a
subsidy is a prerequisite for a compliance obligation to exist under this provision , and that
compliance can be achieved by removing the relevant subsidy . According to Canada, the context
provided by Articles 4.7, 5, and 7.9 of the SCM Agreement, the restrictions on the application of
countervailing duties under Part V of the SCM Agreement, and the general rules under the DSU ,

893 Done at Vienna, 23 May 1969, UN Treaty Series, Vol. 1155, p. 331.
894 European Union's appellant's submission, para. 109 (quoting Panel Report, paras. 6.840
and 6.1094).
895 European Union's appellant's submission, para. 113.
896 European Union's appellant's submission, para. 123.
897 European Union's appellant's submission, para. 122.
898 European Union's appellant's submission, paras. 126-181.
899 European Union's appellant's submission, paras. 175-186.
900 United States' appellee's submission, para. 37.
901 United States' appellee's submission, para. 106.
902 United States' appellee's submission, para. 139.
903 Brazil's third participant's submission, para. 7.
904 Brazil's third participant's submission, para. 10.
905 Brazil's third participant's submission, para. 14. (fn omitted)
906 Canada's third participant's submission, para. 22.

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all confirm that only a subsidy in existence during the implementation period is subject to a
compliance obligation under Article 7.8. In Canada's view, the Panel erred in its interpretation of
Article 7.8 by disregarding the express language of this provision, and by improperly relying on
Article 5 of the SCM Agreement and various provisions of the DSU to suppo rt its reading of
Article 7.8. In so doing , the Panel created significant uncertainty as to the obligations that an
implementing Member has with respect of subsidies that no longer exist.907
5.358. Along the same lines, China emphasizes that the Panel's interpretation of Article 7.8 fails
to give effective meaning to the treaty language in its relevant context and in light of the object
and purpose of this Agreement , and is not supported by WTO case law. In China's view,
by requiring that the implementing Member achieve compliance with Article 5 by removing adverse
effects regardless of whether a subsidy continues to exist , the Panel effectively eliminate d the
option to withdraw the subsidy in Article 7.8.908 China contends that none of the provisions of the
DSU referred to by the Panel support the view that a Member that has withdrawn a
WTO-inconsistent measure is subject to an additional obligation to remove any lingering effects of
that measure. Finally, China argues that the WTO disputes cited by the Panel do not lend support
to its interpretation of Article 7.8 because they do not provide the answer to the core issue in this
dispute, namely, whether the implementing Member has an obligation to remove adverse effects
with respect to subsidies that are no longer granted or maintained.909
5.359. For its part, Japan contends that the withdrawal of a subsidy would require that the benefit
be extinguished. According to Japan, the existence of a benefit to the recipient of a subsidy is
crucial for the su bsidy to cause adverse effects. Thus, for Japan, the adverse effects of a subsidy
cease once the benefit has been removed and the recipient is no longer able to lower the price of
products through the use of the subsidy.910
5.360. Having recalled the arguments of the participants and third participants, we turn to
examine the interpretative issue raised by the European Union in this appeal, namely, whether an
implementing Member has a compliance obligation under Article 7.8 of the SCM Agreement with
respect to subsidies that had ceased to exist prior to the beginning of the implementation period.
5.4.2.2 Interpretation of Article 7.8 of the SCM Agreement
5.361. Our analysis commences with the text of Article 7.8 of the SCM Agreement, construed
within its context and in light of the object and purpose of the SCM Agreement. Article 7.8 states:
Where 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.911
5.362. Article 7.8 consists of two clauses. The introductory clause refers to circumstances where a
subsidy is found, in an adopted panel or Appellate Body report, to have "resulted in adverse effects
to the interests of another Member ". The second clause then specifies that, in such a situation,
"the Member granting or maintaining such subsidy" may come into complia nce with its obligations
under the SCM Agreement in one of two alternative ways: (i) it may either "take appropriate steps
to remove the adverse effects"; or (ii) it may "withdraw the subsidy". 912 The use of the word "or"
in the context of the second clause of Article 7.8 suggests that the Member concerned may
implement the recommendations and rulings of the DSB under Part III of the SCM Agreement by
choosing either of these alternative pathways to achieving compliance.

907 Canada's third participant's submission, para. 74.
908 China's third participant's submission, para. 20.
909 China's third participant's submission, paras. 11-55.
910 Japan's third participant's submission, paras. 11 and 14.
911 Emphasis added.
912 See Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 236.

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5.363. Regarding the reference in Article 7.8 to "granting or maintaining" a subsidy, we note the
European Union's position that these words should be understood in the present continuous tense.
According to the European Union, this language in Article 7.8 suggests that "an implementing
Member has exhausted its compliance obligations under Article 7.8 with regard to any subsidy that
is no longer being granted or maintained, for example because that subsidy has expired ."913 The
United States, by contrast, argues that the words "granting or maintaining" in Article 7.8 can also
be understood as present participles that relate to the act of "granting or maintaining" a subsidy
found to have occurred in the original proceedings, rather than as meaning that such action must
be shown to continue into the implementation period.914
5.364. As noted, Article 7.8 of the SCM Agreement expressly refers to the "granting or
maintaining" of a subsidy found to have caused adverse effects to the interests of anoth er
Member. As we see it , these terms indicate that Article 7.8 reflects an obligation to cease any
conduct amounting to the "granting or maintaining" of subsidies that cause adverse effects. 915
This is true regardless of whether the words "granting or maintaining" in Article 7.8 are understood
in the present continuous tense, or as present participles qualifying the term "Member".
Indeed, Article 7.8 sets out an obligation "of a continuous nature, ext ending beyond subsidies
granted in the past". 916 Moreover, the object of the action of "granting or maintaining" is the
"subsidy" that causes adverse effects. In the light of this language in Article 7.8 , we find it difficult
to see how a Member could be sai d to be "granting or maintaining " a subsidy giving rise to a
compliance obligation if that subsidy has expired and therefore no longer exists.
5.365. The Panel appears to have acknowledged as much when it stated that "a Member cannot
be said to be 'granting or maintaining' a subsidy that no longer exists" .917 The Panel added that
"the text of Article 7.8 may arguably be viewed to suggest that a Member found to have caused
adverse effects through the use of a subsidy would have no obligation to 'take appropriate steps to
remove the adverse effects' or 'withdraw the subsidy' if the subsidy at issue no longer exist{ed} at
the time of the DSB's adoption of the adverse effects findings." 918 However, without further
analysis of Article 7.8, the Panel expressed the view that compliance under this provision can be
achieved only if the "implementing Member no longer causes adverse effects through the use of
subsidies"919 – regardless of whether those subsidies had expired due to the passage of time.
The Panel added that "the mere 'removal' or 'taking away' of the relevant measure, in the sense of
its termination, may not bring an end to the undesired trade effects" and may therefore
"be insufficient to establish that the 'withdrawal' … has been achieved".920 On this basis, the Panel
interpreted the option to "withdraw the subsidy" in Article 7.8 "to refer to any conduct on the part
of an implementing Member in relation to the subsidy found to cause adverse effects, which brings
that Member into conformity with its obligations under Ar ticle 5 of the SCM Agreement". 921
The Panel thus understood "withdrawal" to require, in each case , that the implementing Member
"remove the adverse effects" of any past subsidies, regardless of whether such subsidies had
expired. As detailed below, we have s everal concerns with the interpretative analysis carried out
by the Panel.
5.366. Regarding the ordinary meaning of the word "withdraw", we note that the relevant
dictionary definitions of this term include: "{d}raw back or remove (a thing) from its place or
position"; "{t}ake back or away (something bestowed or enjoyed)"; "{c}ease to do, refrain from
doing".922 This suggests that withdrawal of a subsidy, under Article 7.8 of the SCM Agreement,

913 European Union's appellant's submission, para. 38.
914 United States' appellee's submission, para. 55.
915 We note in this regard the Appellate Body's statement that "Article 5 reflects the notion that it is the
causing, through the use of any subsidy, of adverse effects, rather than the granting of the subsidy that is the
situation that is addressed by that provision." The Appellate Body added that "Part III {of the SCM Agreement}
generally is concerned with a situation that continues over time, rather than with specific acts."
(Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 681 (fn omitted))
916 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 237.
917 Panel Report, para. 6.802.
919 Panel Report, para. 6.1085.
920 Panel Report, para. 6.1088.
922 Shorter Oxford English Dictionary, 6th edn, A. Stevenson (ed.) (Oxford University Press, 2007),
Vol. 2, p. 3652.

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concerns the taking away of that subsidy , and thus that a Mem ber "granting or maintaining"
a subsidy cease such conduct . In order to withdraw a subsidy, an implementing Member may be
able to take action to align the terms of the subsidy with a market benchmark, or to otherwise
modify the terms of the subsidy such that it no longer qualifies as a subsidy. The Panel reasoned in
this regard that it should be possible to find t hat an implementing Member has "withdrawn" –
i.e. "taken away" – "a subsidy found to cause adverse effects when the terms or conditions of that
subsidy have been modified in a way that ensures it no longer causes adverse effects. "923
However, it is not clear to us how an implementing Member could modify the terms and conditions
of subsidies that no longer exist. Moreover, while the pathway identified by t he Panel –
i.e. modification of the terms or conditions of a subsidy in a way that ensures it no longer causes
adverse effects – may provide one way for an implementing Member to come into compliance with
its obligations under Article 7.8, we do not see ho w it would effectively differ from the other
compliance option provided for under this provision: the option of taking "appropriate steps to
remove the adverse effects".
5.367. This second option for compliance under Article 7.8 refers to an approach where an
implementing Member may come into conformity with its obligations under this provision
"without taking any specific action in relation to the subsidy found to cause adverse effects". 924
As noted by the Panel, an implementing Member might choose, for example, t o adopt
"WTO-consistent regulatory, policy or other initiatives that would alter the effects of a subsidy in
the marketplace".925 It is also conceivable that such "steps" could encompass actions in relation to
the subsidy itself, such as those described above.
5.368. That said, the compliance options under Article 7.8 carry distinct meaning, as is made
clear by the use of word "or" in Article 7.8. Indeed, the Appellate Body has emphasized that a
panel must "assess whether the Member concerned has taken one of the actions foreseen in
Article 7.8".926 A Member is not required to "take appropriate steps to remove the adverse effects"
of a subsidy and to "withdraw" the same subsidy . Rather, either of these actions can achieve
compliance. We therefore find it trou bling that the Panel's reading of Article 7.8 appears to reduce
and collapse these two implementation options into a single option that is concerned with the
removal of any adverse effects caused by any subsidies.
5.369. In order to justify its reading of Articl e 7.8 of the SCM Agreement , the Panel referred to
"the context and object and purpose of Article 7.8".927 In this regard, we note that t he title of
Article 7 of the SCM Agreement is "Remedies", which situates Article 7.8 within a broader range of
provisions applicable to disputes regarding actionable subsidies that have been found to be
inconsistent with Articles 5 and 6 of this Agreement . Moreover, Article 7.8 refers expressly to
"adverse effects … within the meaning of Article 5", which states that "{n}o 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".928
5.370. As we see it, Article 5 and Article 7.8 of the SCM Agreement concern two related but
distinct inquir ies: while the former seeks to establish the existence of adverse effects and the
causal link between any subsidy and the adverse effects found to exist, the latter specifies the
compliance actions to be taken by a Member granting or maintaining a subsidy found to have
caused or to cause adverse effects. The Panel's analysis of Article 5 appears to blur the distinction
between these two provisions and, as the European Union suggests, to "collapse{} the substantive
obligations under Article 5 and the implemen tation obligations under Article 7.8".929 We note in
particular that , in its analysis of the compliance obligations that an implementing Member has
under Article 7.8, the Panel relied heavily on what it characterized as the "effects -based nature" of

923 Panel Report, para. 6.1098. (italics original; underlining added)
925 Panel Report, para. 6.1099.
926 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 235. (emphasis added)
927 Panel Report, para. 6.803.
928 Emphasis added.
929 European Union's appellant's submission, para. 164.

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Article 5 of the SCM Agreement.930 The Panel referred in particular to the following passage of the
Appellate Body report in EC and certain member States – Large Civil Aircraft:
Article 5 of the SCM Agreement imposes an obligation on Members not to cause
adverse effects 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 fac t, 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.931
5.371. This passage r ecognizes that a subsidy and its effec ts need not be contemporaneous. 932
Contrary to what the Panel appears to have assumed, it does not follow from this that the effects
of a subsidy can be detached from the subsidy itself such that these effects could be subject to a
separate compliance obligation under Article 7.8. When a subsidy has expired such that it is no
longer in existence, we cannot see how a compliance obligation could still apply to lingering effects
of such a past subsidy. Rather, wha t is relevant for Article 5, as well as for Article 7.8, is the
causing of adverse effects through the use of the subsidy. While 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"933, the source of the inconsistency under Article 5 is nonetheless the subsidy
that causes adverse effects. The option to "withdraw the subsidy" under Article 7.8 contemplates
action in relation to the subsidy found to have caused advers e effects . To the extent that the
underlying subsidy has ceased to exist, there is no additional req uirement, under Article 7.8,
to remove any lingering effects that may flow from that subsidy. We therefore disagree with the
Panel that it follows from the so-called "effects-based nature" of the discipline of Article 5 that an
implementing Member would have a compliance obligation under Article 7.8 regardless of whether
the subsidy continues to exist.934
5.372. The United States contends that Article 7.8 is "a means by which to achieve the objective
of full compliance with Article 5"935, and that the Panel was correct in recognizing that Article 5
provides critical context for interpreting Article 7.8. According to the United States,
the European Union's interpretation of Article 7.8 "divorce {s}" this provision from Article 5936,
and would mean that a Member that is causing adverse effects th rough the use of a subsidy
"has different substantive obligations at different stages of a proceeding".937 Specifically, in original
proceedings, Article 5 would require a Member not to cause adverse effects through the use of any
subsidies, including expired subsidies, but , in compliance proceeding s, Article 7.8 would apply in
isolation, and a Member that causes adverse effects through the use of expired subsidies would
have no WTO obligation.
5.373. As discussed, Article 5 is concerned with the causing of adverse effects through the "use"
of subsidies. An analysis under Article 5 seeks to determine whether a Member has caused adverse
effects to the interests of another Member through the use of such subsidies. For purposes of such
a finding, the Appellate Body has made clear that a finding of "present" subsidization is not
necessary to establish that a subsidy has caused such adverse effects. 938 In contrast, Article 7.8 is

930 Panel Report, para. 6.820.
931 Panel Report, para. 6.820 (quoting Appellate Body Report, EC and certain member States – Large
Civil Aircraft, para. 712 (original italics omitted; emphasis added by the Panel)).
932 Although there may be a time lag between the provision of a subsidy and its effects, the
Appellate Body emphasized that the "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." (Appellate Body Report, EC and certain
member States – Large Civil Aircraft, para. 713)
933 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 712.
935 United States' appellee's submission, para. 114. (emphasis original)
936 United States' appellee's submission, para. 112.
937 United States' appellee's submission, para. 115.
938 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 712. The
Appellate Body found that "the requirement {under Articles 5 and 6 of the SCM Agreement} 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". (Ibid.)

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concerned with the continued existence of "such subsid {ies}". This difference between Article 5
and Article 7.8 does not mean that a Member "has different substantive obligations at different
stages of a proceeding".939 Rather, a Member is always under the obligation to ensure that it does
not grant or maintain subsidies that cause adverse effects, within the meaning of Article 5 of the
SCM Agreement. However, a finding of inconsistency under Article 5 need not always trigger the
obligation to "take appropriate steps to remove the adverse effects or … withdraw the subsidy" as
stipulated in Article 7.8. This is because, by its terms, Article 7.8 is concerned only with subsidies
that the Member is "granting or maintaining" in the implementation period . In assessing
conformity under this provision , a panel's analysis should focus on the subsidies that continue to
exist in the post-implementation period. Depending on the particularities of a given case, it may be
relevant for the panel to consider the effects of past subsidies under Articles 5 and 6 ; however,
not in order to determine whether they cause "adverse effects" in the post-implementation period,
but rather as part of a matrix of analysis that seeks to identify the ef fects of subsidies that have
not been withdrawn, and in respect of which the implementing Member continues to have a
compliance obligation under Article 7.8.
5.374. Referring to the Appellate Body report in US – Upland Cotton (Article 21.5 – Brazil),
the Panel emphasized that "the scope of Article 7.8 should not be interpreted in a way that would
render adverse effects findings made in original proceedings merely 'declaratory in nature', as this
would preclude a complaining Member from obtaining relief from the ad verse effects caused by a
Member's use of subsidies in violation of its substantive obligations."940 The Panel's reliance on this
statement by the Appellate Body is misplaced. The Appellate Body was not suggesting that an
implementing Member has a compliance obligation with respect to a subsidy or subsidies that no
longer exist. Rather, the Appellate Body noted that the obligation under Article 7.8 would extend
to recurring annual payments "maintained" by the respondent beyond the original reference
period.941 The Appellate Body's reasoning in that dispute highlights the prospective nature of
remedies in WTO dispute settlement, as well as the fact that , ultimately, the source of
inconsistency is the "granting or maintaining" of subsidies that cause adverse effe cts. It is in
respect of such "granting or maintaining" that the findings made by an original panel require
cessation. Under our reading of Article 7.8, a complaining Member therefore can obtain relief in the
form of a prospective remedy.
5.375. Referring to a st atement by the Appellate Body in China – Raw Materials , the Panel
expressed the view that a panel could be expected to make recommendations with respect to
expired measures "whenever necessary to ensure that an effective remedy is made available to a
complaining Member seeking to put an end to ongoing infringements of the covered
agreements."942 The Panel also referred to the panel's recommendation in EC – Commercial
Vessels that the European Union bring a measure that had formally expired into conformity with its
obligations under the DSU to the extent that the measure was still operational. 943 We see nothing
objectionable per se in these statements by the Panel. Indeed, in China – Raw Materials , the
Appellate Body noted that a recommendation by a panel "is prospective in nature in the sense that
it has an effect on, or consequences for, a WTO Member's implementation obligations that arise
after the adoption of a panel and/or Appellate Body report by the DSB." 944 As noted, Article 7.8 of
the SCM Agreement requires the cessation of ongoing conduct consisting of the "granting or
maintaining" of subsidies that are causing adverse effects. It does not follow from the fact that the
findings and recommendations by a panel seek to put an end to " ongoing infringements"945,
that withdrawal of a subsidy under the SCM Agreement can be found to have occurred only to the
extent that the subsidy no longer causes adverse effects.

939 United States' appellee's submission, para. 115.
940 Panel Report, para. 6.819.
941 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 237. The Appellate Body
highlighted that effective compliance under Article 7.8 would not permit a situation in which "the adverse
effects of subsequent payments would simply replace the adverse effects that the implementing Member was
under an obligation to remove." (Ibid. See also paras. 238, 241, and 245)
942 Panel Report, para. 6.833. (emphasis original) See also para. 6.831 (referring to Appellate Body
Reports, China – Raw Materials, paras. 263-265).
943 Panel Report, para. 6.835.
944 Appellate Body Reports, China – Raw Materials, para. 260.

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5.376. Our reading of Article 7.8 also finds support in the relevant provisions under Part II of the
SCM Agreement, entitled "Prohibited Subsidies", comprising Article s 3 and 4. Article 3.1 provides
that subsidies contingent upon export performance (Article 3.1(a)) or upon the use of domestic
over imported goods (Article 3.1(b)) " shall be prohibited". Article 3.2 further provides that
"{a} Member shall neither grant nor maintain subsidies referred to" in Article 3.1. Article 4,
like Article 7 of the SCM Agreement, is entitled "Remedies", and sets out the rules for dispute
settlement involving prohibited subsidies referred to in Article 3. Article 4.7 provides that, "{i}f the
measure in question is found to be a prohibited subsidy, the panel shall recommend that the
subsidizing Member withdraw the subsidy without delay". Article 4.7 does not require removal of
the effects of such subsidies. Rather, withdrawal under Article 4.7 seeks to eliminate the source of
the inconsistency, namely, the condition that is prohibited under Article 3.1(a) or 3.1(b) . Similarly,
Article 7.8 addresses th e source of the infringement found to exist , and requires cessation of
conduct consisting of the granting or maintaining of subsidies that cause adverse effects . It would
be incongruous, in our view, if elimination of the source of the inconsistency were s ufficient to
comply with an implementing Member's obligations in the context of Article 4.7, but not in the
context of Article 7.8.
5.377. It is also useful in this regard to consider the rules that apply to the imposition of
countervailing duties under Part V of the SCM Agreement . While serious prejudice can only be
addressed through countermeasures imposed under Part III, subsidies that cause injury to the
domestic industry can be addressed either through countermeasures imposed under Part III or
through countervailing duties under Part V.
5.378. With regard to the imposition of countervailing duties, Article 19.1 of the SCM Agreement
stipulates that countervailing duties may be imposed on subsidized imports "unless the subsidy or
subsidies are withdrawn ." Hence , under Part V of the SCM Agreement, remedial action is
contemplated with respect to subsidies that cause injury to the domestic industry . As we see it,
the same is true in the context of Part III of the SCM Agreement, where the inconsistency to be
remedied relates to subsidies that constitute a genuine and substantial cause of adverse effects
during the implementation period. 946 Thus, the inconsistency does not relate to only the effects,
as the Panel seems to have suggested, but rather to the action of usin g subsidies in a way that
causes adverse effects.
5.379. Looking beyond the SCM Agreement to context provided by other covered agreements , we
note that Article 7.8 of the SCM Agreement is one of the " special or additional rules and
procedures on dispute settlemen t contained in the covered agreements " that are identified in
Article 1.2 and Appendix 2 of the DSU, which prevail over the general DSU rules and procedures to
the extent that they " cannot be read as complementing each other" .947 In this regard, we are
concerned with the Panel's decision to resort to context provided by various provisions of the DSU
without considering properly the context ual relevance of provisions in other parts of the
SCM Agreement. This is especially so because, as a "special or additional rule {}" on dispute
settlement in the SCM Agreement, Article 7.8 must be properly understood in the particular
context of disputes involving subsidies.
5.380. We recall that "the first objective of the dispute settlement mechanism is usually to secure
the withdrawal of the measures concerned if these are found to be inconsistent with the provisions
of any of the covered agreements".948 This suggests that, in WTO dispute settlement, the source of
an infringement of an obligation under the covered agreements is the measure itself. Moreover,
where a measure is found to be inconsistent with a covered agreement, the first sentence of
Article 19.1 of the DSU provides that a panel or the Appellate Body shall recommend that the
Member concerned "bring the measure i nto conformity with that agreement". 949 These provisions,
read together, suggest that it is the measure that lies at the heart of WTO dispute settlement,
and that conformity with the covered agreements may be achieved through "the withdrawal of the

946 See Canada's third participant's submission, para. 60; China's third participant's submission,
paras. 32-36.
947 Appellate Body Report, Guatemala – Cement I, para. 65. (emphasis original)
948 Article 3.7 of the DSU.
949 Footnote omitted.

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measures concerned". Indeed, referring to Articles 19.1 and 21.1 of the DSU, the Panel recognized
that the source of the infringement is the WTO-inconsistent measure itself.950
5.381. In the specific context of the SCM Agreement, Article 7.8 provide s special or additional
rules on how conformity with this Agreement may be achieved. As noted , withdrawal of the
measure need not be the only way to comply, as the subsidizing Member could also come into
compliance by taking appropriate steps to "remove the adverse ef fects" while maintaining the
subsidy. At the same time, withdrawal of the subsidy itself remains a remedy against the
infringement, as it leads to fulfilment of the first objective of the dispute settlement mechanism
set out in Article 3.7 of the DSU – i.e. withdrawal of the measure concerned. This further supports
our understanding that, where the relevant measure – the subsidy found to have caused adverse
effects – has ceased to exist , a Member is no longer obligated under Article 7.8 of the
SCM Agreement to take further steps to remove the adverse effects caused by the subsidy. In this
respect, w e share Canada's view that "{a} requirement to remove the adverse effects of an
actionable subsidy that no longer exists would transform this flexibility in ac hieving compliance
into an additional, affirmative obligation not seen elsewhere in the covered agreements."951
5.382. The Appellate Body has stated 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"952, and that the SCM Agreement "reflects a delicate balance between the Members that
sought to impose more disciplines on the use of subsidies and those that sought to impose more
disciplines on the application of countervailing measures ".953 As discussed above, the Panel's
reading of Article 7.8 would effectively mean that countermeasures could be imposed under
Part III of the SCM Agreement to counteract "injury to the domestic industry", within the meaning
of Art icle 5(a) of the SCM Agreement, regardless of whether the subsidy at issue has been
withdrawn. At the same time, countervailing duties cannot be imposed, in the context of Part V of
the SCM Agreement, to the extent that the underlying subsidy has been with drawn.954
Moreover, as discussed, the Panel considered that the removal of the subsidy at issue would
constitute compliance in the context of subsidies prohibited under Part II, but not in the context of
Part III of the SCM Agreement, where removal of the ef fect of the subsidy would in each case be
required regardless of whether the Member concerned would still be granting it. In our view, such
an approach to different disciplines that apply under the SCM Agreement lacks coherence, and is,
in this sense, incompatible with its object and purpose. Moreover, the Panel's reading of Article 7.8
would appear to result in considerable uncertainty as to the responsibility of Members with respect
to subsidies that no longer exist . Indeed, the effects of subsidies may w ell persist even after the
subsidies themselves have ceased to exist . For example, they may "result in the protection,
creation, or growth of industries that woul d otherwise be less competitive".955 Yet, Article 7.8 does
not speak to such effects in isolation; rather , it requires cessation of any ongoing conduct
consisting of the "granting or maintaining" of subsidies found to cause adverse effects. 956
Thus, while expired subsidies can give rise to adverse effects, there is no requirement under
Article 7.8 to remove these effects.
5.383. In light of the foregoing, we find that the obligation to "take appropriate steps to remove
the adverse effects or … withdraw the subsidy" concerns the subsidies that continue to be
"grant{ed} or maintain {ed}" by the implement ing Member at the end of the implementation
period. An implementing Member cannot be required to withdraw a subsidy that has ceased to
exist. Nor do we see a basis, under Article 7.8 of the SCM Agreement , to require that an
implementing Member "take appropriate steps to remove the adverse effects" of subsidies that no
longer exist. Accordingly, we reverse the Panel's interpretation of Article 7.8 of the
SCM Agreement whereby an implementing Member would be required to "withdraw" or

950 Panel Report, para. 6.807.
951 Canada's third participant's submission, para. 70.
952 Appellate Body Report, US – Softwood Lumber IV, para. 64.
953 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS, para. 115. (emphasis
added)
954 Article 19.1 of the SCM Agreement specifies that countervailing duties may be imposed, under
certain conditions, "unless the subsidy or subsidies are withdrawn".
955 European Union's response to Panel question No. 46(a), para. 122.
956 See Appellate Body Reports, US – Upland Cotton (Article 21.5 – Brazil), fn 494 to para. 243;
US ‒ Zeroing (EC) (Article 21.5 – EC), para. 299.

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"remove the adverse effects" of past subsidies irrespective of whether such subsidies have expired
prior to the end of the relevant implementation period. 957 It follows from our finding that, in the
present dispute, the European Union has no compliance obligation with respect to subsidies that
expired before 1 December 2011.
5.4.3 Whether the Panel erred in finding that the ex ante "lives" of certain LA/MSF
subsidies had expired – conditional appeal by the United States
5.384. This brings us to the United States' conditional appeal of the Pa nel's finding that the
ex ante "lives" of several challenged LA/MSF subsidies had expired by 1 December 2011 and that
they had therefore ceased to exist. 958 In particular, the United States requests us to reverse the
Panel's finding that the ex ante "lives" of the following pre -A380 LA/MSF subsidies had expired
before 1 December 2011: the French, German, and Spanish LA/MSF subsidies for the
A300B/B2/B4, A300-600, A310, A320, and A330/A340, and the UK LA/MSF subsidies for the A320
and A330/A340.959 In the event that we reverse these findings, the United States further requests
that we determine that the French, German, Spanish, and UK LA/MSF subsidies for the A320 and
A330/A340 had not expired before the end of the impl ementation period on 1 December 2011.960
Moreover, in the event that we find that the expiry of a subsidy after the end of the
implementation period constitutes withdrawal within the meaning of Article 7.8 of the
SCM Agreement, the United States also appeals the Panel's finding that the LA/MSF for the
A330-200 and A340-500/600 expired in, respectively, [BCI] and [BCI].961
5.385. In addressing the issues raised by the United States in its conditional appeal, we recall
briefly the Appellate Body's findings regarding the concept of the "life" of a subsidy. In the original
proceedings, the European Union claimed that Articles 1, 5, and 6 of the SCM Agreement require a
demonstration of a "continuing" or "present" benefit during the reference period chosen for a
serious prejudice analysis. The Appellate Body noted th at this cl aim concerned the issue of
"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". 962
Upon examining the text of Article 1.1 of the SCM Agreemen t and its relevant context,
the Appellate Body stated:
The ordinary meaning of Article 1.1, read in the light of Article 14 of the
SCM Agreement, confirms … that a benefit analysis under Article 1.1(b) is
forward-looking and focuses on future projections. The nature, amount, and projected
use of the challenged subsidy may be relevant factors to consider in an assessment of
the period over which the benefit from a financial contribution might be expe cted to
flow. A panel may consider, for example, as part of its ex ante analysis of benefit,
whether the subsidy is allocated to purchase inputs or fixed assets; the useful life of

957 Panel Report, para. 6.822.
958 United States' other appellant's submission, para. 8.
959 United States' other appellant's submission, para. 8 (referring to Panel Report, paras. 6.794
and 7.1.d.ii-iii).
960 United States' other appellant's submission, paras. 8, 17, and 18.
961 United States' other appellant's submission, fn 15 to para. 8, and fn 35 to para. 17. The
United States submits that, "if the Appellate Body were to find that the passive 'expiry' of LA/MSF for the
A340-500/600 {after 1 December 2011} constitutes 'withdrawal' for purposes of Article 7.8 of the
SCM Agreement, the United States conditionally appeals the Panel's finding that that tranche of LA/MSF
expired in [BCI]". (Ibid., fn 15 to para. 8 (referring to Panel Report, Table 11 and para. 7.1.d.iii)) In footnote
1547 to paragraph 6.879, and in paragraph 7.1.d.iii of its Report, however, the Panel found that the ex ante
"lives" of the LA/MSF subsidies for both the A330-200 and the A340-500/600 had expired after the end of the
implementation period. In light of this Panel finding, and the United States' clarification at the oral hearing, we
understand that the United States' appeal of the Panel's finding on the ex ante "life" of the A330-200 LA/MSF,
like its appeal relating to the A340-500/600 LA/MSF, is also subject to the additional condition that we find that
expiry after the end of the implementation period constitutes withdrawal for purposes of Article 7.8 of the
SCM Agreement.
962 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 701. (emphasis
omitted)

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these inputs or assets; whether the subsidy is large or small; and the peri od of time
over which the subsidy is expected to be used for future production.963
5.386. The Appellate Body further considered that "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." 964
The Appellate Body added that the ex ante "life" of a subsidy, as projected at the time of its grant,
may be affected by subsequent "intervening events". As the Appellate Body explained:
At the time of the grant of a subsidy, the subsidy 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 certain 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 projected value of the s ubsidy 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.965
5.387. Thus, the Appellate Body considered that a panel's analysis of the adverse effects must
take into account "how the subsidy has materialized over time ".966 These findings of the
Appellate Body set out the conceptual framework for understanding the "life" of a subsidy.
Under this framework, it is relevant "to examine the trajectory of the life of a subsidy" from both
an ex ante perspective and from the perspective of intervening events .967 The ex ante analysis
concerns "how the subsidy is affected … by the depreciation of the subsid y that was projected"
at the time it was granted, and the analysis of intervening events involves the evaluation of events
that occurred after the grant of the subsidy that may affect the projected value of the subsidy as
determined under the ex ante analysis.968 Furthermore, in its examination of the claims of serious
prejudice under Article 5 of the SCM Agreement, the Appellate Body identified certain factors that
may be relevant to assessing the "trajectory of the life of a subsidy":
{I}n 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 recipient. …
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.969

963 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 707.
(italics original and omitted; underlining added; fn omitted)
964 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 708.
965 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 709. (original
emphasis omitted; emphasis added)
966 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 710. (emphasis
added)
967 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 714. (emphasis
added)
968 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 710.
969 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1236 and 1241,
respectively. (italics and fn omitted)

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5.388. The Appellate Body thus noted that the allocati on of a subsidy over the anticipated
marketing life of an aircraft project may constitute one way of assessing the expected duration of
a subsidy, and that subsequent events, such as "removal" of the subsidy, may also be relevant for
assessing whether the "life" of a subsidy has ended.
5.389. In these compliance proceedings, the Panel began its review of the United States' claim
that the European Union had failed to withdraw the LA/MSF subsidies at issue by considering the
European Union's argument that the ex ante "lives" of several challenged subsidies had expired
due to the amortization of benefit. Referring to the Amortization Report 970 issued by
PricewaterhouseCoopers (PwC Amortization Report), the European Union had advanced before the
Panel two ways of determ ining the "lives" of the challenged LA/MSF subsidies: (i) by amortizing
them over the period it was anticipated Airbus would take to repay fully the loaned principal plus
interest (Loan Life approach); or (ii) by looking at the expected marketing life of e ach of the
financed LCA projects (Marketing Life approach). The Panel observed that both approaches
proposed were based on the actual terms of the LA/MSF contracts, read alone or in conjunction
with the expected delivery schedules. 971 The Panel added that, a lthough the United States
"appear{ed} to accept that the ex ante lives of the LA/MSF subsidies {would} be dictated by the
extent to which the contracting parties expected Airbus to continue to have outstanding repayment
obligations"972, the United States nonetheless maintained that such expectations should be
determined on the basis of the repayment obligations that a hypothetical commercial provider of
financing such as LA/MSF would have demanded Airbus to assume. To the Panel, therefo re, the
United States' approach did not concern the expectations of the subsidizing governments at the
time they agreed to the terms of the LA/MSF, and it thus rejected the United States' approach.
5.390. The Panel went on to examine the two approaches proposed by the European Union.
The Panel recalled that the Appellate Body's discussion of the ex ante "life" of a subsidy in the
original proceedings tended to focus on the projected uses to which a subsidy has been put, rather
than the expected duration of a fina ncial contribution. The Panel thus expressed doubts as to
whether the Loan Life approach "would be the most appropriate methodology for determining the
'projected value' of the subsidies provided under the LA/MSF agreements", given this approach's
apparent focus on the expectations surrounding the mere duration of the existence of a
"financial contribution".973 In the Panel's view, "it would be at least equally appropriate to equate
the ex ante lives of the relevant LA/MSF subsidies with the anticipated marke ting lives of the
relevant LCA" .974 Nonetheless, the Panel found it unnecessary to "e xpress any definitive views"
on which of the two methodologies relied upon by the European Union to determine the ex ante
"lives" of the LA/MSF subsidies should be accepted. 975 This is because, for the Panel, it was
"apparent {from the PwC Amortization Report} that under either methodology, the ex ante "lives"
of most of the identified LA/MSF subsidies will have come to an end before the end of the
implementation period".976 The Panel therefore found, in paragraph 6.879 of its Report, that:
the European Union ha{d} demonstrated that the ex ante lives of the following
LA/MSF subsidies " expired" before 1 June 2011 as a result of the amortization of
benefit: the French, German and Spanish government LA/MSF for the A300B/B2/B4,
A300-600, A310, A320, A330/A340; and the UK government LA/MSF for the A320 and
A330/A340.977

970 PricewaterhouseCoopers, "Analysis of the expected life of subsidies to Airbus conferred by Member
State Financing Loans, Capital contributions and regional development grants as found in the WTO dispute
DS316", 29 November 2011 and 2 July 2012 (Panel Exhibit EU-5 (BCI/HSBI)).
971 Panel Report, para. 6.874.
972 Panel Report, para. 6.874.
973 Panel Report, para. 6.878.
974 Panel Report, para. 6.878.
975 Panel Report, para. 6.879.
976 Panel Report, para. 6.879.
977 Italics original; underlining added; fn omitted.

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The Panel also noted in a footnote that the European Union had established that the ex ante "lives"
of the French LA/MSF for the A330-200 and the French and Spanish LA/MSF for the A340 -500/600
expired in, respectively, [BCI] and [BCI].978
5.391. After reaching its findings on the ex ante expiry of the subsidies, the Panel proceeded to
examine the arguments concerning alleged "intervening events" that affected the ex ante "lives" of
certain LA/MSF subsidies. In the Panel's view, an intervening event is "one that takes place after
the grant of a subsidy and alters its ex ante 'life' – that is, an event that changes how a subsidy
has 'materialized over time' relative to the expectations held at the time it was granted ."979
The Panel rejected the European Union's argument that the alleged "extraction" of subsidies, and
alleged "extinction" of benefit through partial privatization and sales of shares and ownership,
were, in the circumstances of this case, "intervening events" that b rought the lives of certain
pre-A350XWB subsidies to an end. 980 The Panel also rejected the United States' claim that the
ex ante "lives" of the LA/MSF subsidi es for the A300 and A310 increased because of the launch of
the A330/ A340981, and that the ex ante "life" of the LA/MSF for the A340 ended due to the
termination of the A340 -500/600 project in 2011.982 Finally, the Panel reviewed and rejected the
European Union's argument that the actual repayment of the LA/MSF loans with interest brought
these loans to an end. 983 Based on its analysis , the Panel concluded , in paragraph 6.1076 of
its Report:
{W}e have determined that the "lives" of these subsidies have come to an end
because the total period of time over which their "projected value" was expected to
"materialize" has passively transpired in the absence of any "intervening event" .
In other words, we have found that the ex ante "lives" of the relevant subsidies have
"expired" simply because they have been fully provided to Airbus as originally planned
and expected.984
5.392. The Panel's findings in paragraphs 6.879 and 6.1076 , quoted above, suggest that the
Panel examined the issue of "e xpiry" from two angles – both from an ex ante perspective and in
light of alleged intervening events that occurred after the grant of the subsidy .
In paragraph 6.879, the Panel used the word "expired" to refer to the passage of the time period
over which t he subsidies were projected to be amortized, without regard to any alleged
"intervening events" or actual repayment. In other w ords, the "expiry" refers to the fact that the
expected duration of the subsidies – projected at the time they were granted – had lapsed.
The use of the word "expired" in paragraph 6.879 therefore does not speak to the question of
whether the "life" of the subsidies actually ended. Subsequently, in paragraph 6.1076, the Panel
again used the word "expired" aft er having examined the a lleged intervening events and alleged
repayment of loans, that is, after reviewing relevant arguments and evidence concerning what
actually happened once the subsidies were granted. We understand the Panel to have found,
therefore, that the relevant subsidies came to an end by reason of the amortization of benefit,
in the absence of any intervening event that would have changed how those subsidies materialized
over time relative to the expectations held at the time they were granted.

978 Panel Report, fn 1547 to para. 6.879. The Panel reached this finding on the basis of the Loan Life
approach. (See Panel Report, Table 11: PwC ex ante "Lives" analysis to LA/MSF) We note that, under the
Marketing Life approach, the LA/MSF subsidy for the A330-200 would have expired by [BCI] – that is, before
the end of the implementation period – and the LA/MSF subsidy for the A340-500/600 would have expired by
[BCI]. (Ibid.)
980 Panel Report, paras. 6.918-6.1055.
981 Panel Report, paras. 6.1056-6.1059. The United States argued before the Panel that, because Airbus
envisioned the A330 and A340 as derivatives of the A300, the "lives" of the A300 and A310 LA/MSF subsidies
continue with the A330 and A340. The Panel disagreed, finding that there was "simply no evidence before {it}
to suggest that the 'projected value' of the A300 and A310 LA/MSF subsidies was affected by the launch of the
A330/A340", and that "the United States conflate{d} the 'lives' of those subsidies with their 'indirect effects'".
(Ibid., para. 6.1059) The United States has not appealed these findings of the Panel. With respect to the
Panel's analysis of the "indirect effects" of LA/MSF subsidies, see section 5.6.3 of this Report.
982 Panel Report, paras. 6.1060-6.1064. The Panel's findings regarding the termination of the
A340-500/600 are further discussed in paragraphs 5.398-5.399 below.
983 Panel Report, paras. 6.1069-6.1074.
984 Panel Report, para. 6.1076. (italics original; underlining added)

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5.393. The United States has appealed the Panel's finding in pa ragraph 6.879 of its Report,
as well as the Panel's final conclusion regarding the expiry of the LA/MS F subsidies at issue in
section 7 of its Report. 985 The United States, however, has not specifically challenged the P anel's
examination of the alleged intervening events. Rather, its appeal focuses on the Panel's ex ante
analysis, that is, the periods of time over which the benefit of the pre-A380 LA/MSF subsidies were
projected to materialize. The United States maintains that, in finding that the ex ante "lives" of the
relevant pre -A380 LA/MSF passively expired before 1 December 2011, the Panel erroneously
viewed the ex ante "lives" of the LA/MSF subsidies at issue as extending over a fixed number of
years. However, the United States argues, "{n}either the SCM Agreement nor reasoning of the
Appellate Body suggests that the ex ante life of a subsidy must always be a fixed number."986
5.394. We recognize that, depending on the circumstances of a case, it may not always be
feasible t o determine, ex ante , a fixed number of years over which the benefit of a subsidy is
expected to flow. For example, it is conceivable that the circumstances of a case may allow for
only an estimate of the range of years in which the benefit is expected to last. Nonetheless, as the
Appellate Body emphasized in the original proceedings, "{a}t the time of the grant of a subsidy,
the subsidy will necessarily be projected to have a finite life and to be utilized over that finite
period."987 Furthermore, the Appellate Body stated that it had "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 d uration of a subsidy over time". 988 We do not share the
United States' view that the Panel , by relying on the anticipated marketing lives of the relevant
LCA, erroneously viewed the ex ante "lives" of the LA/MSF subsid ies at issue as extending over a
fixed number of years. 989 Rather, t he Pan el's approach is appropriate in light of the
Appellate Body's guidance that a subsidy has a finite "life", as well as the evidence before the
Panel regarding how the ex ante "lives" of the LA/MSF subsidies at issue should be ascertained,
including the PwC Amortization Report. Contrary to the United States' argument, such an approach
is not a "speculative" exercise that "the parties themselves did not undertake".990
5.395. Moreover, while the United States maintains that the ex ante "lives" of the subsidies need
not be a fixed number991, its argument does not offer a proper basis on which such "lives" may be
determined. The United States contends that the use of the LA/MSF loans "suggests that the
parties expected the benefit of LA/MSF to last throughout the life of the subsidized aircraft
programs".992 In other words, according to the United States, the "lives" of the subsidies should
last as long as the commercial life of the funded aircraft project.993 In our view, the duration of the
funded aircraft project depends on the success of the project, and such success, while it might be
pertinent for assessing the effects of the subsidy, does not bear upon the question of how the
subsidy is anticipated to materialize. To us, t he United States' argumen t conflates the effects of
the subsidy – i.e. its "product" effects994 – with the benefit of the subsidy.995

985 United States' other appellant's submission, para. 17 (referring to Panel Report, paras. 6.879 and
7.1.d.ii-iii).
986 United States' other appellant's submission, para. 10.
987 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 709. (emphasis
added)
988 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1241. (fn omitted)
989 United States' other appellant's submission, para. 10.
990 United States' other appellant's submission, para. 13.
991 United States' other appellant's submission, para. 10.
992 United States' other appellant's submission, para. 15. (emphasis added)
993 This argument of the United States on appeal echoes its view before the Panel that "the life of a
subsidy creating a new product must be measured by the life of the product it creates". (United States' second
written submission to the Panel, para. 161 (emphasis added))
994 As further discussed in section 5.6.3 of this Report, the Panel referred to the "product effects" of the
LA/MSF subsidies as the effects of the LA/MSF subsidies in bringing about either: (i) the existence and market
presence of Airbus; or (ii) the ability of Airbus to offer a full range of competitive LCA products.
(See e.g. Panel Report, para. 6.1480) The Panel explained that such "product" effects may be further
categorized as "direct effects" and "indirect effects", depending on whether the effects relate to the LCA
specifically funded by an LA/MSF subsidy (direct) or subsequent LCA (indirect). (Ibid., para. 6.1492) The
United States argued that the "direct effects" of an LA/MSF subsidy will decline significantly with the
termination of the specifically-funded LCA project, and the "indirect effects" of an LA/MSF subsidy will persist
as long as the subsequent, benefitting LCA remain in production. (Ibid., para. 6.1493)
995 See Panel Report, para. 6.875.

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5.396. The United States further argues that the Panel failed to engage with "the central legal
point" of the United States' argument, namely, "for contingent financing, the grantor and recipient
would expect the benefit to continue as long as payments were due, or for the life of any
forgiveness if the program failed prior to full repayment." 996 By "contingent financing",
the United States refers to the fact th at "the grantor expects the benefit to flow over a period
whose length is defined to be contingent on some other variable event , such as a large civil
aircraft program selling a particular number of aircraft, that triggers an obligation to repay the
principal and accrued interest". 997 The United States adds that, if, at the tim e of the grant,
the benefit "is expected to convert to loan forgiveness upon the satisfaction of a particular
condition (e.g., the premature failure of an aircraft program), then the life of the subsidy should be
measured accordingly."998
5.397. As the Appellate Body made clear in the original proceedings, "a benefit analysis under
Article 1.1(b) is forward -looking and focuses on future projections." 999 The Appellate Body also
stated that "{t }he nature, amount, and projected use of the challenged subsidy may be relevant
factors to consider in an assessment of the period over which the benefit from a financial
contribution might be expected to flow."1000 Thus, the evaluation of how long the benefi t under
Article 1.1(b) of the SCM Agreement might be "expected" to flow is based on projections made at
the time of the granting of the subsidy. We do not see the existence of a "variable event" in a loan
agreement as permitting departure from this ex ante approach for determining the expected "life"
of a subsidy pursuant to Article 1.1(b) of the SCM Agreement.1001
5.398. By arguing that the anticipated "life" of a subsidy depends on certain "variable event {s}",
such as the timing of delivery and payment, or potentia l failure of the project before full
repayment, the United States' approach does not comport with an ex ante analysis of the
projected duration of benefit. Rather, its argument concerns how the actual performance of a
subsidy affects the "life" of that subsidy and, as such, is more pertinent to an examination of any
alleged intervening events that may have affected the anticipated "life" of the subsid y. Indeed,
before the Panel, the United States referred to debt forgiveness as a result of the t ermination of a
project as an "intervening event" that extended the anticipated "life" of the LA/MSF subsidy for the
A340-500/600. Specifically, the United States argued that, had the LA/MSF for the A340 -500/600
not been terminated in 2011, the subsidy wou ld have continued t o be provided through the
below-market repayments outstanding at the time. The termination of the A340 -500/600 project,
according to the United States, turned that subsidy into "a grant to Airbus equivalent to the
amount of outstanding debt" on the loans under the French and Spanish LA/MSF contracts for the
A340-500/600.1002 The United States further argued that, as a result of the debt forgiveness,
the life of the LA/MSF was extended by the average life of a generic a ircraft project, that i s,
until approximately 2028.1003
5.399. The Panel rejected the view that the termination of the A340 -500/600 project was an
intervening event that extended the "life" of the LA/MSF subsidy. 1004 In so doing , the Panel
explained that the termination of the A340 project was "not an event that can be said to have

996 United States' other appellant's submission, para. 12.
997 United States' other appellant's submission, para. 10. (emphasis added)
998 United States' other appellant's submission, fn 17 to para. 10.
999 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 707. (fn omitted)
1000 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 707. (emphasis
original)
1001 See European Union's appellee's submission, para. 50.
1002 Panel Report, para. 6.1060.
1003 Panel Report, para. 6.1060.
1004 In the Panel's view, the possible termination of the A340 project before full repayment was an
inherent feature of the LA/MSF contracts themselves. The Panel stated:
{I}t is precisely because the full repayment of the LA/MSF agreements could not be guaranteed
and was dependent upon the fortunes of the A340-500/600 … that it was appropriate (and
required) for the relevant European Union member States to charge a product-specific risk
premium on their loans. It follows, therefore, that the possibility of the termination of the A340
programme before full repayment of the LA/MSF loans was not an unexpected event, and must
have been contemplated and used to inform the expectations about how the "projected value" of
the relevant LA/MSF subsidies would "materialize over time" when they were granted.
(Panel Report, para. 6.1063)

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altered the expectations held at the time of the grant of the relevant LA/MSF subsidies about how
the 'projected value' of those subsidies would 'materialize over time '."1005 The Panel added that
"the termination of t he A340 programme only one year ahead of the expected duration of its
marketing life did not prevent Airbus from using the relevant LA/MSF subsidies, precisely as
originally envisaged, to develop and bring to market the A340 -500/600 derivatives."1006 The Panel
also noted that "the fact that the repayment terms of the relevant LA/MSF agreements were
unsecured and success -dependent reveal {ed} that the p ossible termination of the
A340 programme before the full repayment could be achieved was an inherent fe ature of the
LA/MSF agreements themselves."1007 For the Panel , this implied that "the French and Spanish
governments (and Airbus) must have included in their anticipated scenarios for the use of the
LA/MSF subsidies, the possibility that the A340 programme ma y not have been as successful as
planned."1008 The Panel added that it was "precisely because the full repayment of the LA/MSF
agreements could not be guaranteed and was dependent upon the fortunes of the A340 -500/600
that both the European Union and the United States agreed that it was appropriate (and required)
for the relevant European Union member States to charge a product-specific risk premium on their
loans."1009 For the Panel , it followed from this "that the possibility of the termination of the
A340 programme before full repayment … must have been contemplated and used to inform the
expectations about how the 'projected value' of the relevant LA/MSF subsidies would 'materialize
over time' when they were granted."1010 The United States has not appealed this r easoning by the
Panel, and we see no reason why it would not apply equally to the arguments that the
United States makes on appeal regarding the "contingent" nature of the LA/MSF financing,
including the fact that the four member States may have expected the lives of LA/MSF subsidies to
depend on a "variable event, such as a large civil aircraft program selling a particular number of
aircraft, that triggers an obligation to repay the principal and accrued interest". 1011 As we see it,
such "variable events" are an inherent feature of the LA/MSF financing, which the four member
State governments can be expected to have included in their anticipated scenarios for the use of
the LA/MSF subsidies. Such uncertainties involved in the LA/MSF financing are, as we unders tand
it, already reflected in the project-specific risk premium calculated, by the original panel and by
the Panel in these compliance proceedings, in the context of the benefit analysis for each of the
underlying LA/MSF subsidies. We therefore disagree with the United States that the Panel failed to
engage with the arguments that the United States made in this regard.
5.400. Moving on, we recall that an ex ante analysis regarding the benefit of a subsidy serves as
the starting point of the analysis to determine whether a subsidy continues to exist at the end o f
the implementation period . For such a determination , it is also necessary to conduct an analysis
regarding "whether there are 'intervening events' that occurred after the gran t of the subsidy that
may affect the projected value of the subsidy as determined under the ex ante analysis."1012
Thus, an examination of the ex ante "life" of a subsidy, based on the expectation at the time the
subsidy was granted, should be complemented by an evaluation of subsequent intervening events
that were alleged to have occurred after the grant of the subsidy so as to determine whether the
subsidy materialized as expected.
5.401. Having made findings on the projected expiry of the subsidies, the Panel wen t on to
examine the arguments concerning the alleged intervening events that affected the actual duration
of certain LA/MSF subsidies. Based on its analysis, the Panel concluded that "the ' lives' of these
subsidies have come to an end because the total per iod of time over which their 'projected value'
was expected to 'materialize' has passively transpired in the absence of any 'intervening
event'".1013 In our view, the Panel's ultimate conclusion regarding the actual duration of these
subsidies was based on a proper analysis of both the projected duration of the subsidies and the
alleged intervening events after the granting of the subsidies . This is consistent with the

1005 Panel Report, para. 6.1062.
1007 Panel Report, para. 6.1063.
1008 Panel Report, para. 6.1063.
1009 Panel Report, para. 6.1063.
1010 Panel Report, para. 6.1063.
1011 United States' other appellant's submission, para. 10. (emphasis added)
1012 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 709.
1013 Panel Report, para. 6.1076. (italics original; underlining added)

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Appellate Body's approach in the original proceedings, whereby the assessment of the "life" of a
subsidy should encompass both an ex ante analysis and an evaluation of intervening events.
5.402. For these reasons, we uphold the Panel's finding, in paragraphs 6.879, 6.1076, and 7.1.d.ii
of its Report, that the European Union ha s demonstrated that the ex ante "lives" of the French,
German, and Spanish LA/MSF subsidies for the A300B/B2/B4, A300 -600, A310, A320, and
A330/A340, and the UK LA/MSF subsidies for the A320 and A330/A340, expired before
1 June 2011.
5.403. The United States also appeals the Panel's finding that the European Union had
demonstrated that the ex ante "lives" of the French LA/MSF subsidy for the A330 -200 and the
French and Spanish LA/MSF subsidies for the A340 -500/600 expired in, respectively, [BCI] and
[BCI].1014 This aspect of the United States' appeal is premised on the condition that we find that
the passive expiry of these subsidies after 1 December 2011 meets th e requirement to
"withdraw the subsidy" within the meaning of Article 7.8 of the SCM Agreement.1015 We recall that,
following the adoption of the panel and Appellate Body reports in the original proceedings
on 1 June 2011, the European Union, pursuant to Article 7. 9 of the SCM Agreement, had
six months to "take appropriate steps to remove the adverse effects" or to "withdraw the subsidy".
On 1 December 2011, the European Union informed the DSB, in its Compliance Communication,
that it had taken the appropriate steps to bring its measures "ful ly into conformity with its
WTO obligations".1016 Subsequently, the Panel was established to examine the United States' claim
that "the actions and events listed in the {European Union's Complian ce Communication} do not
withdraw the subsidies or remove their adverse effects for purposes of Article 7.8 of the
SCM Agreement".1017
5.404. In examining whether the European Union complied with its obligation under Article 7.8 of
the SCM Agreement, the relevant question before the Panel was whether the European Union had
brought itself into compliance by the end of the implem entation period , that is, before
1 December 2011. For purposes of these compliance proceedings , therefore, the expiry of the
subsidies subsequent to 1 December 2011 does not bear directly on the question that the Panel
was called upon to examine, namely, whether compliance had been achieved by the end of the
implementation period. In these circumstances, we see no need further to address this aspect of
the United States' appeal.
5.4.4 Whether the Panel erred in its finding regarding the repayment of financial
contribution – conditional appeal by the European Union
5.405. The European Union conditionally appeals the Panel's finding that "repayment of a financial
contribution does not bring the life of a subsidy to an end". 1018 The European Union requests,
in particular, that we find that the "lives" of the following subsidies came to an end due to the
"repayment" of the underlying LA/MSF loans on their subsidized terms : the French LA/MSF for the
A310-300 and A330-200, the French and Spanish LA/MSF for the A300B/B2/B4 and A30 0-600,
and the French, Spanish, and UK LA/MSF for the A320 and A330/A340.1019
5.406. We have upheld the Panel's finding that almost all pre-A380 LA/MSF subsidies, including
the ones referred to above, expired before the beginning of the implementation period in thi s
dispute, that is, before 1 June 2011. 1020 We have also found that the European Union has

1015 United States' other appellant's submission, fn 15 to para. 8, and fn 35 to para. 17.
1016 Panel Report, para. 6.6 (quoting Compliance Communication).
1017 WT/DS316/19, p. 3.
1018 European Union's appellant's submission, para. 197 (referring to Panel Report,
paras. 6.1072-6.1074). See also para. 190.
1019 European Union's appellant's submission, paras. 214-215.
1020 The Panel found that the LA/MSF subsidies for the A330-200 and the A340-500/600 expired in,
respectively, [BCI] and [BCI], that is, after the end of the implementation period. (Panel Report, fn 1547 to
para. 6.879) The Panel found that the market presence of the A340 came to an end before the beginning of the
post-implementation period when Airbus terminated the A340 programme in November 2011. (Ibid., fn 2188
to para. 6.1293) As discussed in sections 5.6.3 and 5.6.4 of this Report, we note that the Panel did not make
findings specifically relating to the effects of these two subsidies.

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no further compliance obligation , under Article 7.8 of the SCM Agreement , with respect to such
expired subsidies. We see no reason, in order to resolve this dispute, to make additional findings
on whether the French LA/MSF for the A310 -300, the French and Spanish LA/MSF for the
A300B/B2/B4 and A300 -600, and the French, Spanish, and UK LA/MSF for the A320 and
A330/A340 also came to an end due to the actual repayment of the loans with interests.1021
5.5 European Union's consequential appeal under Article 7.8 of the SCM Agreement
5.407. The European Union maintains that, due to the Panel's error in its interpretation of
Article 7.8 of the SCM Agreement, the Panel's findings regarding the adverse effects caused by the
challenged subsidies must also be reversed. According to the European Union, this is because the
Panel failed to recognize that an expired subsidy "could no longer be used to ground a finding of
non-compliance, including on the basis that it causes present adverse effects after the end of the
implementation period". 1022 The European Union also argues that, pursuant to a proper
interpretation of Article 7.8, an analysis of adverse effects must be based on a "re -constituted
basket of subsidies" from which the expired subsidies are excluded 1023, and that the Panel failed to
conduct such an analysis.1024 On this basis, the European Union requests us to reverse a series of
intermediate findings made in the context of the Panel's adverse ef fects analysis1025, as well as its
final conclusion that the challenged LA/MSF subsidies continue to be a "genuine and substantial"
cause of serious prejudice within the meaning of Articles 5(c), 6.3(a), 6.3(b), and 6.3(c) of the
SCM Agreement.1026 Furthermore, the European Union requests us to reverse the Panel's
conclusion that the non-LA/MSF subsidies at issue (including capital contributions 1027 and certain
regional development grants) are a "genuine" cause of such serious prejudice and can be
"cumulated" with the effects of the challenged LA/MSF subsidies.1028
5.408. For its part, the United States contends that the European Union's consequential appeal
should be rejected. The United States highlights that these compliance proceedings involve
findings that a group of subs idies collectively caused current adverse effects with respect to a
number of models of aircraft. Even assuming arguendo that the expiry of some of the subsidies
within that group satisfied a Member's obligation under Article 7.8 with respect to the expire d
subsidies, "there would remain a question of how to evaluate the {European Union's} obligation
under Article 7.8 with respect to the rest of the group of subsidies." 1029 In the United States' view,
an analysis of the existing subsidies in these compliance p roceedings should account for the
"aggravating effects of the expired subsidies" and "could not simply pretend that those effects
were related to WTO -consistent behavior."1030 The United States emphasizes in this regard that,

1021 In this regard, we recall the Panel's finding that the French LA/MSF for the A330-200 expired in
[BCI]. (Panel Report, fn 1547 to para. 6.879) However, the Panel made no finding regarding whether Airbus
had "repaid" that subsidy prior to the end of the implementation period. (Ibid., para. 6.1074) In the absence of
any factual findings by the Panel, we are unable to rule on whether the French LA/MSF for the A330-200 came
to an end through "repayment", as the European Union argues on appeal.
1022 European Union's appellant's submission, para. 187. See also paras. 188-189.
1023 European Union's appellant's submission, paras. 1076 and 1088. The European Union further argues
that the effects of those expired subsidies should be taken into account as non-attribution factors for purposes
of analysing the effects of the re-constituted basket of subsidies (i.e. the "basket" that contains only the
existing subsidies). (Ibid., para. 1097)
1024 European Union's appellant's submission, para. 187.
1025 European Union's appellant's submission, para. 189 (referring to Panel Report,
paras. 6.1451-6.1452, 6.1463, 6.1534, 6.1774, and 7.1.d.xii-xiii).
1026 European Union's appellant's submission, para. 189 (referring to Panel Report, paras. 6.1798,
6.1817, and 7.1.d.xiv-xvi).
1027 The Panel found that the European Union had demonstrated that the ex ante "lives" of the capital
contribution subsidies had "expired" before 1 December 2011, and therefore, before the end of the
implementation period. (Panel Report, para. 6.907) This finding of the Panel has not been appealed.
1028 European Union's appellant's submission, para. 189 (referring to Panel Report, paras. 6.1838,
6.1846, 6.1847, and 7.1.d.xvii). Furthermore, recalling the Panel's finding that the non-LA/MSF subsidies
"complemented and supplemented" the effects of the LA/MSF subsidies, the European Union contends that the
basis for this finding "would fall away" following a reversal of the Panel's findings regarding the adverse effects
of the LA/MSF subsidies. (European Union's appellant's submission, paras. 1060 (quoting Panel Report,
para. 6.1847) and 1061).
1029 United States' appellee's submission, para. 158.
1030 United States' appellee's submission, para. 158. The United States notes that, during proceedings
before the Panel, the European Union argued that the WTO-inconsistent effects of expired subsidies became

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because "the current adverse effe cts of those expired subsi dies are inconsistent with
{the European Union's} obligations under Article 5", a compliance panel "would properly aggregate
any expired subsidies that continued to cause adverse effects".1031 This, in the United States' view,
would "especially be the case if those expired subsidies put the recipients of the subsidy in a
position where subsequent subsidies had more pronounced effects".1032
5.409. We note that Article 21.5 of the DSU identifies the task of a panel operating pursuant to
this provision, namely to examine whether the DSB recommendations and rulings from the original
dispute have been implemented consistently with the covered agreements. Proceedings under
Article 21.5 do not occur in isolation, but are part of a "continuum of events" .1033 It is for this
reason that a compliance panel assessing whether an implementing Member has complied with its
obligations under Article 7.8 must take due account of the reasoning and findings from the original
proceedings.1034
5.410. Having said that, we recall that Article 7.8 of the SCM Agreement is concerned with the
"granting or maintaining" of subsidies that cause adverse effects, and requires cessation of such
conduct. To the extent that the underlying subsidy has ceased to exist, there is no additional
requirement, under this provision , to remove any lingering effects that may flow from that
subsidy.1035 The pertinent question for purposes of these compliance proceedings is, therefore,
whether the United States has established that the subsidies exist ing in the post-implementation
period (i.e. after 1 December 2011) cause adverse effects. An evaluation of the effects of such
subsidies may be informed, in part, by findings from the original proceedings concerning the
effects of the LA/MSF subsidies, including th e expired subsidies, on Airbus' ability to launch LCA
products at issue in the original proceedings as and when it did. 1036 Those findings describe the
design, structure , and ope ration of the expired subsidies and how they "impacted Airbus'
operations until t he end of 2006." 1037 Therefore, we do not preclude that the expired subsidies
may be relevant for our review of the Panel's findings as part of a matrix of analysis that seeks to
understand the effects of the subsidies existing in the post-implementation period.
5.411. In light of the foregoing, we disagree with the European Union that it necessarily follows
from the manner in which the Panel characterized the scope of the compliance obligation under
Article 7.8 of the SCM Agreement that the Panel's findings of adverse effects must be reversed for
each of the specific country and product markets with respect to which the United States brought
its claims. 1038 We note that the Panel's adverse effects analysis led to its final conclusion that
"the European Union and certain member States hav e failed to comply with the
DSB recommendations and rulings and, in particular, the obligati on under Article 7.8 of the
SCM Agreement 'to take appropriate steps to remove the adverse effects or … withdraw the

WTO-consistent for purposes of a compliance proceeding. According to the United States, the European Union
asserted that in its adverse effects analysis, the Panel would have to separate and distinguish the effects of
expired subsidies from the effects of existing subsidies, and base its analysis of adverse effects on only the
existing subsidies. (Ibid., fn 217 to para. 158 (referring to European Union's first written submission to the
Panel, para. 1099)) The United States further contends that, although the European Union "has not explicitly
made such an argument {on appeal}, it is a logical consequence of the {European Union's} position, and
demonstrates the absurdity of that position". (Ibid., fn 217 to para. 158)
1031 United States' appellee's submission, para. 160.
1032 United States' appellee's submission, para. 160. We also note the United States' argument before
the Panel that the expired LA/MSF subsidies "still ha{ve} current effects on competition because of the
enduring effects of LA/MSF and a continuing pattern of subsidizing one Airbus LCA program after another, and
providing Airbus with new LA/MSF". (United States' first written submission to the Panel, para. 325 (emphasis
original))
1033 Appellate Body Report, US – Softwood Lumber VI (Article 21.5 – Canada), paras. 102-103;
Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US), para. 121.
1034 See Appellate Body Report, Chile – Price Band System (Article 21.5 – Argentina), para. 136. We
note, however, that in Article 21.5 proceedings the burden is on the complainant to show a WTO-inconsistency
at the end of the implementation period in respect of the "measure taken to comply". In this regard, the Panel
also recognized the importance of not "simply transpos{ing}" findings in the original proceedings to the
1035 See section 5.4.2 of this Report.
1036 As further explained in section 5.6 of this Report, the Panel referred to such effects as the "product
effects" of LA/MSF subsidies. (See Panel Report, paras. 6.1492, 6.1536, and 6.1777)
1037 Panel Report, para. 6.1461.
1038 European Union's appellant's submission, paras. 187-189.

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subsidy'."1039 In our view, whether the Panel had a sufficient basis for this ultimate conclusion is a
question that can only be answered following a careful review of the Panel's reason ing and
analysis, in particular its analysis relating to the adverse effects of the existing LA/MSF subsidies
that are maintained or granted in the post -implementation period. Thus, we do not dismiss the
totality of the Panel's adverse effects analysis solely on the basis of its interpretation of Article 7.8
of the SCM Agreement. Rather, we do not preclude that the pertinent question in these compliance
proceedings – i.e. whether the subsidies existing in the post-implementation period cause adverse
effects – may still be answered on the basis of the Panel's analysis of the existing subsidies.
A consideration of expired subsidies is relevant for this purpose insofar as it sheds light on whether
LA/MSF subsidies granted or maintained by the European Union in the post-implementation period
cause adverse effects.
5.412. With these considerations in mind, we turn to r eview the Panel's analysis in reaching its
ultimate conclusion on adverse effects. As further explained below, our review will focus on the
Panel's findings regarding the effects of the subsidies that the European Union continued to grant
or maintain in th e post-implementation period, including, in particular, the LA/MSF subsidies for
the Airbus A380 and the A350XWB, which have not expired.1040
5.6 Articles 5, 6, and 7.8 of the SCM Agreement – adverse effects
5.413. Having found that the United States had established tha t the European Union has failed to
"withdraw the subsidy" within the meaning of Article 7.8 of the SCM Agreement1041, the Panel went
on to examine the United States' claim that the European Union had failed to "take appropriate
steps to remove the adverse effects", as required under th is provision. The Panel considered the
question before it to be "whether … the challenged subsidies continue to cause serious prejudice to
the interests of the United States after 1 December 2011, that is, after the end of the
implementation period".1042 At the outset, having rejected the European Union's claim that it ha s
withdrawn certain LA/MSF subsidies within the meaning o f Article 7.8 of the SCM Agreement as a
result of their expiry 1043, the Panel dismissed the European Union's contention that it should
exclude from the adverse effects analysis those challenged subsidies that had expired. 1044 Thus,
under the Panel's adverse effects analysis, the reference to the "challenged" LA/MSF subsidies
covers all of the LA/MSF subsidies grant ed by the European Union to date, including those the
Panel found to have expired, as well as those existing in the post-implementation period.1045
5.414. The Panel began by addressing two "threshold" issues. 1046 First, the Panel dismissed the
European Union's argumen t that, in order for the United States to make out its claims of
displacement or impedance of exports within the meaning of Article 6.3(b) of the SCM Agreement,
the United States must demonstrate that its product allegedly being displaced or impeded is a
"non-subsidized like product". 1047 Second, the Panel disagreed with the European Union's
contention that the United States had failed to establish the existence of the three alleged LCA
product markets for purposes of its complaint 1048, finding instead that the m arkets identified by

1039 Panel Report, para. 7.2.
1040 See paras. 5.554-5.557 below. We also recall the Panel's finding that the LA/MSF subsidies for the
A330-200 and A340-500/600 had expired, respectively, [BCI], that is, after the end of the implementation
period. (Panel Report, fn 1547 to para. 6.879, and fn 1600 to para. 6.907) We note that these aircraft were
derivatives of, respectively, the A330 and A340. (Original Panel Report, para. 7.1622) As further discussed in
sections 5.6.3 and 5.6.4 of this Report, we note that the Panel did not make findings specifically related to the
effects of these two subsidies, and we focus our analysis on the subsidies with respect to which the Panel made
findings, namely, the A380 and A350XWB LA/MSF subsidies.
1041 Panel Report, para. 6.1102.
1043 Panel Report, para. 6.1107 (referring to section 6.6.2 of the Panel Report). See also section 5.6.3.1
of this Report.
1044 Panel Report, paras. 6.1106-6.1107. See also paras. 6.1449-6.1450.
1045 See e.g. Panel Report, paras. 6.1104 and 6.1440. As further discussed below, our review of the
Panel's adverse effects analysis is focused on the Panel's findings regarding a subset of these challenged
subsidies, namely, those existing in the post-implementation period.
1046 Panel Report, para. 6.1107.
1047 Panel Report, paras. 6.1114 and 6.1154.
1048 The three product markets are: the single-aisle LCA market for the Airbus A320neo and A320ceo,
and the Boeing 737MAX and 737NG LCA families; the twin-aisle LCA market for the Airbus A330 and A350XWB

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the United States represented the three segments within which most competitive interactions
between the relevant aircraft would commonly take place.1049
5.415. Turning to the present-day effects of the challenged LA/MSF subsidies in the three relevant
product market segments 1050, the Panel sought to determine whether the challenged LA/MSF
subsidies, as an aggregated group 1051, are a "genuine and substantial" cause of serious prejudice
to the United States' interests within the meaning of Article 6.3(a), 6.3(b), and 6.3(c) of the
SCM Agreement. The Panel divided its analysis into three parts.
5.416. The first two parts concern the "product effects" of LA/MSF subsidies, that is, the effects of
such subsidies on the ability of Airbus to launch and bring to market particular Airbus LCA models
as and when it did.1052 First, the Panel examined the "product effects" of the pre-A350XWB LA/MSF
subsidies on the A320, A330, and A380, and found that the pre -A350XWB LA/MSF subsidies
continue to be a genuine and substantial c ause of the current market presence of the A320, A330,
and A380 families of Airbus LCA. 1053 Second, having analysed the "product effects" of all of the
challenged LA/MSF subsidies on the A350XWB, the Panel found that these subsidies, with the
exception of LA/MSF for the A300 and A310, are a genuine and substantial cause of the current
market presence of the A350XWB family of Airbus LCA.1054
5.417. Third, examining the impact of the "product effects" of the challenged LA/MSF subsidies in
the relevant product markets, the Panel found that all of the orders of Airbus LCA identified by the
United States in the post-implementation period represented "significant" lost sales to the US LCA
industry.1055 Thus, the Panel concluded that the "product effects" of the challenged LA/ MSF
subsidies are a genuine and substantial cause of:
significant lost sales in the global markets for single -aisle, twin -aisle and {VLA},
within the meaning of Article 6.3(c) of the SCM Agreement, constituting serious
prejudice to the interests of the United States within the meaning of Article 5(c) of the
SCM Agreement … . 1056
The Panel further found that, in the absence of the LA/MSF subsidies, the volume of deliveries and
market shares that would have been achieved in the US LCA industry would have been higher than
its actual level in all relevant product markets .1057 Thus, the Pa nel concluded that the
"product effects" of the challenged LA/MSF subsidies are a "genuine and substantial" cause of:
displacement and/or impedance of the imports of a like product of the United States
into the markets for single -aisle, twin-aisle and {VLA} in the European Union, within
the meaning of Article 6.3(a) of the SCM Agreement, constituting serious prejudice to

and the Boeing 767, 777, and 787 LCA families; and the VLA market for the Airbus A380 and the Boeing 747
families. (Panel Report, para. 6.1411)
1049 Panel Report, para. 6.1416.
1050 Panel Report, para. 6.1417. Before examining this issue, the Panel reviewed the preliminary
question regarding the reference period, and considered that the United States would succeed in its
non-compliance claims only if it could establish the existence of present serious prejudice under Article 6.3(a),
(b), and (c) of the SCM Agreement in the post-implementation period (i.e. after 1 December 2011). (Ibid.,
paras. 6.1441-6.1444)
1051 As further discussed in paragraphs 5.563 and 5.593 below, like the original panel, the Panel
undertook an aggregated assessment of the effects of all LA/MSF subsidies due to their similar "design,
structure and operation". (Panel Report, para. 6.1448) The Panel further noted that, in aggregating the effects
of the subsidies, the original panel examined "the extent to which alone, and in combination, the direct and
indirect effects of LA/MSF operated to enable Airbus to launch, develop and bring to market each model of LCA
that existed in the 2001-2006 reference period". (Ibid. (fn omitted))
1052 Panel Report, paras. 6.1492, 6.1536, and 6.1777. See also paras. 6.1448, 6.1464, and 6.1480. As
further discussed below, the Panel found that "product effects" of LA/MSF consisted of "direct effects" and
"indirect effects", depending on whether the effects concern Airbus' ability to launch the particular model of
LCA specifically funded by a LA/MSF subsidy (direct), or other models of LCA (indirect). (See Panel Report,
para. 6.1492. See also paras. 5.563 and 5.593-5.594 below)
1055 Panel Report, para. 6.1798.
1057 Panel Report, para. 6.1817.

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the interests of the United States within the meaning of Artic le 5(c) of the
SCM Agreement1058; {and}
displacement and/or impedance of exports from the market for single -aisle LCA in
Australia, China and India, the market for twin -aisle LCA in China, Korea and
Singapore and the market for {VLA} in Australia, China, Korea, Singapore and the
United Arab Emirates, within the meaning of Article 6.3(b) of the SCM Agreement,
constituting serious prejudice to the interests of the United States within the meaning
of Article 5(c) of the SCM Agreement.1059
5.418. The European Union appeals the Panel's findings with respect to both "threshold" issues,
alleging that the Panel failed to take into account the existence of subsidization of United States
LCA products1060, and erred in its identification of the relevant product markets for purpos es of its
adverse effects analysis .1061 The European Union also alleges that the Panel erred in reaching its
findings on: (i) the "product effects" of the pre -A350XWB LA/MSF subsidies on the A320, A330,
and A3801062; (ii) the "product effects" of the LA/MSF subsidies for the A380 and A350XWB on the
A350XWB1063; and (iii) the causal link between the relevant subsidies , on the one hand, and lost
sales and "displacement and/or impedance" in specific country and product markets , on the other
hand.1064 We address these allegations of error in turn.
5.6.1 Non-subsidized like product
5.419. We turn next to examine the European Union's appeal regarding the relevance of the term
"non-subsidized like product" in Article 6.4 of the SCM Agreement for purposes of assessing claims
of serious prejudice brought under Article 6.3(b) of th e SCM Agreement. According to the
European Union, the Panel erred in finding that: (i) there was no "new matter " before it1065;
and (ii) there were, in any event, no "cogent reasons" for the Panel to depart from the findings
made by the original panel regarding the relationship between Article 6.3(b) and Article 6.4 of the
SCM Agreement.1066 Moreover, the European Union submits that the Panel failed to make an
objective assessment of the matter before it, contrary to its duty under Article 11 of the DSU.1067
5.420. Before the Panel , the European Union advanced two main lines of argumentation in this
regard. First, the European Union argued that the SCM Agreement establishes a remedy under
Article 6.3(b) only in s ituations where the complaining Member has demonstrated that its like
product is non -subsidized. According to the European Union, the United States was therefore
required to establish that Boeing LCA (the like product at issue) were "non-subsidized" in order to
make out its claims of serious prejudice under this provision.1068 The European Union referred to
this as its "clean hands" argument. 1069 In addition, the European Union claimed that subsidization
of the like product had, "in any event, to be taken into account in the assessment of causation,
in an appropriately balanced way, guided by the Appellate Body's intervening clarifications of the
relationship between Articles 6.3(b) and Article 6.4".1070 The European Union referred to th is
second argument as its "causation " argument1071, explaining on appeal that this was its main

1059 Panel Report, para. 7.1.d.xv. In light of these findings, the Panel made "no determination of the
United States' claim of threat of displacement and impedance in the market for single-aisle LCA in the
European Union, given that the United States requested the Panel to consider this claim only if {it} rejected its
claims of present serious prejudice". (Ibid., para. 6.1818 (emphasis original; fn omitted). See also
para. 7.1.d.xix)
1060 European Union's appellant's submission, paras. 641-750.
1061 European Union's appellant's submission, paras. 533-640.
1062 European Union's appellant's submission, paras. 832-884.
1063 European Union's appellant's submission, paras. 885-913.
1064 European Union's appellant's submission, paras. 914-958 and 966-1056.
1065 European Union's appellant's submission, paras. 700 and 717.
1066 European Union's appellant's submission, para. 724.
1067 European Union's appellant's submission, para. 724.
1068 Panel Report, para. 6.114.
1069 European Union's appellant's submission, para. 645.
1070 European Union's appellant's submission, para. 714. (emphasis and fn omitted) See also
European Union's second written submission to the Panel, paras. 706-727.
1071 European Union's appellant's submission, para. 645.

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argument1072 regarding the relevance of Article 6.4 in this dispute. According to the
European Union, the Panel erred in declining to rule on these arguments based on its view that the
"matter" had been decided by the original panel and there were no "cogent reasons" to "re -open"
the matter and decide otherwise.1073
5.421. We begin by providing a brief summary of the relevant findings in the original
proceedings, before we turn to the parties' arguments before the Panel and the Panel's findings in
these compliance proceedings. Thereafter, we set out the arguments raised by the participants on
appeal, beginning by reviewing the approach that the Panel took to the questions raised by the
European Union.
5.6.1.1 Findings in the original proceedings
5.422. Before the original panel, the European Communities had claimed that displacement or
impedance under "Article 6.3(b) can be demonstrated only if the complaining Member does not
provide a subsidy within the meaning of Article 1 of the SCM Agreement in respect of the like
product exported" .1074 The original panel considered that the European Communities' argument
relied upon the assumption that Article 6.4 of the SCM Agreement sets out an "exclusive
mechanism for demonstrating displacement or impedance of exports to a third country market
under Article 6.3(b)".1075 It therefore proceeded to examine whether this was the case,
or whether, to the contrary, displacement and impedance under Article 6.3(b) could be
demonstrated without reference to Article 6.4.
5.423. Recalling the panel's finding in Indonesia – Autos1076, the original panel found that
"Article 6.4 describes a particular situation " where "the like product of the complaining Member is
not subsid ized" and where an increase in the market share of the subsidized product would
"suffice{} to make a prima facie case of displacement or impedance under Article 6.3(b)".1077
However, the original panel noted that , while the United States had made a claim unde r
Article 6.3(b) of the SCM Agreement, t o which Article 6.4 of that Agreement refers, it did
"not purport to rely on the special rule set out in Article 6.4, but rather, assert{ed} that it ha{d}
demonstrated that displacement or impedance of its exports {in} third country markets {was} the
effect of the subsidies in dispute." 1078 The original panel considered that its reading of Article 6.4
led "to the conclusion that if the circumstances set out in Article 6.4 are satisfied, a further
assessment of whether the changes in market share {were} 'the effect of the subsidy' {was} not
necessary."1079
5.424. Having made these observations, the original panel found nothing in Article 6.4 to "suggest
that the analysis set out t herein is the exclusive means of demonstrating displacement or
impedance of exports for purposes of Article 6.3(b)".1080 The original panel considered that the use
of the phrase "shall include" indicated that there may be other circumstances, not set out in
Article 6.4, in which a Member could demonstrate displacement or impedance for purposes of
Article 6.3(b). The original panel added that , "{r}ather than limiting the circumstances in which

1072 European Union's response to questioning at the oral hearing.
1073 European Union's appellant's submission, paras. 686-698.
1074 Original Panel Report, para. 7.1762. (emphasis omitted)
1075 Original Panel Report, para. 7.1766.
1076 The panel in Indonesia – Autos found:
If the type of analysis set forth in Article 6.4 is appropriate in this case, then the complainants
arguably could make a prima facie case of displacement or impedance simply by demonstrating
that the market share of a subsidized product has increased over an appropriately representative
period. If, on the other hand, the type of analysis set forth in Article 6.4 is not appropriate in this
case, then the complainants must demonstrate that "the effect of the subsidy" is to displace or
impede imports into Indonesia, that is, that they have lost export sales to Indonesia that they
would otherwise have made and that those export sales were lost as a result of the subsidies
provided pursuant to the National Car programme.
(Panel Report, Indonesia – Autos, para. 14.209 (emphasis original)). (See also Original Panel Report,
para. 7.1767.)
1077 Original Panel Report, para. 7.1767.
1078 Original Panel Report, para. 7.1768. (emphasis added)
1079 Original Panel Report, para. 7.1769.
1080 Original Panel Report, para. 7.1769.

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Article 6.3(b) may be satisfied", Article 6.4 simply "set{s} out add itional guidance for the
application of Article 6.3(b) in certain particular circumstances".1081
5.425. Based on this reasoning, t he original panel rejected the European Communities' view that
"Article 6.4 {was} the exclusive basis for a finding of displacement or impedance under
Article 6.3(b)".1082 In so doing, the original panel emphasized that the interpretation suggested by
the European Communities would mean that the SCM Agreement "establishes a remedy for
displacement or impedance of exports in third country mar kets only in situations where the
complaining Member's product is demonstrated to be unsubsidized ".1083 The original panel
characterized this as "a sort of 'clean hands' requirement for complaining Members as a
prerequisite to a claim under Article 6.3(b)".1084
5.426. The original panel found support for its view in the negotiating history of Article 6 of the
SCM Agreement. In particular, it considered that its reading of Article 6.3:
fit{s} with the overall architecture of Article 6 as originally negotiated and adopted,
with different burdens for establishing serious prejudice, ranging from "deemed"
serious prejudice in the case of certain subsidies under Article 6.1, to a lesser burden
for complaining Members with "clean hands", i.e., an unsubsidized competing product,
to the requirement to prove that the market effects of displacement or impedance are
the effect of the subsidies.1085
5.427. Neither party appealed these findings, and the original panel report as modified by the
Appellate Body report in relation to other matters , was adopted by the DSB. Thus, the
Appellate Body did not have the occasion to review the original panel's findings in this respect.
However, while completing – at least to some extent – the legal analysis of the United States'
claims of displacement under Articles 6.3(a) and 6.3(b) of the SCM Agreement, the Appellate Body
made certain statements regarding Article 6.3 and Article 6.4. The Appellate Body found that,
while displacement under Article 6.3(a) arises "where imports of a like product of the complaining
Member are declining in the market of the subsidizing Member, and are being substitu ted by the
subsidized product", under Article 6.3(b), displacement occurs " where exports {of} the
like product of the complaining Member are declining in the third country market concerned, and
are being substituted by exports of the subsidized product ".1086 With regard to Article 6.4,
the Appellate Body noted that, under this provision, the change in relative market shares shall be
demonstrated "over an appropriately representative period sufficient to demonstrate clear trends
in the development of the market for the product concerned".1087
5.6.1.2 Arguments before the Panel and Panel findings in the compliance proceedings
5.428. Before the Panel, the European Union argued that, in order for the United States to make
out its claims of displacement or impedance of exports within the meaning of Article 6.3(b) of the
SCM Agreement, "the United States {had to} demonstrate, by virtue of Article 6.4, that {it s}
product being allegedly displaced o r impeded in any relevant third country market {was} a
'non-subsidized like product'." 1088 The European Union submitted that "the fact that there {was}
now a multilateral determination {in US – Large Civil Aircraft (2 nd complaint)} that the
United States' 'like products' {were} subsidized mean{t} that the relevant factual circumstances
ha{d} changed" such that "there {was} now a new 'matter' before the compliance Panel that
{had to} be resolved". 1089 Additionally, the Europea n Union argued that given the context of

1081 Original Panel Report, para. 7.1769.
1082 Original Panel Report, para. 7.1770.
1083 Original Panel Report, para. 7.1770. (emphasis omitted)
1084 Original Panel Report, para. 7.1770. (emphasis added)
1085 Original Panel Report, para. 7.1771.
1086 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1170.
(emphasis added)
1087 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1166.
(fn omitted)
1088 Panel Report, para. 6.1114.
1089 Panel Report, para. 6.1115 (referring to European Union's second written submission to the Panel,
paras. 708-712).

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Article 6.4, "the existence of such subsidisation" was something that the Panel had to take into
account in its assessment of causation and non -attribution.1090 The European Union alleged that
there were, in any event, "cogent reasons" to review the original panel's interpretation of the
relationship between Article 6.3(b) and Article 6.4 of the SCM Agreement.1091
5.429. In response, the United States submitted that "the 'non-subsidized like product' arguments
… in this compliance dispute were already addressed and rejected in the unappealed findings from
the original proceeding that were adopted by the DSB", which "impl{ied} that the European Union
{was} not entitled to reopen the matter".1092 According to the United States, the European Union's
submission that there was a new "matter" before the Panel "in th e light of the alleged
'changed facts' {was} premised on a mischaracterization of the original panel's findings" .1093
The United States submitted that "the original panel's rejec tion of the European Communities'
arguments regarding the relationship between Articles 6.3(b) and 6.4 was based on a legal
interpretation, rendering the factual question of the subsidization of the United States' like
products 'irrelevant in this case'." 1094 Furthermore, the United States disagreed with the
European Union's contention that there were "cogent reasons" for the Panel to review the original
panel's findings.1095
5.430. The Panel began its analysis by noting that, in the orig inal proceedings,
"the European Communities {had} advanced essentially the same line of argument" it now
advanced in these compliance proceedings to support its proposition that the United States' claims
under Article 6.3(b) should be rejected .1096 The Panel recalled the original panel's fi nding that
"the 'non-subsidized like product' language appearing in Article 6.4 … 'may well require that a
complaining Member demonstrate, in the circumstances of that provis ion, that its like product …
is not subsidized'."1097 However, the Panel noted that t he original panel had proceeded to examine
"another question, namely, 'whether Article 6.4 {was} the neces sary or exclusive mechanism
for demonstrating displacement or impedance of exports … under Article 6.3(b),
or whether … displacement and impedance und er Article 6.3(b) {could} be demonstrated without
reference to Article 6.4'."1098 The Panel considered that the ori ginal panel's finding that
"the language of Article 6.4 did not prescribe the exclusive means through which a complaining
Member could demonstra te displacement or impedance for the purpose of Article 6.3(b) was
sufficient to dispose of the European Communities' argument." 1099 The Panel further noted that
"{t}he European Union did not appeal the original panel's findings on this point; and the {original}
panel report, as modified by the Appellate Body in relation to ot her matters, was adopted by
the DSB."1100
5.431. The Panel understood the European Union to now request that it "rule on what is
essentially the same legal question that was resolved in the original proceeding and/or review and
modify the original panel's legal findings. "1101 The Panel first considered the European Union's
argument that "new factual circumstances mean{t} that there {was} a new 'matter' before the …
Panel" and, therefore, that t he Panel was "not precluded from addressing the European Union's
arguments concerning the interpretation of Articles 6.3(b) and 6.4".1102 The Panel found, however,
that the original panel's interpretation of the relationship between Article 6.3(b) and Article 6.4
had "decided the matter"1103, and considered that "the extent to which Boeing LCA were subsidized

1090 European Union's appellant's submission, para. 645. See also Panel Report, para. 6.1116.
1091 Panel Report, para. 6.1115.
1092 Panel Report, para. 6.1121 (referring to United States' second written submission to the Panel,
paras. 404-406, 409-410, and 412).
1093 Panel Report, para. 6.1122.
1094 Panel Report, para. 6.1122 (quoting United States' second written submission to the Panel,
paras. 413-415 (emphasis and fn omitted by the Panel)).
1095 Panel Report, para. 6.1122.
1096 Panel Report, para. 6.1126.
1099 Panel Report, para. 6.1130.
1100 Panel Report, para. 6.1131.
1101 Panel Report, para. 6.1131.
1102 Panel Report, para. 6.1132 (referring to European Union's second written submission to the Panel,
paras. 709-710).
1103 Panel Report, para. 6.1135.

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played no role at all in the original panel's legal analysis ".1104 For the Panel, the adopted
recommendations and rulings in US – Large Civil Aircraft (2 nd complaint) in relation to
"the subsidization of Boeing LCA" therefore did not mean there was "now a new 'matter'" before
the Panel "as regards the European Union's reliance on Article 6.4 to reject the United States'
claims made under Article 6.3(b)".1105
5.432. The Pa nel next turned to address the European Union's argument that " there {were}
'cogent reasons' for the … Panel to review the original panel's interpretation of the relationship
between Articles 6.3(b) and 6.4 " of the SCM Agreement.1106 The Panel began by noting that
"the concept of 'cogent reasons' has generally been raised in cases where panels have departed or
been asked to depart from previous adopted Appellate Body findings in different disputes. "1107
The Panel recalled the findings in US – Countervailing and Anti-Dumping Measures (China) where
the panel had indicated the types of considerations that could, in appropriate cases, justify a panel
adopting a different interpretation. 1108 Referring to the Appellate Body report in US – Stainless
Steel (Mexico), the Panel expressed the view that "a compliance panel would be committing a legal
error" if it were to review and reconsider the merits of a legal interpretation developed by the
panel serving in the original proceedings of the same dispu te, when "that legal interpretation was
left unappealed and ultimately the subject of recommendations and rulings adopted by the
DSB".1109 Thus, the Panel concluded that it was not convinced that "the European Union {was}
entitled to reopen the original panel 's findings with respect to its arguments concerning the
relevance of Article 6.4 … to the United States' claims under Article 6.3(b)."1110 In any event, the
Panel found that, " even if it were legally permissible for a compliance panel to review a legal
interpretation developed by an original panel that was unappealed and adopted by the DSB in the
same dispute" 1111, the explanations provided by the European Union did "not amount to
'cogent reasons'".1112 On this basis, the Panel dismissed the European Union's request to reject the
United States' claim under Article 6.3(b) of the SCM Agreement in light of the adopted
recommendations and rulings in US – Large Civil Aircraft (2 nd complaint) regarding the
subsidization of Boeing LCA.1113

1104 Panel Report, para. 6.1136.
1105 Panel Report, para. 6.1138.
1106 Panel Report, para. 6.1139 (referring to European Union's first written submission to the Panel,
para. 657; second written submission to the Panel, paras. 713 and 727).
1107 Panel Report, para. 6.1140 (referring to Appellate Body Reports, US – Stainless Steel (Mexico),
paras. 160-162; US – Continued Zeroing, para. 362; Panel Reports, China – Rare Earths, paras. 7.55-7.61;
US – Countervailing and Anti-Dumping Measures (China), paras. 7.315-7.317). (emphasis original)
1108 Panel Report, para. 6.1143 (quoting Panel Report, US – Countervailing and Anti-Dumping Measures
(China), paras. 7.315-7.317). In US – Countervailing and Anti-Dumping Measures (China), the panel noted
that, although the Appellate Body has not defined the concept of "cogent reasons", its reference to "cogent
reasons" must be considered in the context of its other statements regarding the hierarchy provided for in the
DSU between itself and panels, the objectives that are served through the development of a consistent,
coherent and predictable body of jurisprudence, and the concerns that it has expressed when panels have
departed from its prior jurisprudence. (Panel Report, US – Countervailing and Anti-Dumping Measures (China),
To our minds, "cogent" reasons, i.e. reasons that could in appropriate cases justify a panel in
adopting a different interpretation, would encompass, inter alia: (i) a multilateral interpretation
of a provision of the covered agreements under Article IX:2 of the WTO Agreement that departs
from a prior Appellate Body interpretation; (ii) a demonstration that a prior Appellate Body
interpretation proved to be unworkable in a particular set of circumstances falling within the
scope of the relevant obligation at issue; (iii) a demonstration that the Appellate Body's prior
interpretation leads to a conflict with another provision of a covered agreement that was not
raised before the Appellate Body; or (iv) a demonstration that the Appellate Body's interpretation
was based on a factually incorrect premise.
(Panel Report, US – Countervailing and Anti-Dumping Measures (China), para. 7.317)
1109 Panel Report, para. 6.1142 (referring to Appellate Body Report, US – Stainless Steel (Mexico),
1110 Panel Report, para. 6.1143.
1111 Panel Report, para. 6.1143.
1112 Panel Report, para. 6.1143.
1113 Panel Report, para. 6.1154.

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5.6.1.3 Claims and arguments on appeal
5.433. As noted, t he European Union argued before the Panel that in dealing with the
United States' claim under Article 6.3(b) of the SCM Agreement, the Panel was required to take
into account the context of Article 6.4, including, particularly, the phrase "non-subsidized like
product", when assessing the United States' assertions on the issue of causation. 1114 On appeal,
the European Union emphasizes that it had argued not only that "any subsidisation of the like
product would preclude or defeat a claim under Article 6.3(b) (the original 'clean hands'
argument)", but also that "the existence of such subsidisation was something that the … Panel had
to take into account, in any event, in its assessment of causation and non -attribution under
Article 6.3(b) (the 'causation' argument)".1115 The European Union added that "there was now, for
the first time, an express multilateral determination in { US – Large Civil Aircraft (2 nd complaint)}
to the effect that the like products referred to by the United States (Boeing LCA) are
subsidised".1116 For the European Union, the Panel's finding that "there was no new matter before
it"1117 is erroneous because "{a} 'matter' necessarily consists of the treaty terms identified by the
parties as framing the obligation alleged to have been breached (duly clarified), as well as the
particular facts identified by both the complainant and the defendant. "1118 The European Union
therefore faults the Panel for disregarding "the fact that, as between the original proceedings and
the compliance proceedings, the interpretative propositions advanced … and the facts referenced
by the European Union when referring to Article 6.4 have changed."1119
5.434. The European Union further submits that the United States brought a claim under
Article 6.3(b) in respo nse to which "the European Union referred to Article 6.4, and also made
certain factual assertions and adduced certain evidence in support of its position ."1120 According to
the European Union, "this constituted the matter that the compliance Panel was oblige d to
objectively assess ."1121 Thus, the European Union submits that it was not asking the Panel to
"reopen" the findings in the original proceedings , but "simply asking" it "to clarify the relevant
legal provisions, taking into account the intervening guidanc e prov ided by the Appellate Body,
and apply them to the arguments and fact pattern arising in these compliance proceedings".1122
5.435. Referring to Article 11 of the DSU, t he European Union also claims that the Panel 's
treatment of the arguments raised by the Euro pean Union reveals "a lack of even -handedness on
the part of the Panel". 1123 The European Union refers to a series of alleged " qualifications,
omissions and misstatements", and maintains that the Panel sought to shield from "review an
interpretation of Articles 6.3(b) and 6.4 {by the original panel} that is clearly incorrect". 1124
In particular, the European Union alleges that the Panel denied "the European Union its day in
court on this mat ter"; and wrongly suggested that the European Union was "precluded" from
challenging a prior "adopted" interpretation "whilst at the same time re -writing that very same
interpretation by retroactively eliminating key elements of the reasoning" .1125 The European Union
also identifies several "additional elements" that it claims, "taken together or in any combination ",
demonstrate a breach of Article 11 of the DSU.1126
5.436. For its part, t he United States recalls that the original panel framed the relevant question
before it as "whether Article 6.4 {was} the necessary or exclusive mechanism for demonstrating
displacement or impedance of exports to a third country market under Article 6.3(b), or whether,
to the contrary, displacement and impedance under Article 6.3(b) {could} be demonstrated
without reference to Article 6.4."1127 According to the United States, this "was a legal question for

1114 See European Union's appellant's submission, para. 701.
1115 European Union's appellant's submission, para. 645. (emphasis omitted)
1116 European Union's appellant's submission, para. 703.
1117 European Union's appellant's submission, para. 705 (referring to Panel Report, para. 6.1138).
1118 European Union's appellant's submission, para. 710. (emphasis omitted)
1119 European Union's appellant's submission, para. 712.
1120 European Union's appellant's submission, para. 726.
1121 European Union's appellant's submission, para. 726.
1122 European Union's appellant's submission, para. 746.
1123 European Union's appellant's submission, para. 718.
1124 European Union's appellant's submission, para. 718.
1125 European Union's appellant's submission, para. 718.
1126 European Union's appellant's submission, paras. 718 and 749.
1127 United States' appellee's submission, para. 371 (quoting Original Panel Report, para. 7.1766).

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which the existence (or not) of subsidization to Boeing large civil aircraft was irre levant"1128,
and the Panel "was correct in concluding that subsidization of Boeing large civil aircraft did not
play a role in the original panel's unappealed and DSB -adopted legal interpretation of
Article 6.4."1129 Referring to the Appellate Body reports in the original proceedings in this dispute
and in US ‒ Large Civil Aircraft (2nd complaint), t he United States adds that, while the
Appellate Body has found that the phrase in Article 6.4 "over an appropriately rep resentative
period sufficient to demonstrate clear trends in the development of the market for the product
concerned" provides relevant context in interpreting Article 6.3(b)1130, it has not "found that claims
under Article 6.3(b) must in all cases also satis fy every provision in Article 6.4".1131
The United States adds that "Article 6.4 does not describe the exclusive basis on which a claim
under Article 6.3(b) may be demonstrated "1132, and that, " even if relevant intervening
Appellate Body statements in another di spute were to exist, it is not at all clear that such
statements would allow a compliance panel to deviate from previously adopted DSB findings."1133
5.437. Regarding the European Union's claims under Article 11 of the DSU , t he United States
submits that the Panel "did a careful and thoughtful job reviewing the issues before it" and that
"it is evident that the { European Union's} submission does not challenge a lack of objectivity in
the Panel's assessment of the facts, but the correctness of the Panel's legal analysis that it {was}
precluded from reviewing the original panel's interpretation of Article 6.4."1134 According to the
United States, "if the Appellate Body decides not to entertain the { European Union's} submission
in resp ect of the ori ginal panel's DSB -adopted legal interpretation of Article 6.4,
the {European Union's} Article 11 claims would merit similar treatment. "1135 In any event,
the United States asserts that the European Union has not identified any "specific errors that are
so mat erial that, 'taken together or singly ', they undermine the objectivity of the {P}anel's
assessment of the matter before it."1136
5.438. Having summarized the original panel's and the Panel's analysis, as well as the arguments
on appeal, we turn to address the issues raised by the European Union.
5.6.1.4 Whether the Panel erred in declining to address the arguments raised by the
European Union
5.439. As noted above, the European Union argued before the Panel that: (i) the SCM Agreement
establishes a remedy for displacement or impe dance of exports in third country markets under
Article 6.3(b) only in situations where the complaining Member has demonstrated that its like
product is non-subsidized; and (ii) subsidization of the like product must, in any event, be taken
into account in the assessment of causation. In so doing, the European Union expressed concern
with, in particular: (i) the original panel's description of Article 6.4 of the SCM Agreement as a
"special rule"; (ii) its conclusions, drawn from the "shall include" language in the first sentence of
Article 6.4, regarding the relationship between Article 6.3(b) and Article 6.4; (iii) its reference to
preparatory work; and (iv) its view on how its interpretation fit with the overall architecture of
Article 6 of the SCM Agreement.1137
5.440. Based on its review of the European Union's arguments, t he Panel considered the
European Union to have articulated "reasons" as to why it " disagree{d} with the original panel's
findings concerning the relationship between the relevant provisions and certain 'other related
matters referenced' in the {original} panel report".1138 The Panel added that "the European Union's

1128 United States' appellee's submission, para. 371. (emphasis original)
1129 United States' appellee's submission, para. 372.
1130 United States' appellee's submission, para. 395.
1131 United States' appellee's submission, para. 379. (emphasis original)
1132 United States' appellee's submission, para. 381.
1133 United States' appellee's submission, para. 382. (emphasis original)
1134 United States' appellee's submission, para. 399.
1135 United States' appellee's submission, para. 399.
1136 United States' appellee's submission, para. 400 (quoting Appellate Body Report, Peru ‒ Agricultural
Products, para. 5.66, in turn quoting Appellate Body Reports, EC and certain member States – Large Civil
Aircraft, para. 1318; US – Anti-Dumping and Countervailing Duties (China), para. 337 (fns omitted by
the United States)).
1137 Panel Report, para. 6.1152.

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submissions appear{ed} to be arguments that a party might raise in an appeal of a legal
interpretation before the Appellate Body".1139 As detailed above, t he Panel considered, however,
that the original panel's interpretation of the relationship between Article 6.3(b) and Article 6.4
had "decided the matter"1140, and it therefore declined to "reopen the original panel's findings with
respect to {the European Union's} arguments concerning the relevance of Article 6.4 … to the
United States' claims under Article 6.3(b)".1141 For the Panel , th ere were no "cogent reasons"
to do so.1142
5.441. We recall that the United States claimed before the Panel that Boeing continued to
experience displacement and/or impedance of its exports to cer tain third country markets,
and adduced evidence in support of its claim under Article 6.3(b). For its part, the European Union
sought to rebut the United States' claim by referring to Article 6.4 and to interpretative guidance
provided by the Appellate Body i n the original proceedings in this dispute and in US ‒ Large Civil
Aircraft (2nd complaint) regarding the meaning of Article 6.3(b) and the contextual relevance of
Article 6.4.1143 The European Union also referred to the recommendations and rulings of the DSB in
US – Large Civil Aircraft (2nd complaint) establishing that Boeing LCA were subsidized, arguing that
they should be taken into account in assessing the United States' claims under Article 6.3(b).1144
5.442. As we see it, the Panel was under a duty, pursuant to Article 11 of the DSU, to adjudicate
the claims brought by the United States in these compliance proceedings in light of the evidence
and arguments put forward by the European Union and the relevant WTO jurisprudence. In order
to do so, the Panel was required to examine the meaning of Article 6.3(b) of the SCM Agreement,
including the relationship between this provision and Article 6.4, as clarified by the Appellate Body
in the original proceedings in this dispute and in US ‒ Large Civil Aircraft (2 nd complaint). It was
also appropriate for the Panel to take into account the findings and reasoning by the original panel
regarding the meaning of Article 6.4. We note, as did the Pane l, that an "unappealed finding
included in a panel report that is adopted by the DSB must be treated as a final resolution to a
dispute between the parties in respect of the particular claim and the specific component of a
measure that is the subject of that claim."1145
5.443. That said, we note that the European Union put forward new arguments and evidence
regarding the relevance of alleged subsidization of the like product to rebut new claims brought by
the United States under Article 6.3(b) with respect to the post -implementation period , which is
different from the reference period covered in the original proceedings . In doing s o,
the European Union relied upon the contextual guidance regarding t he relationship betw een
Article 6.3(b) and Article 6.4 provided by the Appellate Body in the original proceedings in this
dispute1146 and in US ‒ Large Civil Aircraft (2nd complaint). In these circumstances, the Panel could
not simply refuse to address the arguments and evidenc e before it in dealing with
the United States' claims under Article 6.3(b); rather, the Panel was required to adjudicate the
United States' claims under Article 6.3(b) in light of the arguments raised and evidence submitted
by both parties to the dispute. 1147 By refusing to give full consideration to the specific facts and
circumstances of the present case and to the legal arguments raised by the parties to the dispute,
the Panel breached its duties under Article 11 of the DSU. Accordingly, we declare moot and of

1139 Panel Report, para. 6.1153.
1140 Panel Report, para. 6.1135.
1141 Panel Report, para. 6.1143.
1142 Panel Report, para. 6.1143.
1143 European Union's appellant's submission, paras. 727-728.
1144 European Union's appellant's submission, paras. 645 and 703.
1145 Panel Report, para. 6.1140 (quoting Appellate Body Report, EC – Bed Linen (Article 21.5 – India),
para. 93 (emphasis original)).
1146 We note in this respect that findings contained in the original panel report on the issue of
"non-subsidized like product" were adopted by the DSB together with the guidance contained in the
Appellate Body report in the same original proceedings regarding the relationship between Article 6.3(b) and
Article 6.4 of the SCM Agreement.
1147 We recall that, having noted that Article 11 of the DSU provides that a panel "should make an
objective assessment of the matter before it, including an objective assessment of the facts of the case and the
applicability of and conformity with the relevant covered agreements", the Appellate Body explained that
"{t}he 'matter' is constituted by both the facts of the case (and, in particular, the specific measures at issue)
as well as the legal claims raised". (Appellate Body Report, Dominican Republic – Import and Sale of
Cigarettes, para. 105 (referring to Appellate Body Report, Guatemala – Cement I, para. 73))

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no legal effect the Panel's finding , in paragraph 6.1154 of the Panel Report , concerning the
European Union's reliance on Article 6.4 to reject the United States' claims under Article 6.3(b) of
the SCM Agreement . Having reached this conclusion, we see no need to make additional findings
regarding whether the Panel also erred in finding that there were no " cogent reasons" to depart
from the original panel's findings, or whether the Panel acted inconsistently with Article 11 of the
DSU on other grounds, as claimed by the European Union. We fail to see how such additional
findings would assist in securing a "positive solution" to the dispute or a "satisfactory settlement of
the matter".
5.444. We therefore proceed to address the European Union's arguments regardin g the
relationship between Article 6.3(b) and Article 6.4 of the SCM Agreement.1148
5.6.1.4.1 The relationship between Article 6.3(b) and Article 6.4 of the SCM Agreement
5.445. As we understand it, the issues raised by the Europea n Union on appeal relate to
two fundamental questions: (i) what is the role of Article 6.4 of the SCM Agreement for the
purposes of serious prejudice claims asserted under Article 6.3(b) of the SCM Agreement,
including whether Article 6.4 can be considered as providing an exclusive pathway for
demonstrating displacement or impedance of exports in a third country market for purposes of
Article 6.3(b) and (ii) to what extent, if any, should the subsidization of the like product be taken
into account in an adverse effects analysis under Article 6.3(b)?
5.446. Starting with the text of the relevant provisions, we note that Article 6.3(b) provides that
serious prejudice within the meaning of Article 5(c) of the SC M Agreement may arise when
"the effect of the subsidy is to displace or impede the exports of a like product of another Member
from a third country market". Article 6.3(b) thus speaks to the question of whether there is a
"causal relationship" between the challenged subsidy and its effects. Article 6.4, in turn, speaks
more directly to the relevant market phenomenon caused by the subsidy, that is,
"the displacement or impeding of exports". The first sentence of Article 6.4 describes the link
between Article 6.3(b) and Article 6.4 in the following terms:
For the purpose of paragraph 3(b), the displacement o r impeding of exports shall
include any case in which, subject to the provisions of paragraph 7, it has been
demonstrated that there has been a change in relative shares of the market to the
disadvantage of the non-subsidized like product (over an appropri ately representative
period sufficient to demonstrate clear trends in the development of the market for the
product concerned, which, in normal circumstances, shall be at least one year).1149
5.447. The use of the words "shall include any case" in Article 6.4 indicates that there may be
cases, other than those set out in Article 6.4, in which a Member could demonstrate the
"displacement or impeding of exports" for purposes of Article 6.3(b). Article 6.4 therefore does not
set out an exclusive way to demonstrate displacement or imped ance of exports in a third country
market.1150 At the same time, Article 6.4 provides guidance as to the meaning of the terms
"displacement" and "impedance", indicating that these phenomena can be found to exist where
"it has been demonstrated that there has been a change in relative shares of the market to the
disadvantage of the non-subsidized like product." The second sentence of Article 6.4 indicates that
such a "{c}hange in relative shares of t he market" can be found to exist where: (a) "there is an
increase in the market share of the subsidized product"; (b) "the market share of the subsidized
product remains constant in circumstances in which, in the absence of the subsidy, it would have
declined"; and (c) "the market share of the subsidized product declines, but at a slower rate than
would have been the case in the absence of the subsidy."
5.448. We do not read Article 6.4 as dispensing with the requirement to assess causation –
i.e. whether any change in relative shares of the market to the disadvantage of the non-subsidized
like product is the "effect of the subsidy" in question. Given that Article 6.4 contemplates a finding

1148 See European Union's appellant's submission, paras. 720-723.
1149 Emphasis added.
1150 In contrast, Article 6.7 of the SCM Agreement describes circumstances in which displacement or
impedance under Article 6.3 of that Agreement shall not be found to exist.

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of "the displacement or impeding of exports" to be made "{f}or the purpose of" Article 6.3(b),
it would appear that the required nexus between the subsidy and the relevant effects must be
demonstrated on the basis of an evaluation of whether the former amounts to a genuine and
substantial cause of the latter. Thus, rather than i ndicating that a complainant would not be
required to demonstrate a "causal link" between the subsidy and its effects to the extent that it
has shown that its like product is not subsidized, as the original panel appears to have
suggested1151, Article 6.4 provides guidance as to how displacement or impedance of exports can
be demonstrated to exist in particular cases or situations.
5.449. Looking to the context of Article 6.3(b), we note that there is no corresponding provision
similar to Article 6.4 that would e lucidate on how displacement and/or impedance can be
demonstrated with respect to "imports of a like product of another Member into the market of the
subsidizing Member" within the meaning of Article 6.3(a). We understand the European Union to
argue that, where a complainant raises claims under both Article 6.3(a) and Article 6.3(b), it would
be required to demonstrate that its like product is non -subsidized for the purposes of any claim it
brings under Article 6.3(b), but not for purposes of its claims und er Article 6.3(a). We find it
difficult to see a basis for this distinction given that Article 6.3(a) and Article 6.3(b) both speak to
displacement and/or impedance, albeit in different g eographic markets . Indeed, as the
Appellate Body found in US – Large Civil Aircraft (2nd complaint), Article 6.4 "applies to both
phenomena referred to in Article 6.3(a) and (b)" and requires simply that, "as with displacement,
a finding of impedance should be supported by evidence of changes in the relative market share in
favour of the subsidized product, over a sufficiently representative period, to demonstrate
'clear trends' in the development of the market concerned."1152
5.450. Moreover, we note that Article 6.3(c) establishes that serious prejudice within the meaning
of Article 5(c) of the SCM Agreement may arise in case s where the effect of the subsidy is
"a significant price undercutting by the subsidized prod uct as compared with the price of a like
product of another Member in the same market". In addition, Article 6.5 of the SCM Agreement
states:
For the purpose of paragraph 3(c), price undercutting shall include any case in which
such price undercutting has been demonstrated through a comparison of prices of the
subsidized product with prices of a non-subsidized like product supplied to the same
market. The comparison shall be made at the same level of trade and at comparable
times, due account being taken of any other factor affecting price comparability.
However, if such a direct comparison is not possible, the existence of price
undercutting may be demonstrated on the basis of export unit values.1153
5.451. Article 6.5 therefore clarifies that price undercutting with in the meaning of Article 6.3(c)
"shall include" any case in which such price undercutting has been demonstrated through a
comparison of prices of the subsidized product with prices of a " non-subsidized like product"
supplied to the same market . We view the relationship between Article 6.3(c) and Article 6.5 as
similar to that between Article 6.3(b) and Article 6.4, in the sense that Article 6.3(c) speaks
broadly to the question of whether a "causal relationship" exists between the challenged sub sidy
and the relevant price effects, while Article 6.5 speaks to one of the relevant market phenomen a
mentioned in Article 6.3(c), that is, " significant price undercutting ", and how it can be found to
exist by comparing certain prices. Rather than indicating that a complainant would not be required
to demonstrate a "causal link" between the subsidy and the undercutting of prices of a
"non-subsidized like product", Article 6.5 provides guidance as to which prices to compare to
determine whether undercutting occurs. We do not find support in Article 6.5 for the proposition
that a complainant would be required in each case to demonstrate that its like product is
non-subsidized in the context of claims brought under Article 6.3(c).
5.452. The European Union submits that "the language of Article 6.4 must be taken into account
in any circumstances when Article 6.3(b) is applied ."1154 In the original proceedings ,

1151 See Original Panel Report, paras. 7.1769 and 7.1771.
1152 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1086.
1153 Emphasis added.
1154 European Union's appellant's submission, para. 644. (emphasis original)

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the Appellate Body noted that Article 6.4 "provides that the change in relative market shares shall
be demonstrated 'over an appropriately representative period sufficient to demonstrate clear
trends in the development of the market for the product concerned'." 1155 Moreover, referring to its
findings in the original proceedings in this dispute , the Appellate Body stated in US – Large Civil
Aircraft (2nd complaint) 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' because consideration of
developments over a longer period 'provides a more robust basis for a serious prejudice
evaluation'."1156 The Appellate Body added that Article 6.4 "applies to both phenomena referred to
in Article 6.3(a) and (b)"1157, and requires , as with displacement, that a finding of impedance
"be supported by evidence of changes in the relative market share in favour of the subsidized
product, over a sufficiently representative period, to demonstrate 'clear trends' in the development
of the market concerned." 1158 While we agree with the European Union that Article 6.4 is context
for a proper interpretation of Article 6.3(b), we do not consider that it follows from this that a
complainant is required in each case to demonstrate that its like product is non-subsidized to
establish the existence of displacement or impedance under Article 6.3(b). Nor do we find support
for such a proposition in the Appellate Body reports in the original proceedings in this dispute or
in US ‒ Large Civil Aircraft (2 nd complaint). As noted earlier, Article 6.4, and in particular its
reference to "non-subsidized like product", does not set out an exclusive pathway to demonstrate
displacement or impedance of exports in a third country market.
5.453. The European Union also maintains, in the alternative, that the existence of subsidization
of the like product (Boeing LCA) "was something that the … Panel had to take into account, in any
event, in its assessment of causa tion and non-attribution under Article 6.3(b)".1159 Depending on
the arguments and evidence that the parties put before a panel, it may be relevant for a panel to
consider, as a part of its causation analysis, whether the like product of the complainant is
subsidized. However, we see no reason why a panel would be required to determine whether one
subsidizing Member is causing a parti cular market phenomenon to the exclusion of another
subsidizing Member, as the European Union seems to suggest.1160
5.6.1.5 Conclusion
5.454. Regarding the European Union's arguments concerning the relevance of Article 6.4 of the
SCM Agreement to the United States' claims under Article 6.3(b) of that Agreement, the Panel was
required to examine the meaning of Article 6.3(b), including the relationship between this
provision and Article 6.4, as clarified by the Appellate Body in the original proceedings in this
dispute and in US ‒ Large Civil Aircraft (2 nd complaint). It was also appropriate for the Panel to
take into account the findings and reasoning by the original panel regarding the meaning of
Article 6.4. The Panel could not simply refuse to address the arguments and evidence before it in
dealing with the United States' claims under Article 6.3(b). Rather, the Panel was required to
adjudicate the United States' claims under Article 6.3(b) in light of the arguments raised and
evidence submitted by both parties to the dispute, and it erred by declining to do so.
5.455. Accordingly, we declare moot and of no legal effect the Panel's finding ,
in paragraph 6.1154 of the Panel Report , concerning the European Union's reliance on Article 6.4
to reject the United States' claims under Article 6.3(b) of the SCM Agreement . Based on our
interpretation of Article 6.3(b), read together with Article 6.4, we disagree, however, with the
European Union that a complainant is required to demonstrate, in each case, that its like product
is non-subsidized in order to show that the effect of the subsidy is displacement and/or impedance
of its like product in a third country market.

1155 Appellate Body Report, EC and certain member States — Large Civil Aircraft, para. 1166.
(fn omitted)
1156 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1081 (quoting Appellate Body
Report, EC and certain member States – Large Civil Aircraft, para. 1166, in turn quoting Appellate Body
1157 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1086.
1158 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1086.
1159 European Union's appellant's submission, para. 645. (emphasis omitted)
1160 See European Union's appellant's submission, para. 672. (fn omitted)

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5.6.2 The relevant product markets
5.456. We turn next to examine the European Union's appeal regarding the Panel's analysis of the
relevant product markets , which, as the European Union notes, formed the basis for the Panel's
subsequent assessment of the adverse effects of the challenged subsidies. 1161 To provide context
for our analysis, we begin by surveying the relevant findings by th e Panel in some detail, before
addressing the issues raised by the participants on appeal.
5.6.2.1 Arguments before the Panel and Panel findings
5.457. Before the Panel, the United States argued that there are three separate product markets
relevant to its claims of ser ious prejudice in this dispute, namely: (i) the market for single-aisle
aircraft; (ii) the market for twin-aisle aircraft; and (iii) the market for VLA.1162 More specifically,
the United States referred to the following product markets:
Table 5: Competitive relationships among LCA according to the United States
Market of competition Subsidized product Like product
Single-aisle aircraft A318, A319,
A319neo, A320, A320neo,
A321,
A321neo
737-600, 737-700, 737 MAX
7, 737-800, 737 MAX 8,
737-900ER, 737 MAX 9
Twin-aisle aircraft A330-200, A330-300, A340-
300, A340-500, A340-600,
A350XWB-800, A350XWB-
900, A350XWB-1000
767-300ER, 787-8, 787-9,
777-200ER, 777-200LR,
777-300ER
Very large aircraft A380 747-8
Source: Panel Report, Table 14 at paragraph 6.1155.
5.458. By contrast, the European Union argued that more than three, and up to six or seven,
product markets should be considered in the context of an analysis of serious prejudice1163:

1161 The European Union has separately appealed the Panel's failure properly to take into account, in its
causation analysis, the differences in the nature and degree of competition between the relevant Airbus and
Boeing LCA products in the various product and geographic markets in respect of which the United States
brought its claims of serious prejudice. (European Union's appellant's submission, fn 521 to para. 559 and
fn 616 to para. 626 (referring to section VIII.E.4.a of its appellant's submission))
1162 Panel Report, para. 6.1155.
1163 Panel Report, para. 6.1156.

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Table 6: Competitive relationships among LCA according to the European Union
Market of competition Subsidized product Like product
Single-aisle aircraft
Current versions, near-term
delivery
A318, A319, A320, A321 737-600, 737-700, 737-800,
737-900ER
New generation, end of
decade delivery
A319neo, A320neo, A321neo 737 MAX 7, 737 MAX 8, 737
MAX 9
Twin-aisle aircraft
 None 767-300ER
Smaller, medium-range,
near-term delivery
A330-200, A330-300 None
New generation, deliveries
further into the future
A350XWB-800, A350XWB-
900, A350XWB-1000
787-8, 787-9
Larger, longer-range, near-
term delivery
None 777-200ER, 777-200LR, 777-
300ER
Smaller, very large aircraft None 747-8
Larger, new generation, very
large aircraft
A380 None
Source: Panel Report, Table 15 at paragraph 6.1156.
5.459. Referring to the original appellate proceedings in this dispute, the Panel noted that the
parties had "appeared to accept (or at least did not object to the notion) that competition in the
LCA industry could be viewed as taking place in three distinct passenger aircraft product markets,
namely, the single -aisle, twin -aisle and VLA markets".1164 The Panel recalled, however, that the
European Union had argued in the current compliance proceedings that Airbus and Boeing LCA
compete in up to six or seven distinct product markets, two of which are "temporal" monopoly
markets where either Airbus or Boeing is the sole credible supplier.1165 The Panel further noted the
United States' contention that the same three product markets relied upon by the Appellate Body
in the original proceedings continue to exist.1166
5.460. Before turning to examine the parties' respective positions, the Panel referred to and
quoted extensively from the Appellate Body's findings in the original proceedings regarding the
identification of the relevant product markets and how this can assist a panel in determining
whether a complainant has properly framed its claims of serious prejudice. 1167 The Panel
recognized, in particular , that, when examining claims brought und er Article 6.3 of the
SCM Agreement, "a panel must make an objective assessment of the competitive relationship
between specific products and thereby determine the extent to which a complainant has brought
its case with respect to the correct product markets".1168 The Panel also noted that the
Appellate Body referred to the notion of "market" as consisting of "the set of products
(and geographical areas) that exercise some competitive constraint on each other ".1169 The Panel
further recalled that the Appellate Body explained that "where the evidence shows that the
competitive relationship is not direct and 'at most, indirect or remote', this must be properly taken
into account in the analysis" 1170, and that "the absence of demand -side substitutability between
two products would suggest that they are likely to compete in two distinct markets, rather than in
a single market." 1171 The Panel added that "a consideration of substitutability on the supply-side

1164 Panel Report, para. 6.1157 (referring to Appellate Body Report, EC and certain member States –
Large Civil Aircraft, paras. 1177-1178).
1165 Panel Report, para. 6.1157.
1166 Panel Report, para. 6.1157.
1167 Panel Report, paras. 6.1158-6.1172.
1169 Panel Report, para. 6.1169 (quoting Appellate Body Report, EC and certain member States – Large
Civil Aircraft, fn 2467 to para. 1120 (emphasis added by the Panel)).
1170 Panel Report, para. 6.1169 (quoting Appellate Body Report, EC and certain member States – Large
Civil Aircraft, para. 1136).
1171 Panel Report, para. 6.1170 (referring to Appellate Body Report, EC and certain member States –
Large Civil Aircraft, para. 1134).

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may also be required in order to determine whether two produ cts comp ete in the same
product market."1172
5.461. With these considerations in mind, the Panel turned to address the merits of the parties'
respective positions in order to determine whether the United States ha d properly framed its
claims of serious prejudice. In so doing, the Panel noted the European Union's argument that the
United States was required to present " quantitative analysis in support of its allegations of
demand-side substitutability between the relevant LCA products". 1173 The Panel found nothing in
the Appell ate Body report in the original proceedings to suggest that "a complainant bringing a
serious prejudice complaint must identify the relevant product markets by using evidence that is
'rooted in' quantitative analyses ."1174 Instead, the Panel understood the Appellate Body to have
simply found that , in determining whether two products "form part of the same product market,
it will be important to explore and analyse the particular characteristics and features of demand
and, in certain situations, supply". 1175 For the Panel, the reference by the Appellate Body to the
"Small but Significant Non-Transitory Increase in Prices" (SSNIP) test was merely a reference to a
test "that is commonly used to ascertain whether two products exercise competitive constraints on
each other"1176, and did not suggest that the Appellate Body had considered that "the SSNIP test,
or by implication any other quantitative methods of analysis, must be applied in each and every
serious prejudice dispute to identify relevant product markets."1177
5.462. In light of the particular characteristics of the LCA industry, and of the absence of reliable
pricing information and difficulties associated with identifying the relevant product markets,
the Panel further emphasized that "the task of performing a reliable econometric analysis of the
demand for LCA products would face a number of significant methodological and data
challenges."1178 The Panel went on to note that it could not see how, in the absence of accurate
pricing informat ion, "the United States could have generated meaningful results from the
application of any of the … relevant quantitative methods of analysis identified by the
European Union".1179 Referring to the practice of competition authorities, the Panel added that th e
European Commission, for instance, would "only take into account 'available quantitative evidence'
for the purpose of identifying relevant product markets when it is 'capable of withstanding rigorous
scrutiny'; a decision that will 'depend{} to a large e xtent on the availability of the necessary data,
the specificities of the case in question and the respective time constraint of the procedure'." 1180
Thus, the Panel found "no reason to fault the United States' decision not to use the SSNIP test or
any other price-based quantitative analysis to substantiate its view that there are three relevant
product markets in the LCA industry" .1181 Accordingly, the Panel concluded that "the United States
was entitled to advance its case using any and all evidence it believe{ d} establishe{d} the
existence of the three relevant products markets".1182
5.463. The Panel next turned to consider the European Union's argument that "the United States
ha{d} failed to establish the existence of the three alleged passenger LCA product markets
because it ha{d} not shown that all of the aircraft that allegedly compete in each of the
three distinct product markets exercise 'significant competitive constraints' on each other."1183 The

1174 Panel Report, para. 6.1178 (referring to Appellate Body Report, EC and certain member States –
Large Civil Aircraft, paras. 1120-1121). (emphasis original)
1175 Panel Report, para. 6.1178.
1176 Panel Report, para. 6.1179 (quoting Appellate Body Report, EC and certain member States – Large
Civil Aircraft, fn 2468 to para. 1120 (emphasis added by the Panel)).
1178 Panel Report, para. 6.1205.
1180 Panel Report, para. 6.1207 (quoting, respectively, Commission Notice on the Definition of Relevant
Market, para. 39, published in Official Journal of the European Communities, C Series, No. 372 (1997)
(Panel Exhibit USA-551), para. 38; OECD Policy Roundtables, Competition Committee, Background Note on
Market Definition (2012) (Panel Exhibit USA-549), European Commission submission, p. 336).
1181 Panel Report, para. 6.1208.
1182 Panel Report, para. 6.1208.
1183 Panel Report, para. 6.1209 (quoting European Union's second written submission to the Panel,
paras. 626-704; responses to Panel questions Nos. 48, 49, 50, 52-56, 70-71, 75, and 79, paras. 213, 215,

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Panel recalled the Appellate Body's finding that two products are in the same product market when
they are "sufficiently substitutable so as to create competitive constraints on each other ".1184 The
Panel noted that the Appellate Body had not qualified this s tatement by stating "that the required
competitive constraints must be 'significant'" .1185 For the Panel, "to the extent that the
Appellate Body provided any guidance at all on the requisite degree or intensity of competition
that must exist between two produ cts in order to find that they fall within the same product
market", it was "apparent" that the Appellate Body had not articulated a standard that "require{d}
showing that two products impose 'significant competitive constraints' on each other or that thos e
products {were} 'closely competitive'".1186
5.464. Based on its analysis, the Panel found no basis to interpret the word "market" in Article 6.3
of the SCM Agreement "in a way that would mean that 'serious prejudice' could only ever be found
to exist in the contex t of product markets where there is vigorous ('significant' or 'close')
competition"1187, as opposed to "markets where competition between products is relatively weak
or, in certain circumstances, even markets where strong competitive constraints are imposed by
one product on one or more other products, which themselves impose little, if any, competitive
constraint on the stronger competitor" .1188 The Panel recalled that "the fundamental purpose of
identifying relevant product markets in a serious prejudice dispute is to determine whether certain
specific trade effects have been caused by the use of subsidies."1189
5.465. Thereafter and having recalled the general conditions of competition in the LCA
industry1190, the Panel considered certain marketing materials and presentati ons in its evaluation
of "the extent to which the parties' arguments demonstrate the existence of the alleged
single-aisle, twin-aisle and {VLA} … product markets".1191 The Panel was not convinced that these
materials presented "a clear picture of the extent to which Airbus and Boeing consider{ed that}
competition takes place exclusively across the three … LCA product markets asserted by the
United States".1192 Nonetheless, the Panel considered that this evidence suggested that
"Airbus and Boeing {would}, more of ten than not, analyse and present their commercial LCA
activities on the basis of one single -aisle, one twin-aisle and one VLA segment ."1193 For the Panel,
therefore, the relevant materials lent "a degree of support to the continued existence of the three
LCA … markets … which the United States relie{d} upon to make its serious prejudice complaint"
in these compliance proceedings.1194
5.466. The Panel next turned to examine the parties' positions with respect to each of the three
alleged product markets individually. F or each market, the Panel examined the parties' arguments
and evidence, including multiple expert statements, addressing: (i) the physical and performance
characteristics, end-uses, and customers of the various LCA; (ii) the extent to which different LCA
exercised pricing constraints on each other; and (iii) Airbus' and Boeing's marketing strategies and
sales campaigns.
5.467. Regarding single-aisle LCA, the United States argued that each LCA model in Boeing's 737
family competes with each LCA model in Airbus' A32 0 family.1195 While the European Union agreed
that competition existed between Airbus and Boeing single -aisle products, it argued that this
competition takes place "in two separate product markets: one for airlines seeking near-term
delivery of LCA products, where the current versions of the A320 family compete with th e current
versions of the 737NG family; and another for airlines that seek delivery by the end of the decade,

221-225, 227, 230, 232, 250, 253, 255, 258, 261, 277, 288-291, 303, and 327, respectively (emphasis added
by the Panel)).
1184 Panel Report, para. 6.1210 (quoting Appellate Body Report, EC and certain member States – Large
Civil Aircraft, para. 1120).
1185 Panel Report, para. 6.1210.
1187 Panel Report, para. 6.1211.
1188 Panel Report, para. 6.1211.
1190 Panel Report, paras. 6.1213-6.1223.
1191 Panel Report, para. 6.1224.
1193 Panel Report, para. 6.1236.
1194 Panel Report, para. 6.1236.
1195 Panel Report, para. 6.1237.

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where effective competition takes place solely between the new generation of Airbus a nd Boeing
single-aisle products, namely, the A320neo and its derivatives versus the 737MAX and
its derivatives".1196
5.468. The Panel noted that there was "a high degree of commonality in the physical attributes,
end-uses and customers of all new generation and cur rent versions of Airbus and Boeing
single-aisle aircraft" 1197, and ultimately found that "the new generation of Airbus and Boeing
single-aisle aircraft may be viewed as updated, more fuel efficient, versions of their current
single-aisle offerings, principally intended to serve the same missions already operated by existing
single-aisle customers."1198
5.469. Regarding the existence of effective competition between the current and new generation
of single -aisle LCA products, the Panel found that "the superior fuel -efficiency of the new
generation of Airbus and Boeing single -aisle aircraft {did} not mean they {were} impervious to
competition from current versions ."1199 The Panel found that , to the extent that the
European Union had demonstrated that "the A320ceo cannot overcome the fuel-burn advantage of
the A320neo by price discounting when both aircraft are delivered on the same date "1200, it did
"not automatically follow that it will never be possible for the A320ceo to be offered at a price that,
in the light of other poten tially important terms and conditio ns such as delivery dates,
will overcome the fuel-burn efficiency of the A320neo ."1201 On this basis, the Panel found that the
current versions of Airbus and Boeing single -aisle aircraft not only compete with new generation
models, "but also that this competition will inevitably involve reciprocal pric ing constraints,
the degree of which will depend upon and vary with the particular characteristics of different
customer requirements and sales campaigns."1202
5.470. The Panel also a ssessed whether the existence of competition between the current and
new generations of Airbus and Boeing single-aisle aircraft was supported by evidence proffered by
the United States concerning two specific sales campaigns : the 2011 American Airlines and
2011-2012 Norwegian Air Shuttle campaigns. 1203 The Panel found the A320neo to have been a
"very strong competitor " in those sales campaigns 1204, and concluded that "the United States
ha{d} established that all Airbus and Boeing si ngle-aisle LCA offerings exercise a sufficient degree
of competitive constraint on each other such that they should all be considered to fall within the
same product market for the purpose of {its} serious prejudice claims".1205
5.471. Regarding twin -aisle LCA, the United States argue d that the Boeing 767, 777, and 787
families of LCA compete in the same product market as the Airbus A330 and A350XWB
families.1206 Conversely, t he European Union asserted that there were a number of separate
markets for these five famili es of Airbus and Boeing LCA. In particular, the European Union

1196 Panel Report, para. 6.1237 (referring to European Union's first written submission to the Panel,
paras. 600-606; Christophe Mourey, Senior Vice President, Contracts, Airbus, "Statement on Current
Competitive Conditions in the LCA Industry", 4 July 2012 (Mourey Statement) (Panel Exhibit EU-8 (BCI)),
paras. 75-84). (emphasis original)
1197 Panel Report, para. 6.1287.
1199 Panel Report, para. 6.1288.
1200 Panel Report, para. 6.1288. (emphasis original) The Panel further recalled that the European Union
had failed to disclose the information on price concessions that were used in the Supplemental Statement by
Christophe Mourey (Christophe Mourey, Senior Vice President, Contracts, Airbus, "Supplemental statement on
current competitive conditions in the LCA industry", 12 December 2012 (Supplemental Mourey Statement)
(Panel Exhibit EU-124 (BCI/HSBI))) to arrive at its conclusions. (Ibid., fn 2187 thereto (referring to
para. 6.1262))
1201 Panel Report, para. 6.1288.
1202 Panel Report, para. 6.1288.
1203 Panel Report, para. 6.1277.
1204 Panel Report, para. 6.1290.
1205 Panel Report, para. 6.1292.
1206 Panel Report, para. 6.1293. The Panel noted that the United States also argued that the alleged
market for twin-aisle LCA includes the A340. However, the Panel found that the market presence of this family
of Airbus LCA came to an end before the beginning of the post-implementation period when Airbus terminated
the A340 project in November 2011. Accordingly, the Panel considered that the A340 family of Airbus LCA was
no longer available and could not, therefore, fall within the scope of the alleged twin-aisle market for LCA that
exists currently. (Ibid., fn 2188 thereto)

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submitted that "the A350XWB and the 787 closely compete in the same product market for
technologically advanced and fuel -efficient new generation aircraft", and that "the A330 and 777
are each so ld in their own separate monopoly markets f or smaller , medium -range aircraft
(in the case of the A330) and larger, longer -range aircraft (in the case of the 777) that are
available for near-term delivery."1207 In respect of the 767, the European Union submitted that "its
allegedly 'outdated' and 'inferior' technology mean{t} that it {did} not compete in the same
product market as the A330 and that, in any case, it ha{d} been replaced by the 787."1208
5.472. The Panel found that, "in terms of basic physical charact eristics and end -uses,
the five families of Airbus and Boeing twin -aisle LCA are, as a whole, able to satisfy a relatively
broad spectrum of mission requirements starting with the regional routes serviced by the smaller
767 and A330 families of aircraft and ending with the larger capacity, long-haul missions for which
the bigger versions of the 777 and A350XWB were specifically designed."1209 The Panel added that,
"within the range of potential customer needs that may be satisfied by the five families of LCA,
there {we}re notable overlaps, with six versions of four families (the A330 -200, 777 -200ER,
A350XWB-900, 787 -8, 787 -9 and A350XWB -800) positioned relatively close to each other." 1210
For the Panel, this suggested that, "while the potential customer -base for Airbus and Boeing
twin-aisle aircraft {was} likely to be more varied than the potential customer-base for their
single-aisle aircraft, any individual customer {was} likely to have multiple combinations of
relatively closely-matched Airbus and Boeing twin-aisle aircraft to choose from."1211
5.473. The Panel did "not consider the superior operating performance of the new generation of
Airbus and Boeing twin-aisle aircraft compared with their current generation models {to} signal{}
that they {were} sold {in} separate product markets."1212 Rather, the Panel considered that
"Airbus and Boeing {would} regularly compete with each other on the timing of the availability of
their aircraft".1213 According to the Panel, this was "because of the important role that delivery
considerations play in a potential customer's purchase decision". 1214 However, the Panel did not
consider "the relative near -term availability" of the A330 and 777 as an advantage that places
those aircraft models in "'temporary' product markets of their own". 1215 Rather it saw this as
simply " one of the factors that customers … {would} take into account in their purchase
decisions".1216 The Panel noted in this regard that "non -price factors other than delivery terms
(e.g. fleet commonality) might … serve to diminish the performance advantages of new generation
aircraft over current generation aircraft" and might create "more room for price discounting to play
a greater role in a customer's purchase decision".1217
5.474. The Panel further found that "the competitive relationships between all five families of
Airbus and Boeing twin -aisle aircraft have been constantly evolving, reflecting not only cha nging
demand … but also the pace and nature of aircraft innovation ."1218 However, the Panel cautioned
that "to say that every time a newly introduced technologically advanced or more efficient aircraft
wins sales against existing models means that it faces no competitive constraints from aircraft that
were not chosen by those customers" would be "incorrect and an oversimplification of the
complicated dynamics of competition in the LCA industry".1219 In the Panel's view, "these and other
considerations suggest{ed} that the 787 and the A350XWB {did} not merely face competitive
constraints from each other, but also from other twin-aisle aircraft."1220

1207 Panel Report, para. 6.1293.
1208 Panel Report, para. 6.1293 (referring to European Union's first written submission to the Panel,
paras. 607-619; second written submission to the Panel, paras. 626-628; response to Panel question No. 70).
1209 Panel Report, para. 6.1363.
1210 Panel Report, para. 6.1363.
1211 Panel Report, para. 6.1363.
1212 Panel Report, para. 6.1364.
1213 Panel Report, para. 6.1364.
1214 Panel Report, para. 6.1364.
1215 Panel Report, para. 6.1364.
1217 Panel Report, para. 6.1365.
1218 Panel Report, para. 6.1367.
1220 Panel Report, para. 6.1365.

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5.475. Finally, the Panel turned to consider the United States' assertion that the existence of the
alleged competitive relatio nships between (i) " the A330 and the 787 ", and (ii) " the A330,
A350XWB, and the 777 ", are also substantiated by the HSBI and other evidence before the
Panel.1221 The Panel found that "it {was} difficult to believe that Airbus or Boeing would go to the
expense of participating in a sales campaign if either company did not believe it had a reasonable
chance of convincing a customer to purchase its own LCA products ahead of those of its rival" 1222
or, "at the very least, imposing some level of competitive constraint on its rival's offering". 1223
In this regard, the Panel recalled the Appellate Body's finding in the original proceedings
dismissing the European Union's appeal against the original panel's conclusion that "an order for
A380s made by Emirates Airlines in 2000 constituted 'lost sales' to the United States' LCA industry,
notwithstanding the absence of any formal aircraft offer having been made on the part of
Boeing."1224 On this basis, the Panel considered that "evidence that both Airbus and Boeing
actually did pa rticipate in the same sales campaign should, a fortiori, be interpreted to strongly
suggest … that the products in question were in competition with each other for the relevant
customer's sales."1225 Accordingly, the Panel concluded that the United States had established that
all five families of Airbus and Boeing twin -aisle LCA "exercise differing but overall sufficient
degrees of competitive constraints against each other such that they should all be considered to
fall within the same product market for the purpose of the serious prejudice claims".1226
5.476. Finally, with respect to VLA, the Panel recalled the United States' argument that the A380
and the 747 -8I compete in the VLA product market and, further, that "the A380 and the 747 -8I
are imperfectly substitutable with each other as both may be used to cover essentially the same
long-haul, slot -constrained and high passenger -demand missions ."1227 By contrast,
the European Union had asserted that "the A380 and the 747 -8I are sold in two separate
monopoly markets" and t hat "the considerable differences that exist between these two LCA
products, particularly as regards seating capacity and technologies, generate an insurmountable
potential revenue and operating cost advantage in favour of the A380, thereby placing it in a
different product market to the 747-8I."1228
5.477. The Panel noted that the A380 and the 747-8I are the largest civil aircraft produced by
Airbus and Boeing, and can both be generally used to cover the same long -haul routes. 1229
The Panel stated that , "{w}hile the A380's larger seating capacity and relatively modern
technologies mean{t} that it has a per/seat operating cost and revenue advantage over
the 747-8I", it considered that "this advantage {would} decrease the closer the expected seating
capacity of a particular mission is to the maximum seating capacity of the 747 -8I."1230
Thus, the Panel considered it "apparent from the conditions of competition in the LCA industry that
the A380 and the 747 -8I {would} have a potential customer base that {would} i nclude airlines
with mission requirements that overlap the capabilities of the two aircraft". 1231 The Panel did not
consider that "the A380's operating cost and revenue advantage over the 747 -8I on missions
where passenger capacity is close to {the A380's} maximum" would demonstrate that the former
was "sold in its own monopoly market".1232
5.478. The Panel next considered whether the existence of competition between the A380 and the
747-8I in the same product market was further evidenced by the pricing pressure that ea ch
aircraft imposed upon the other. "{G}iven that there {would} be a range of customer demands for
LCA with a passenger capacity exceeding 400 seats", the Panel found that "one would expect to

1221 Panel Report, para. 6.1346.
1222 Panel Report, para. 6.1348.
1223 Panel Report, para. 6.1348.
1224 Panel Report, para. 6.1349. See also Appellate Body Report, EC and certain member States – Large
Civil Aircraft, para. 1223.
1226 Panel Report, para. 6.1370.
1227 Panel Report, para. 6.1371 (referring to United States' second written submission to the Panel,
para. 492; response to Panel question Nos. 50, 52, and 63, paras. 156, 166, and 247, respectively).
1228 Panel Report, para. 6.1371 (referring to European Union's first written submission to the Panel,
paras. 620-633).
1229 Panel Report, para. 6.1407.
1230 Panel Report, para. 6.1407.
1231 Panel Report, para. 6.1407 (referring to paras. 6.1379-6.1383).
1232 Panel Report, para. 6.1407.

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find differing degrees of reciprocal pricing constraints betwee n the A380 and the 747 -8I,
depending upon how close a particular customer's needs reflect the relative advantage of one
aircraft over the other." 1233 However, the Panel considered that "this {did} not imply the absence
of competition", but only that "the comp etitive constraints imposed by one LCA on the other
{would} be more or less intense depending upon which product more closely satisfie{d} the
relevant needs of a potential customer".1234
5.479. Finally, the Panel addressed the United States' argument that "the ex istence of
demand-side substitution and effective competition between the 747 -8I and the A380 is
substantiated by evidence from the Emirates, Hong Kong Airlines, Asiana Airlines and Skymark
sales campaigns". 1235 The Panel considered it to be "apparent from the U nited States' HSBI
evidence, that Boeing offered the 747 -8I as an alternative to the A380 to each of the relevant
airlines".1236 The Panel found that "the United States' HSBI evidence clearly show{ed} that Boeing
not only saw an opportunity to sell the 747 -8I to each of the relevant airlines, but also that it
would have to compete with the A380 to win those sales". 1237 The Panel further considered the
747-8I and the A380 to compete regularly for the same customers, finding "additional support in
the Qantas and British Airways sales campaigns that resulted in the order of 20 A380s in 2006 and
2007".1238 Noting that the A380 and the 747 -8I were "not perfect substitutes", the Panel,
nonetheless, considered that "the fact that one LCA will have a superior economic value to another
under certain demand conditions, does not render it impervious to competition". 1239 Instead,
the Panel found that "{o}ne aircraft's economic advantage over another might simply reflect that
it is better placed to win the competition for sales betwe en two imperfectly substitutable
products".1240 Accordingly, the Panel found that "the United States ha{d} established that, for the
purpose of evaluating its claims of serious prejudice under Article 6.3 … the A380 and 747 -8I
{could} be considered to compete against each other in one single product market for VLA".1241
5.480. For all these reasons, the Panel concluded that it was appropriate to examine the
United States' claims of serious prejudice on the basis of the three separate product markets
identified above.1242 The Panel, however, emphasized that:
in making this finding, it is not our view that the degree of competition existing within
each of these markets will be identical between all pairings or combinations of aircraft.
There will be weaker and stronger competitive relationships within each market
depending upon the particular circumstances of a sale. Moreover, important
competitive relationships may also exist between pairings or combinations of aircraft
across two, or even all three, of the product markets. Thus, while it is apparent that
the three product markets the United States has chosen to rely upon to bring its
complaint of non-compliance do not exhaustively capture how competition takes place
between aircraft in the LCA sector at all times, we are satisfied that at present
(as in the original proceeding) they represent the three segments within which most
competitive interactions between the relevant aircraft will commonly take place.1243
5.6.2.2 Claims on appeal
5.481. In its appellant's submission, the European Union takes issue with the Panel's findings on
three grounds. First, the Eur opean Union claim s that the Panel erred in interpreting the term
"market" in Article 6.3 of the SCM Agreement to mean that two products fall within the same
product market as long as there is "some" competitive relatio nship between the products,

1233 Panel Report, para. 6.1408.
1234 Panel Report, para. 6.1408.
1235 Panel Report, para. 6.1396 (referring to United States' first written submission to the Panel,
paras. 483-486 and 493-503; response to Panel question No. 49).
1236 Panel Report, para. 6.1400.
1237 Panel Report, para. 6.1400.
1238 Panel Report, para. 6.1402.
1239 Panel Report, para. 6.1405.
1241 Panel Report, para. 6.1410.
1242 Panel Report, paras. 6.1416 and 7.1.d.xi.
1243 Panel Report, para. 6.1416. (emphasis original; fns omitted)

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and consequently failing to perform a quantitative analysis of the nature and degree of competition
between the products at issue to determine whether it was "significant". 1244 Second, the
European Union argues that, even assuming that the Panel's interpretation was co rrect, the Panel
erred in its application of Articles 5(c), 6.3, and 7.8 of the SCM Agreement because it failed to
make the product market finding necessarily implied by its interpretation – i.e. that there exists a
single product market "encompassing at l east all LCA"1245 based on the existence of "some"
competition between each model of Airbus and Boeing LCA. Third, the European Union submits
that the Panel failed to make an objective assessment of the matter under Article 11 of the DSU by
assessing the Unit ed States' adverse effects claims on the basis of the three -way market
segmentation proposed by the United States, without assessing the nature and extent of
competition between the aircraft that the United States had placed in separate
product markets.1246
5.482. We address each of these claims below, beginning with the interpretation of the term
"market" in Article 6.3 of the SCM Agreement, and the type of adverse effects analysis that is
required under this Agreement. We note that in arguing that the Panel erred in its interpretation of
the term "market", the European Union refers to various statements made by the Panel which,
according to the European Union, demonstrate that the Panel erred in its interpretative
approach.1247
5.6.2.3 Whether the Panel erred in interpreting the term "market" in Article 6.3 of the
SCM Agreement
5.483. The European Union relies upon the Appellate Body's findings in the original proceedings to
argue that "'the nature and degree' of competition, and not merely the existence of competition,
is decisive for determining 'the scope of the relevant product market'."1248 For the European Union,
"the mere existence of competition between two products is insufficient to group them into the
same product market " for purposes of conducting an adverse effects analysis. 1249 Instead,
the European Union submits that two products would fall within the same market only where an
analysis of "the 'nature and degree of competition' between them reveals that they exercise
'significant competitive constraints ' on one another ."1250 Conversely, they would fall within
separate product markets where there is no "significant" competition between them. 1251
The European Union argues therefore that the Panel erred in interpreting the term "market" to
mean that two products fall within the same pro duct market as long as there is "some"
competitive relationship between the products, regardless of the nature or degree of that
relationship.1252 According to the European Union, the Panel's erroneous interpretation of the term
"market" in Article 6.3 of the SCM Agreement is reflected in the Panel's analysis of the product
market delineations suggested by both parties before the Panel.
5.484. The United States counters that the Panel followed the Appellate Body's guidance
concerning the term "market" in Article 6.3 and the importance of making an objective assessment
of product markets in accordance with that meaning. 1253 Contrary to what the European Union
suggests, the Panel did not "find that all products that have some competitive relationship,
regardless of the nature or degree of that relationship, must always be found to be in the same
market for the purposes of Article 6.3"1254; nor did the Panel consider the intensity of competit ion
between different LCA product pairings "to be irrelevant ".1255 Instead, in the United States' view,

1244 European Union's appellant's submission, paras. 597-598 and 606.
1245 European Union's appellant's submission, para. 639. (emphasis original) See also para. 540.
1246 European Union's appellant's submission, paras. 541-542 and 639.
1247 European Union's appellant's submission, paras. 599-601.
1248 European Union's appellant's submission, para. 577 (quoting Appellate Body Report, EC and certain
member States – Large Civil Aircraft, para. 1123 (emphasis added by the European Union)).
1249 European Union's appellant's submission, para. 579. (emphasis added)
1250 European Union's appellant's submission, para. 579 (quoting Appellate Body Report, EC and certain
member States – Large Civil Aircraft, para. 1123 (emphasis added by the European Union)).
1251 European Union's appellant's submission, para. 579.
1252 European Union's appellant's submission, paras. 597 and 602.
1253 United States' appellee's submission, para. 273.
1254 United States' appellee's submission, para. 274.
1255 United States' appellee's submission, para. 274 (quoting European Union's appellant's submission,
para. 599).

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the Panel "selected the best possible market definitions – those which captured 'most competitive
interactions' – in light of the difficulties inherent in 'drawing a line' amidst products that are
imperfect substitutes subject to demand of a 'complex, constantly evolving and often idiosyncratic'
nature."1256 The United States further submits that the Panel rightly "recognized that the
Appellate Body had identif ied quantitative methods of analysis as potentially useful tools without
imposing a legal requirement that they must be used in every case".1257
5.485. Regarding the meaning of the term "market", we note that the Appellate Body has
explained that " a market comprise s only those products that exercise competitive constraint on
each other".1258 It has also considered that "two products would be in the same market if they
were engaged in actual or potential competition in that market ."1259 In the original proceedings,
the Appellate Body further referred to the notion of "market" as consisting of " the set of products
(and geographical areas) that exercise some competitive constraint on each other". 1260 In so
doing, the Appellate Body referr ed to a range of considerations that may assist in determining
whether two products compete in the same market, in the sense that they "exercise competitive
constraints on each other". 1261 Specifically, with respect to demand-side substitutability,
the Appellate Body explained that it may be relevan t for a panel to consider, for example,
"whether customers demand a range of products or whether they are interested in only a
particular product type". 1262 Factors such as "product homogeneity, flight ranges, seating
capacities, prices, fuel efficiency, and other performance characteristics" may also be relevant. 1263
The Appellate Body noted that, "{o}rdinarily, the subsidized 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 analyze these products in different
product markets".1264 Competition may thus be found to occur not only between specific pairings
of product types 1265 but, "{i}n some cases, the entire product ran ge offered by the complainant
may compete with the range of products of the respondent that is allegedly subsidized."1266
5.486. The Appellate Body has found that a panel is "required to make an objective assessment of
the competitive relationship between specific products in the marketplace and to define the
relevant product market in order to determine whether particular products can be treated as
forming part of a single product market or several product markets " for purposes of an analysis of
a serious prejudice under Article s 6.3(a) and 6.3(b) of the SCM Agreement .1267 As we see it,
a panel is called upon in this respect to carry out a holistic consideration of all relevant evidence
and arguments before it in order to make an objective determination of the relevant product

1257 United States' appellee's submission, para. 277.
1258 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1120.
(fn omitted)
1259 Appellate Body Report, US – Upland Cotton, para. 408. The Appellate Body in that dispute also
agreed with a definition of "market" as "the area of economic activity in which buyers and sellers come
together and the forces of supply and demand affect prices". (Ibid. (quoting Panel Report, US – Upland Cotton,
para. 7.1236, in turn quoting Merriam-Webster Dictionary online))
1260 Appellate Body Report, EC and certain member States – Large Civil Aircraft, fn 2467 to para. 1120
(quoting Massimo Motta, Competition Policy: Theory and Practice (Cambridge University Press, 2005), p. 102).
1261 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1120.
1262 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1120.
1263 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1134. We also
recall that in US – Upland Cotton, the Appellate Body shared the panel's view 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." (Appellate Body
Report, US – Upland Cotton, para. 408 (fn omitted))
1264 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1119. The
Appellate Body emphasized, however, that "it is important to note that whether or not a broad or narrow range
of products benefit from subsidization says little about whether all these products compete in the same
market" and that "products benefiting from subsidies may compete in very different markets". (Ibid.,
para. 1123)
1265 We recall the Appellate Body to have found that "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 particular subsidized products of the respondent". (Appellate Body Report, EC and certain
member States – Large Civil Aircraft, para. 1123)
1266 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1123.
1267 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1123.

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market. A panel should assess whether it is appropriate to examine serious prejudice claims on the
basis of the particular market segmentation proposed by the complainant or whether the range of
products at issue compete in di fferent and distinct markets .1268 In so doing, the panel has to
examine the respondent's arguments alleging the existence of different market segmentations and
rebutting the complainant's arguments. 1269 An assessment of "whether the alleged subsidized and
like products compete in the same market or multiple markets" is, as the Appellate Body has
found, "a prerequisite for assessing" claims brought under Article 6.3.1270 However, w hether
two products "compete in the same market is not determined simply by assessing w hether they
share particular physical characteristics or have the same general uses; it may also be relevant to
consider whether customers demand a range of products or whether they are interested in only a
particular product type."1271 According to the Appellate Body, "when customers procure a range of
products to satisfy their needs, this may give an indication that all such products could be
competing in the same market."1272 Thus, two products are in the same product market when they
are "sufficiently substitutable so as to create competitive constraints on each other" 1273, or if they
exercise "meaningful competitive constraints"1274 on each other.1275
5.487. As we understand it, the European Union does not argue that the use of quantitative
methods of analysis is required i n each case. The European Union insists, however, that placing
two products into the same product market requires a careful consideration of the nature and
degree of competition between them. 1276 The European Union further submits that, in assessing
the scope of product markets in a given case, a panel must ensure that products within a product
market compete more closely with one another than wit h products outside that
product market.1277
5.488. As noted by the Appellate Body, a consideration of quantitative tools and evidence may
assist a panel in defining the relevant product markets 1278 and in answering the question of

1268 See Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1131.
1269 In the original proceedings, the Appellate Body found that the original panel was "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". In so doing, the Appellate Body stated
that the original panel was also required to assess "the European Communities' allegation that there {were},
in fact, five distinct product markets of Airbus and Boeing LCA". (Appellate Body Report, EC and certain
member States – Large Civil Aircraft, para. 1131 (emphasis original)) According to the Appellate Body, the
original panel should have then reached a conclusion as to whether any of the parties' or a different "product
market" definition was appropriate for purposes of its displacement analysis. (Ibid.)
1270 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1128.
1271 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1120.
1272 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1120. The
Appellate Body noted that "{a}lthough physical characteristics, end-uses, and consumer preferences may
assist in deciding whether two products are in the same market, they should not be treated as the exclusive
factors to consider in deciding whether those products are sufficiently substitutable so as to create competitive
constraints on each other." (Ibid. (emphasis original))
1273 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1120.
1274 We note that the compliance panel in US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU)
found that "the European Union has not demonstrated that existing technology aircraft and new technology
aircraft of similar capacity, range, and MTOW no longer exercise meaningful competitive constraints on each
other such that they presently compete in separate LCA product markets". (Panel Report, US – Large Civil
Aircraft (2nd complaint) (Article 21.5 – EU), para. 9.39) We further note that, in coming to that conclusion, the
compliance panel in that dispute noted this Panel's finding that "all Airbus and Boeing single-aisle aircraft
compete in one and the same LCA product market", and "all five families of Airbus and Boeing twin-aisle LCA
exercise differing but overall sufficient degrees of competitive constraints against each other such that they
should all be considered to fall within the same LCA product market for the purpose of the serious prejudice
claims". (Ibid., fn 2712 to para. 9.39 (referring to Panel Report, paras. 6.1286 and 6.1370))
1275 In its opening statement at the second session of the oral hearing, the European Union recalled that
the compliance panel in US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU) used the formulation
"meaningful competitive constraints", rather than significant competitive constraints. The European Union
emphasized that what matters is not the adjective chosen to describe the requirement, provided that a panel's
analysis properly takes into account the required nature and degree of competition between the products.
1276 European Union's opening statement at the second session of the oral hearing.
1277 European Union's opening statement at the second session of the oral hearing.
1278 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1134 and fn 2492
thereto.

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whether products exercise meaningful competitive constraints on each other and are sufficiently
substitutable to fall within the same product market. How ever, like the Panel, we do not see a
reason to preclude that a careful scrutiny of qualitative evidence may also be sufficient provided
that it permits an informative and meaningful analysis of the relevant product markets. Depending
on the particularitie s of a given case 1279, it may be sufficient for a panel to examine qualitative
evidence regarding demand -side and supply -side substitutability, product characteristics,
end-uses, and customer preferences to reach a conclusion as to the nature and degree of
competition between two products. Further to the arguments raised in its appellant's submission,
the European Union clarified at the oral hearing that it was not arguing that complainants must
use quantitative analyses to identify relevant product markets in each case . Rather, as the
European Union had argued before the Panel, such tools should be used where possible and where
they assist the task of identifying relevant product markets. 1280 As we see it, the Panel rightly
relied on the Appellate Body report in the original proceedings to reject the proposition that
"quantitative methods of analysis must, as a legal matter , always be used to inform a
determination of relevant product markets in a serious prejudice dispute." 1281 While the
European Union does not argu e that a review of quantitative evidence is required in each c ase,
its appellant's submission focuses on specific aspects of the Panel's analysis to argue that the
Panel considered the intensity of competition between different product pairings to be altog ether
"irrelevant".1282 We address these arguments below, in particular when we discuss the Panel's
analysis of the product market segmentations proposed by the parties.
5.489. The Appellate Body has emphasized that, in cases where a complainant chooses to define
the subsidized and like products "broadly", it will be "necessary to analyze these products in
different product markets … so as to analyze further the real competitive interactions that are
taking place, and thereby determine whether displacement { or impedance} is occurring". 1283
While it may be possible to conduct an analysis of adverse effects and reach meaningful findings of
serious prejudice in instances where "all products are not engaged in direct competition for the
same sales or orders – or where the co mpetitive relationship between such products is, at most,
indirect or remote" 1284, this must however "be properly accounted for" in the serious prejudice
analysis.1285 Thus, to the extent that a complainant has adopted a broad product market definition,
it may be more difficult, depending on the facts of a given case, for such complainant to establish
the existence of adverse effects. We therefore agree with the European Union to the extent that it
suggests that there is a critical relationship between product ma rket definition and the causation
analysis, in the sense that the tighter the market definition , the easier it may be to demonstrate
causation, and conversely, the looser the market definition the more difficult it may be to
demonstrate causation.1286
5.490. As deta iled above , the Panel referred extensively to the Appellate Body report in the
original proceedings, including the finding that two products are in the same product market when
they are "sufficiently substitutable so as to create competitive constraints on each other ".1287
In particular, the Panel correctly noted that, " in determining whether two products are sufficiently
substitutable so as to create competitive constraints on each other, and therefore form part of the
same product market, it will be importan t to explore and analyse the particular characteristics and
features of demand and, in certain situations, supply." 1288 The Panel also recognized that,
when examining claims brought under Article 6.3, "a panel must make an objective assessment of

1279 In this regard, we recall the Appellate Body's guidance that the identification of the relevant product
market(s) "is likely to vary from case to case depending upon the particular factual circumstances".
(Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1123)
1280 European Union's response to questioning at the oral hearing.
1282 European Union's appellant's submission, para. 599 (referring to Panel Report, para. 6.1289),
6.1315, 6.1320, and 6.1348).
1283 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1119. The
Appellate Body noted that a similar argument can be made with respect to impedance. (Ibid., fn 2466 thereto)
1284 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1136.
1285 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1136.
1286 European Union's opening statement at the second session of the oral hearing.
1287 Panel Report, para. 6.1210 (quoting Appellate Body Report, EC and certain member States – Large
Civil Aircraft, para. 1120).
1288 Panel Report, para. 6.1178.

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the competitive relationship between specific products and thereby determine the extent to which
a complainant has brought its case with respect to the correct product markets."1289 In doing so,
the Panel, in our view, properly articulated the standard to be applied in i dentifying the relevant
product market(s) in this dispute. However, we note that the European Union refers to certain
statements made by the Panel 1290 that, according to the European Union, demonstrate that the
Panel erred in its interpretative approach. In p articular, the European Union contends that these
statements made by the Panel reveal that the "the Panel considered the intensity of competition to
be irrelevant"1291 in coming to its product market delineation . We therefore turn now to consider
the specific arguments that the European Union makes in this regard.
5.491. We recall that the Panel undertook a qualitative assessment of the intensity of competition
between products for the purposes of identifying the relevant product markets in this dispute ,
having rega rd to the Appellate Body's jurisprudence and the relevant evidence and arguments
before it. In so doing, the Panel observed that the parties' arguments focused little on supply-side
substitutability1292, and that the debate between them mainly addressed the e xtent to which a
level of demand -side substitution between different Airbus and Boeing aircraft was demonstrated
by: (i) the physical and performance characteristics, end -uses, and customers of the different
Airbus and Boeing aircraft; (ii) the existence and nature of any pricing constraints between these
aircraft; and (iii) the evidence with respect to sales campaigns. 1293 With this background in mind,
we begin our review with the single-aisle LCA market.
5.6.2.3.1 Single-aisle LCA market
5.492. Beginning with the Panel's analysis of competition in the single -aisle LCA market,
the European Union points to the Panel's statement that:
to accept that the 737NG did not compete with the A320neo in these sales, we would
have to be convinced that in the absence of the A320neo, the same airlines would
have preferred to purchase no aircraft at all – in other words, that at the time of the
sales, the A320neo had a temporary monopoly.1294
5.493. The European Union refers to this statement to support its assertion that the Panel
considered that two products are "in separate product markets only where there is an absence of
competition, such that customers would buy no product at all if the subsidised product
were unavailable".1295
5.494. The United States counters that the European Union miscon strues the Panel' s findings
when it cites this statement as standing for the proposition that the Panel' s test places products
into the same market unless there is no competition between them. 1296 According to the
United States, the Panel was making the point that "the success of t he A320neo 'over the 737NG'
in a given sales campaign does not demonstrate an absence of competition."1297
5.495. Contrary to what the European Union suggests, w e do not understand the above-quoted
statement from the Panel Report to indicate that the Panel considered the intensity of competition
between different product types to be irrelevant per se. Rather, the Panel appears to have simply
expressed the view that, to accept the argument by the E uropean Union that there was

1290 European Union's appellant's submission, para. 599 (referring to Panel Report, para. 6.1289),
6.1315, 6.1320, and 6.1348).
1291 European Union's appellant's submission, para. 599.
1292 Panel Report, paras. 6.1238, 6.1294, and 6.1372.
1293 Panel Report, paras. 6.1238, 6.1294, and 6.1372.
1294 European Union's appellant's submission, para. 599 (quoting Panel Report, para. 6.1289).
(emphasis original)
1295 European Union's appellant's submission, para. 597 (referring to Panel Report, paras. 6.1210,
6.1211, 6.1236, 6.1289, and 6.1382). (emphasis original)
1296 United States' appellee's submission, para. 330.
1297 United States' appellee's submission, para. 329 (quoting Panel Report, para. 6.1289). (emphasis
original)

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no competition at all between the 737NG and the A320neo in the sales campaigns at issue, it
would have had to find that the A320neo had a temporary monopoly at the time of the sales. It
does not follow from this that the Panel would have considered that two products could be found to
compete in the same , or in different, product markets regardless of the nature and degree of
competition that exists between them. Instead, the Panel recognized that the degree of
competition existing in each of the relevant p roduct markets will not "be identical between all
pairings or combinations of aircraft", that there "will be weaker and stronger competitive
relationships within each market depending upon the particular circumstances of a sale "1298, and
that "important compe titive relationships may also exist between pairings or combinations of
aircraft across two, or even all three, of the product markets".1299 The Panel found, however, that:
while it {was} apparent that the three product markets the United States {had}
chosen to rely upon to bring its complaint of non -compliance do not exhaustively
capture how competition takes place between aircraft in the LCA sector at all times,
{the Panel was} satisfied that at present (as in the original proceeding) they represent
the three segments within which most competitive interactions between the relevant
aircraft will commonly take place.1300
5.496. Specifically, with respect to competition in the single -aisle LCA market, t he Panel noted
that "Airbus ha{d} itself emphasized the high degree of commonality between the A320ceo and
the A320neo in a number of publicly available presentations and documents ."1301 The Panel also
found that "the new generation of Airbus and Boeing single -aisle aircra ft may be viewed as
updated, more fuel efficient, versions of their current single -aisle offerings, principally intended to
serve the same missions already operated by existing single -aisle customers."1302 In the Panel's
view, it followed that "a typical cust omer wanting to purchase a single -aisle aircraft {would} have
a potential choice between two aircraft from each manufacturer, one from a current version and
another from the new generation of products ."1303 Thus, as we see it , in assessing the nature and
extent of competition between "both producers' range of new generation single -aisle products
{and} their current versions" 1304, the Panel took into account the Appellate Body's guidance
regarding the identification of relevant product markets by considering the r equisite demand-side
substitutability factors. 1305 Contrary to what the European Union appears to suggest, the Panel
therefore did not disregard the European Union's argument that competition in the single-aisle LCA
market takes place in two separate product markets: one for the c urrent versions of the A320
and 737NG families; and the other for the new generation A320neo and 737MAX families. 1306
Rather, the Panel addressed this argument by the European Union, but disagreed with it.
5.497. The Panel considered, for examp le, the United States' argument that "the existence of
effective competition between the current and new generation of single -aisle LCA products is
evidenced by the pricing pressures that the two sets of LCA place on each other ."1307 The Panel
found in this r egard that, "in setting the price for new generation products, Airbus and Boeing
{would} not only have to consider each other's pricing on the 737MAX and A320neo, but also
the 737NG and A320ceo ."1308 According to the Panel, this suggested that "current versions of

1299 Panel Report, para. 6.1416. (emphasis original; fn omitted)
1300 Panel Report, para. 6.1416. (emphasis added; fn omitted)
1301 Panel Report, para. 6.1244.
1304 Panel Report, para. 6.1237.
1305 See Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1120-1122
and 1134.
1306 Panel Report, para. 6.1237 (referring to European Union's first written submission to the Panel,
paras. 600-606; Mourey Statement (Panel Exhibit EU-8 (BCI)), paras. 75-84).
1307 Panel Report, para. 6.1249 (referring to Bair Declaration (Panel Exhibit USA-339 (BCI)), paras. 27
and 29; United States' response to Panel question No. 63). (emphasis added) We note that Bair uses the
phrase "significant competitive relationships" to describe the competition between the 737NG, 737MAX,
A320ceo, and A320neo. (Bair Declaration (Panel Exhibit USA-339 (BCI)), paras. 27 and 29)
1308 Panel Report, para. 6.1252.

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Airbus and Boeing single -aisle LCA do impose pricing constraints on their new generation
models".1309 The Panel found additional support from the evidence on record, noting:
From customer's perspective, the only meaningful difference betwe en the {current
version and new generation aircraft} is an operating cost difference driven by the
improved fuel efficiency of the new engines on the neo and the MAX. Neither Airbus
nor Boeing is able to increase prices for the newer models by the net pres ent value of
their enhanced fuel efficiency, since that would neutralize their operating cost
advantage over earlier models and thereby leave customers with little incentive to
adopt the newer models . Indeed, pricing for the A320neo and 737MAX is generally
constrained by the market presence of earlier models, as the value of the latter's fuel
burn disadvantage tend to diminish on a dollar -for-dollar basis as neo and MAX prices
increase.1310
Airlines will be able to take the advertised and guaranteed fuel burn advantages of the
new generation aircraft and apply what they know about fuel prices and their own
operations to estimate these present values. This will allow them to quantify the
advantage that operating new generation aircraft offers to the airlines' bo ttom line
over current generation aircraft. In practice, Boeing and Airbus have had to "share"
the cost -savings and value advantages from new generation ne o and MAX with
single-aisle customers.1311
5.498. The Panel also considered the European Union's arguments that "the current versions of
Airbus and Boeing single -aisle LCA products {did} not place any significant pricing constraints on
their respective new generation models"1312 and "the only significant pricing constraints that affect
the sale of Airbus and Boeing ne w generation aircraft result exclusively from the competitive
pressures that the 737MAX and the A320neo place on each other ."1313 Based on its analysis of the
evidence adduced by the European Union, the Panel found that, "{w}hile operating costs
(including fu el-efficiency) {would} invariably play a significant role in any customer's purchase
decision, there {were} other factors that {would} also play an important role", such as
"price, fleet commonality, and date of delivery". 1314 The Panel further considered tha t
"the available date of delivery of a particular aircraft {would} weigh heavily in the economic
assessment that a potential customer {would} undertake of the value of that aircraft to its
business model and strategic objectives." 1315 In each case, the custom er would have to choose
between two options: (i) "buying a relatively higher priced {new generation} aircraft with
relatively low operating costs that is not available in the near term" ; or (ii) "buying a lower priced
{current version} aircraft with higher operating costs that is available in the near term ".1316
On this basis, the Panel agreed with the United States that "the superiority of the new generation
aircraft over current versions d elivered on the same date does not establish that the two sets of
LCA are not substitutable."1317 The Panel added:
to the extent that delivery dates may (alone or in combination with other non -price
factors) play a decisive role in a customer's purchase deci sion, it is apparent that
airlines wanting to purchase aircraft that can perform single-aisle missions are likely to
view the current versions and new generation models of Airbus and Boeing single-aisle
LCA to be potential substitutes.1318

1309 Panel Report, para. 6.1252.
1310 Panel Report, para. 6.1252 (quoting Bair Declaration (Panel Exhibit USA-339 (BCI)), para. 27
(emphasis added by the Panel)).
1311 Panel Report, para. 6.1252 (quoting Supplemental Mourey Statement (Panel Exhibit EU-124
(BCI/HSBI)), para. 23 (emphasis added by the Panel)). (additional fn omitted)
1312 Panel Report, para. 6.1251 (referring to European Union's comments on the United States' response
to Panel question No. 63, paras. 509-510).
1313 Panel Report, para. 6.1251.

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5.499. Thereafter, the Pan el turned to the arguments and evidence presented by the parties in
respect of specific sales campaigns. Based on its analysis, the Panel did not understand
the 2011 AirAsia, Cebu Pacific Air, GoAir, IndiGo, Lufthansa, Qantas/Jetstar, and TAM sales
campaigns "to be examples of situations where customers found new generation and current
versions of Airbus and Boeing single -aisle aircraft not to compete". 1319 Rather, the Panel
considered that "the fact that several airlines chose to purchase the A320neo over the 737NG,
simply suggest{ed} that each of the relevant customers found the A320neo to be a better fit with
its business model and strategic objectives, in the light of the economic value offered by
each aircraft, including the proposed terms and conditions of sale."1320
5.500. Turning to the 2011 American Airlines and 2011 -2012 Norwegian Air Shuttle campaigns,
the Panel found that these sales campaigns did "not show that the 737NG did not compete
sufficiently with the A320neo to conclude that the two aircraft are in different product markets,
but only that the A320neo, on the terms and conditions it was offered in that sales campaign, was
a very strong competitor".1321 The Panel added that, "{r}ather than showing that the 737NG {did}
not compete with the A320neo", the 2011 American Airlines sales campaign represented "a clear
example of one aspect of the very essence of competition between Airbus and Boeing"1322, namely,
"the introduction of technologically superior products for the purpose of winning the competition
for single-aisle aircraft customers ."1323 The Panel further stated that it did " not believe that the
acknowledged fuel-burn superiority of the new generation of Airbus and Boeing single -aisle LCA
necessarily mean{t} that they {did} not compete with current versions of their single -aisle
offerings."1324 Instead, the Panel recalled that "both manufacturers' new generation aircraft
{were} specifically intended to operate missions that {would} largely overlap those already
serviced by current versions ."1325 It was in this con text that the Panel stated that , "{in} order to
accept that the 737NG did not compete with the A320neo in these sales , {it} would have to be
convinced that in the absence of the A320neo, the same airlines would have preferred to purchase
no aircraft at all – in other words, that at the time of the sales, the A320neo had a temporary
monopoly."1326 As we understand it, this statement by the Panel concerns circumstances in which
the Panel could find that the 737NG and the A320neo did not compete in the context of a
particular sales campaign; it does not suggest that the Panel considered the degree and nature of
competition between different product types to be altogether irrelevant, as the European Union
suggests. Indeed, the Panel observed that the nature and deg ree of competition between product
types may vary "depending upon the particular circumstances of a sale".1327
5.501. As we see it, the Panel therefore sufficiently scrutinized the nature and extent of actual or
potential competition between the new generation and the current generation of Boeing and Airbus
single-aisle LCA , in light of th e arguments and evidence presented by the parties , to conclude
eventually that " the degree of demand -side substitution that exists between these two lines of
single-aisle aircraft is sufficient"1328 to confirm the United States' contention that, "for the purpose
of the serious prejudice disciplines of the SCM Agreement, all Airbus and Boeing single -aisle
aircraft compete in one and the same product market ."1329 In reaching this conclusion , the Panel
analysed the relevant qualitative factors concerning demand -side substitutability in its assessment
of the nature and extent of actual or potential competition, and also considered that, in the facts of
this dispute, "producing accurate and reliable quantitative evidence of the degree of demand -side
substitution between differ ent LCA products would be a formidable task. "1330 In particular,
the Panel considered that, "to generate accurate and meaningful results" in the use of quantitative
analysis for the purposes of identifying relevant product markets, "a significant volume of historical

1319 Panel Report, para. 6.1289.
1323 Panel Report, para. 6.1280. (emphasis added) We recall that, while assessing the general conditions
of competition in the LCA industry, the Panel considered that, as in the original proceedings, technological
innovation remained a key element of the competition between Airbus and Boeing. (Ibid., para. 6.1220)
1325 Panel Report, para. 6.1280.
1326 Panel Report, para. 6.1289. (italics original; underlining added)
1329 Panel Report, para. 6.1286.
1330 Panel Report, para. 6.1205.

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information on the prices actually paid by LCA customers" 1331 would be required. The Panel
"raised doubts about the availability of such actual pricing data" 1332, observ ing further that,
"when asked to disclose the anticipated A350XW B price information used by Professor Whitelaw to
derive the internal rates of return", the European Union "redacted the price data from its
response".1333 The Panel went on to observe that, "eve n with this information, the task of
performing a reliable econometric analysis of the demand for LCA products would face a number of
significant methodological and data challenges." 1334 In addition, the Panel considered the
"limited argumentation … advanced in respect of supply-side substitutability"1335 by the parties.1336
5.502. In sum, we are satisfied that the Panel's identification of the single -aisle LCA market as
comprising the new generation and the current generation of Boeing and Airbus single -aisle LCA
was based on a proper analysis of the competition between these products , which the Panel found
to demonstrate sufficient substitutability, in accordance with the standard articulated by the
Appellate Body in the original proceedings. We do not agree with the European Union that the
Panel's analysis of competition in the single -aisle LCA market was based on the premise that
two products would be "in separate product markets only where … customers would buy
no product at all if the subsidised product were unavai lable".1337 Nor do we agree with the
European Union that the Panel disregarded the European Union's arguments regarding the nature
and degree of competition between the new and current generati ons of Boeing and Airbus
single-aisle LCA such that they should be placed into different product markets. Rather, as noted,
the Panel considered those arguments but decided to reject them. In light of the foregoing
considerations, we are satisfied that the Panel's analysis identifying the single -aisle LCA market
reflects a proper reading of the term "market" in Article 6.3 of the SCM Agreement.
5.6.2.3.2 Twin-aisle LCA market
5.503. The European Union similarly submits that the Panel considered the intensity of
competition to be "irrelevant" when it found that "the A330 and the 777 belong in the same
product market because {the} 'potential customer base for the A330 {was} likely to at least
overlap with the range of customers that {would} be interested in the 777'" 1338 and, further, in
finding that "the A330-300 and the 777-200ER belong{ed} in the same product market " based on
the absence of evidence indicating that they exercise "competitive constraints on each other".1339
5.504. The United States contends that a n overlap in customer bases is highly relevant to
assessing demand-side substitutability and the dynamics of competition, but that "the Panel never
suggested that it was the only, or even the primary, reason for its product market definitions ".1340
According to the United States, the statement in the Panel Report that the European Union refers
to "is simply one observation" from a detailed analysis carried out by the Panel.1341
5.505. We recall in this regard that, in considering the "competitive relationship between the A330
and the 777" 1342, the Panel noted that "a customer's decision to purchase an LCA {wo uld} be
guided by the overall value of the aircraft package it is offered", in "the light of a number of
factors, including its particular business model; and one of the key determinants of an airline's
business model {would} be the types of missions it in tends to operate".1343 The Panel noted that
"passenger demand is a multi-faceted parameter that for any particular route " would "vary 'at all

1332 Panel Report, para. 6.1205.
1333 Panel Report, para. 6.1181 (referring to European Union's response to Panel question No. 132;
United States' comments on the European Union's response to Panel question No. 132).
1334 Panel Report, para. 6.1205.
1335 Panel Report, para. 6.1294. (emphasis original; fn omitted)
1336 Panel Report, paras. 6.1238, 6.1294, and 6.1372.
1337 European Union's appellant's submission, para. 597 (referring to Panel Report, paras. 6.1210,
6.1211, 6.1236, 6.1289, and 6.1382). (emphasis original)
1338 European Union's appellant's submission, para. 601 (quoting Panel Report, para. 6.1315 (emphasis
added by the European Union)).
1339 European Union's appellant's submission, para. 601 (quoting Panel Report, para. 6.1320).
1340 United States' appellee's submission, para. 333.
1341 United States' appellee's submission, para. 333.
1342 Panel Report, para. 6.1312.
1343 Panel Report, para. 6.1313.

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times of the day or from one season or year to the next', not only between different airlines but
also for an individ ual airline". 1344 Thus, the Panel considered that "the process of forecasting
required seating capacity and route structures over the commercial life of any particular aircraft for
a potential LCA customer {was} likely to be highly complex, bringing with it a certain measure of
risk."1345 Based on its analysis, t he Panel found it "difficult to see how the simple fact that the
A330 may be better suited than the 777" to "perform the particular range of medium -range
missions for which it {was} specifically designed necessarily implie{d} that it {would} face no
competition from the 777". 1346 The Panel went on to state that , "{i}f relative performance
advantages over optimized missions were a sufficient basis to identify relevant product markets in
the LCA sector" 1347, it would seem that "most, if not all, of the Airbus and Boeing twin -aisle
families of LCA would be in separate, narrowly defined, monopoly markets because , in one way or
another, all Airbus and Boeing twin -aisle LCA are differentiated in terms of their perfor mance
characteristics."1348
5.506. It was in this context that the Panel considered "the potential customer base {s}" for
the A330 and the 777 as part of its assessment of the competitive relationship between these
aircraft, noting that evidence of the existence of "an overlapping potential customer base … may
be highly relevant to the task of identifying LCA product markets."1349 In this respect, the
United States had pointed to "a number of examples of airlines having chosen to operate a range
of different twin -aisle a ircraft on the same routes" 1350, arguing that this "support{ed} the view
that there {was} a degree of overlap in the use of all twin -aisle aircraft" and, therefore, that
"one must be wary of narrowly defining bright lines to segment a product space " in light of the
"complex patterns of customer demand and product uses ".1351 Based on the evidence before it ,
the Panel found , for example, that the decision by Malaysia Airlines and Singapore Airlines
to "switch away from the 777 to the A330 provide {d} not only a clear example of demand -side
substitutability between two differentiated products" 1352, but "also demonstrate{d} the important
and undisputed role that technological development plays in a customer's choice of aircraft,
highlighting a key dimension of competition between Airbus and Boeing". 1353 We see no error in
the Panel's analysis in this regard. Nor do we understand the statements referred to by the
European Union 1354 to indicate that the Panel considered the intensity of competition in the
twin-aisle LCA market to be irrelevant . Indeed, as noted by the A ppellate Body in the original
proceedings, "when customers procure a range of products to satisfy their needs, this may give an
indication that all such products could be competing in the same market."1355
5.507. Moreover, we note that the Panel considered the European Union's arguments and came to
the conclusion that, for the Panel "to accept that the differences in {net present values} of the
A330 and 777 when performing optimized missions demonstrate{d} that the two aircraft {did} not
impose competitive constraints on each other" 1356 would be akin to finding that "only two types of
customers {were} presently interested in considering the two aircraft – either: (a) customers
looking for an aircraft to move a relatively large numb er of passengers over relatively lo ng routes
(who would favour the 777); or (b) customers wanting an aircraft to fly a smaller number of
passengers on medium -haul routes (who would choose the A330) ."1357 The Panel found the
European Union's position "to be overly simplistic and at odds with even its own description of the

1344 Panel Report, para. 6.1313 (quoting Supplemental Mourey Statement (Panel Exhibit EU-124
(BCI/HSBI)), para. 91).
1345 Panel Report, para. 6.1313.
1346 Panel Report, para. 6.1314.
1348 Panel Report, para. 6.1314.
1349 Panel Report, paras. 6.1316-6.1317.
1350 Panel Report, para. 6.1318.
1351 Panel Report, para. 6.1318 (quoting United States' comments on the European Union's response to
Panel question No. 75).
1353 Panel Report, para. 6.1322.
1354 European Union's appellant's submission, para. 601 (referring to Panel Report, paras. 6.1315
and 6.1320).
1355 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1120.
1357 Panel Report, para. 6.1344.

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core features of aircraft demand".1358 The Panel thus rejected the European Union's argument that
"the A330 and 777 are each sold in their own separate monopoly markets f or smaller,
medium-range aircraft (in the case of the A330) and larger, longer -range aircraft (in the case of
the 777) that are available for near-term delivery."1359
5.508. Turning to the A350XWB, the Panel recalled the European Union's contention that
"the A350XWB and the 787 closely co mpete{d} in the same product market for techno logically
advanced and fuel -efficient new generation aircraft" .1360 However, the Panel considered that the
fact that Airbus chose to highlight "the alleged performance advantages of the A350XWB-900 over
the 787 -9 and the 777 -200ER at the time of launch " suggested that "it must have expected
potential customers to be interested in learning about the relative performance characteristics of
all three aircraft ".1361 The Panel further noted that, "since it was launched, Ai rbus … continued to
market the A350XWB family as an alternative to both the 787 and the 777 ."1362 The Panel
considered that the fact that the evidence on record sought "to highlight the 'competitiveness' of
the technologically advanced A350XWB by focusing on its relative performance advantages over
the 787, 777, and 767 " was consistent with the fact that " the A350XWB was developed for the
specific purpose of winning sales from a range of customers that would otherwise be potentially
interested in the performance characteristics of, at least, all three families of Boeing aircraft."1363
5.509. The Panel further found that there was evidence to suggest that " Airbus intended to win
sales away from the 787 not only using the A350XWB, but also the A330 ."1364 In this regard,
the Panel considered that it did "not understand the lack of near -term delivery positions for
one aircraft compared to another to necessarily mean that they do not impose any competitive
constraints on each other ".1365 According to the Panel, the evidence on reco rd recognized that
"the A330 was … in a competitive relationship with the 787" 1366, and in particular ,
"the Mourey Statement … explain{ed} that 'as a result of Boeing's launch of the 787 {in 2004},
for a number of years, the A330 saw its prices, orders and ma rket share drop dramatically,
with airlines ordering the 787'." 1367 In the Panel's view, these con siderations suggested that
"the 787 and the A350XWB {did} not merely face competitive c onstraints from each other,
but also from other twin-aisle aircraft."1368
5.510. As regards the 767, the Panel found that "the range of missions and operating
performance offered by the 767" were "somewhat limited compared with the larger versions of the
787, and the 777 and A350XWB families".1369 The Panel noted that the evidence indicated that the
767 and the A330 were roughly the same size offering a "comparable range" 1370, and further that,
with the introduction of the 787, the sales of both "the 767 and the A330 were significantly
affected".1371 This, in the Panel's view, suggested the possib ility that customers were choosing
Boeing's new generation aircraft over both the A330 and the 767. 1372 The Panel also found
evidence that the A330 was marketed "by comparing its sales performance and operating
characteristics against not only the 777 and 787 , but also the 767 ".1373 Finally, the Panel
considered that, "{a}s an 'eventual replacement' of an aircraft, which at the time, was considered
by Airbus to be a better performing rival to the 767", it logically followed that "the A350XWB would
inevitably appeal to a range of customers including some of those that may have been interested
in exploring the suitability of the 767 or the A330." 1374 To that extent, we find the Panel to have

1358 Panel Report, para. 6.1344 (referring to paras. 6.1311-6.1322).
1359 Panel Report, para. 6.1293.
1360 Panel Report, para. 6.1293.
1365 Panel Report, para. 6.1311.
1366 Panel Report, para. 6.1310.
1367 Panel Report, para. 6.1310 (quoting Mourey Statement (Panel Exhibit EU-8 (BCI)), para. 88).
1368 Panel Report, para. 6.1365.
1369 Panel Report, para. 6.1327.
1372 Panel Report, para. 6.1327.
1373 Panel Report, para. 6.1327. (emphasis and fn omitted)
1374 Panel Report, para. 6.1327.

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addressed and rejected the European Union's argument that the 767 did not comp ete with the
A330 and that, in any case, it had been replaced by the 787.1375
5.511. The Panel observed that "the competitive relationships between all five families of Airbus
and Boeing twin -aisle aircraft {ha d} been constantly evolving, reflecting not only changin g
demand … but also the pace and nature of aircraft innovation ."1376 The Panel further
explained that:
in terms of basic physical characteristics and end -uses, the five families of Airbus and
Boeing twin-aisle LCA are, as a whole, able to satisfy a relativel y broad spectrum of
mission requirements starting with the regional routes serviced by the smaller 767 and
A330 families of aircraft and ending with the larger capacity, long -haul, missions for
which the bigger versions of the 777 and A350XWB were specifically designed.1377
5.512. However, as noted above, in rejecting the European Union's contention, the Panel
cautioned that , "to say that every time a newly introduced technologically advanced or more
efficient aircraft wins sales against existing models mean {t} that it face {d} no competitive
constraints from aircraft that were not chosen by those customers", would be "incorrect and an
oversimplification of the complicated dynamics of competition in the LCA industry". 1378 The Panel
therefore did "not consider {that} the superior operating performance of the new generation of
Airbus and Boeing twin -aisle aircraft compared with their current generation models signal{ed}
that they {were} sold {in} separate product markets."1379
5.513. As we see it, the Panel's analysis concerning the twin -aisle market took into account the
competing arguments and evidence put forward by the European Union in support of its position.
In our view, the Panel's identification of the twin-aisle LCA market as comprising the Boeing 767,
777, 787 and the Airbus A330 and A350XWB families was based on a proper analysis of the
competition between these products , which the Panel found to demonstrate sufficient
substitutability, in accordance with the standard articu lated by the Appellate Body in the original
proceedings. Before reaching this finding, the Panel discussed the parties' arguments regarding the
intensity of competition between various twin -aisle LCA offered by Boeing and Airbus. As we
understand it, the e xistence of meaningful competition was not contested between the parties in
relation to certain Airbus and Boeing product pairings (the A350WXB and the 787). However, the
parties disagreed on the nature and degree of competition between other A irbus and Bo eing
twin-aisle LCA (the 767, 777, and A330). Having evaluated the parties' arguments regarding the
varying degrees of competitive relationship between these twin -aisle LCA, we see no reason to
disagree with the Panel 's conclusion that "all five families o f Airbus and Boeing twin -aisle LCA
exercise{d} differing but overall sufficient degrees of competitive constraints against each other
such that they should all be considered to fall within the same product market for the purpose of
the serious prejudice claims".1380 In light of the foregoing considerations, we are satisfied that the
Panel's analysis identifying the twin -aisle LCA market reflects a proper reading of the term
"market" in Article 6.3 of the SCM Agreement.
5.6.2.3.3 VLA market
5.514. With regard to the Panel's ana lysis of the VLA market, the European Union points to yet
another statement by the Panel, arguing that it demonstrates that the Panel treated the nature
and extent of competition as "irrelevant". 1381 Specifically, the Euro pean Union takes issue with
the Panel's statement that:
to accept that the A380's relative performance advantage over the 747 -8I places it in
a monopoly market, we would have to accept that the A380 was developed to

1375 Panel Report, paras. 6.1293 and 6.1338.
1376 Panel Report, para. 6.1367.
1377 Panel Report, para. 6.1363.
1379 Panel Report, para. 6.1364.
1380 Panel Report, para. 6.1370.
1381 European Union's appellant's submission, para. 599.

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exclusively serve a particular customer space that the 747 (or indeed any other
aircraft) could not attract.1382
5.515. The United States recalls that the Panel extensively di scussed the reasons why the
two aircraft compete with one another , including the existence of an overlapping customer base ,
which in turn was consistent with "the pattern of competitive interaction that drives Airbus ' and
Boeing's supply decisions". 1383 The United States further notes the Panel's description of the
strategy employed by both LCA producers to meet demand with the fewest possible product lines
to satisfy a wide array of requirements .1384 Thus, the United States submits that the Panel 's
statement highlighted by the E uropean Union was intended to explain that "the
{European Union's} theory of the A380 being placed in a monopoly market would require
accepting that the A380 was devel oped not to compete with Boeing' s nearest competitor, but
rather to serve a customer space that the 747 could not attract, which is contrary to the evidence
regarding how Boeing and Airbus develop their product lines."1385
5.516. We begin by notin g that the statement quoted by the European Union was made by the
Panel in the context of analysing the physical and performance characteristics, end -uses, and
customers for the A380 and the 747 -8I to determine if the A380 and the 747 -8I fell within the
same product market – i.e. the product market for VLA, as proposed by the United States.
However, prior to that , the Panel had considered that, as regards the A380 and the 747-8I,
"the essential point of divergence between the parties … focused on the conclu sions that {could}
be drawn about the degree of demand -side substitutability that exist{ed} between the A380 and
the 747-8I as a result of their relative performance advantages."1386 Thus, the Panel was aware of
its task to consider the nature and degree of d emand-side substitutability, a factor that the
Appellate Body, in the original proceedings, considered to be "indispensable" when assessing
whether two products are in a single market.1387
5.517. The Panel began by setting out the following table of data submitted by the parties.
Table 7: Basic physical and performance characteristics of Airbus and Boeing VLA1388
Model
Typical
Seats
(Airbus /
Boeing)

MTOW (t)
(Airbus /
Boeing)
Max Range
(nm)
(full capacity)
(Airbus /
Boeing)
Length
(m)
Wing Span
(m)
(Airbus /
Boeing)
2011
List
Price
(USD M)
A380-800 525 / 555 560 / 633.9 8,500 / 7,870 72.72 /
72.70
79.75 / 79.80 375.3
747-8I 405 / 467 447.7 /
493.5
7,600 / 7,760 76.30 68.50 332.9
Source: Panel Report, Table 18 at paragraph 6.1373.

1382 European Union's appellant's submission, para. 600 (quoting Panel Report, para. 6.1382 (emphasis
added by the European Union)).
1384 United States' appellee's submission, para. 332.
1385 United States' appellee's submission, para. 332.
1387 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1121.
1388 Panel Report, para. 6.1373, Table 18 (referring to Mourey Statement (Panel Exhibit EU-8 (BCI)),
Table 7; Bair Declaration (Panel Exhibit USA-339 (BCI)), para. 43).

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5.518. The Panel considered that, although the European Union denied the existence of anything
more than "weak or minimal" competition between the 747 -8I and the A380 1389,
the Mourey Statement "recognize{d} that the two aircraft ' {were} the closest to one another' in
terms of size" 1390 and, "moreover, 'ha {d} similar range capabilities' , meaning that they {could}
both 'generally be used for the same long -haul routes'."1391 Accordingly, the Panel noted that the
parties therefore "seem{ed} to agree that the differe nces between the A380 and the 747 -8I in
terms of size and flying range {did} not preclude the possibility that, in general, the two aircraft
{could} be used to serve the same long-haul routes."1392
5.519. The Panel noted that the A380 and the 747-8I were the largest civil aircraft produced by
Airbus and Boeing, and c ould both genera lly be used to cover the same long -haul routes .1393
The Panel stated that , "{w}hile the A380's larger seating capacity and relatively modern
technologies mean{t} that it ha{d} a per/seat oper ating cost and revenue advantage over the
747-8I", the Panel considered that "this advantage {would} decrease the closer the expected
seating capacity of a particular mission {was} to the maximum seating capacity of the 747 -8I".1394
For the Panel, "{t}he smal ler the difference, the greater {was} the possibility that the A380's
advantage might be overcome by a combination of other factors informing a customer's purchase
decision, including price, fleet commonality and/or delivery date." 1395 Thus, the Panel considered it
"apparent from the conditions of competition in the LCA industry that the A380 and the 747 -8I
{would} have a potential customer base that {would} include airlines with mission requirements
that overlap the capabilities of the two aircraft ."1396 The Panel found that a number of features of
demand and supply of LCA products 1397 suggested that "the potential customer base of the A380
{was} likely to be broader, encompassing not only airlines projecting consistently high levels of
passenger demand, but also ai rlines with lower or varying projections of passenger demand
overlapping the capacities of the A380 and the 747 -8I."1398 The Panel concluded that "{t}hese
general and A380-specific features of LCA demand {did} not weigh in favour of the argument that
the A380's potential customers {would} only ever seriously consider purchasing it for the purpose
of missions that {could not} also be serviced by the 747 -8I".1399 This, according to the Panel,
"implie{d} that … there {were} customers that {would} explore the economi cs of both the A380
and the 747-8I for the purpose of performing comparable missions".1400
5.520. It was in this context that the Panel stated that , "to accept that the A380's relative
performance advantage over the 747 -8I place {d} it in a monopoly market, {it} would have to
accept that the A380 was developed to exclusively serve a particular customer space that the 747
(or indeed any other aircraft) could not attract."1401 As we understand it, the Panel appears, in this
context, to ha ve simply expressed this view only with respect to the A380's relative performance
advantage over the 747 -8I. It does not follow from this that the Panel considered that the A380
and the 747 -8I would compete in the same market regardless of the nature and degree of
competition that exist ed between them. As we recall, the Panel found that the conditions of
competition revealed that "the A380 and the 747 -8I {would} have a potential customer base that
{would} include airlines with mission requirements that ove rlap the capabilities of the two
aircraft."1402 The Panel's analysis is in consonance with the Appellate Body's guidance in the
original proceedings that, in determining "whether two products compete in the same market … it
may also be relevant to consider wh ether customers demand a range of products or whether they

1389 Panel Report, para. 6.1378 (quoting Supplemental Mourey Statement (Panel Exhibit EU-124
(BCI/HSBI)), para. 65; European Union's second written submission to the Panel, para. 690).
1390 Panel Report, para. 6.1378 (quoting Supplemental Mourey Statement (Panel Exhibit EU-124
(BCI/HSBI)), para. 79).
1391 Panel Report, para. 6.1378 (quoting Mourey Statement (Panel Exhibit EU-8 (BCI)), para. 149).
1392 Panel Report, para. 6.1378.
1393 Panel Report, para. 6.1407.
1394 Panel Report, para. 6.1407.
1396 Panel Report, para. 6.1407. (emphasis added; fn omitted)
1397 Panel Report, para. 6.1380.
1398 Panel Report, para. 6.1379.
1400 Panel Report, para. 6.1381.
1401 Panel Report, para. 6.1382.

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are interested in only a particular product type ."1403 In case of the former, the Appellate Body
considered that, "when customers procure a range of products to satisfy their needs, this may give
an indication that all such products could be competing in the same market."1404
5.521. Moreover, we note that the Panel's analysis did not end there. Instead, after reviewing the
evidence on record, the Panel noted that , "outside of the context of this proceeding, Air bus ha{d}
consistently maintained the view that the potential customers of the A380 {would} also be likely
to seriously consider the 747 -8I in a segment of the LCA market that {was} covered by no
other aircraft."1405
5.522. As it did in the context of its analysis of competition in the single-aisle and twin-aisle LCA
markets, the Panel next turned to consider whether the existence of competition between the
A380 and the 747 -8I was evidenced by the pricing pressure that each aircraft imposed upon
the other.
5.523. Before th e Panel, t he United States had referred to certain HSBI evidence, which,
according to the United States, revealed Boeing's net present value analyses and pricing
considerations with respect to both aircraft in the 2007 Emirates and 2006 British Airways sal es
campaigns.1406 The United States additionally argued that "the existence of reciprocal pricing
constraints follow{ed} logically from the dynamics of sales negotiations in the LCA industry, where
'companies bargain over prices based on the best alternative to negotiated agreement … faced by
each player'." 1407 The Panel noted that, while the European Union accepted that "the A380's
presence ha{d} caused significant pricing pressure on the 747-8I"1408, it denied that "the 747 -8I
constrain{ed} Airbus' pricing of the A380 in any substantial way" 1409, asserting further that , just
because "the 747-8I may be the 'closest alternative' to the A380 {did} not … reveal the degree of
competition that exist {ed} between the two products, and for this reason, it {was} legally and
factually insufficient to establish the requisite demand-side substitutability."1410
5.524. The Panel agreed that "the mere fact that one aircraft may be an 'alternative' to another
for the purpose of flying the same missions {said} little about the degree of competition that
exist{ed} between those aircraft". 1411 The Panel also considered that "the HSBI evidence relied
upon by the United States … represent{ed} no more than Boeing's view that at a cert ain point in
time during the 2007 Emirates and 2006 British Airways sales campaigns, [BCI]".1412 Addressing
the European Union's net present value analyses of the A380 and the 747-8I, the Panel found that
the net present value comparison analysis conducted in the Supplemental Mourey Statement
"fail{ed} to demonstrate that the two aircraft {did} not compete with one another in the same
product market".1413 The Panel reasoned that "all that the {net present value} analyses ultimately
demonstrate{d} {was} that, excluding price, fleet commonality, delivery date and other factors …
the A380 {would} have a significant operating cost and revenue advantage over the 747 -8I on

1403 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1120. (emphasis
added)
1404 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1120.
1405 Panel Report, para. 6.1383.
1406 Panel Report, para. 6.1387 (referring to United States' response to Panel questions No. 53,
para. 176 (HSBI) and No. 58; [[HSBI]] (Panel Exhibit USA-539 (HSBI)); [[HSBI]] (Panel Exhibit USA-557
(HSBI))).
1407 Panel Report, para. 6.1387 (quoting United States' response to Panel question No. 54, para. 177;
Expert Declaration of Dr Chetan Sanghvi, NERA, 21 May 2013 (Panel Exhibit USA-530), paras. 40-41).
1408 Panel Report, para. 6.1388 (referring to European Union's second written submission to the Panel,
para. 693).
1409 Panel Report, para. 6.1388 (referring to European Union's first written submission to the Panel,
and fn 434 to para. 256; comments on the United States' response to Panel question No. 54, para. 392).
1410 Panel Report, para. 6.1388 (referring to European Union's comments on the United States' response
to Panel question No. 53, paras. 381-382).
1411 Panel Report, para. 6.1390.
1413 Panel Report, para. 6.1394.

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missions where the latter {could not} satisfy the demand for seating capacity, which demand
{could} only be met by one aircraft in the LCA industry – the A380."1414
5.525. The Panel further noted that , as the A380 and the 747 -8I were the only two aircraft
capable of flying well over 400 passengers on long -haul routes, the Panel found it "difficult to
believe that airlines interested in purchasing LCA with capabilities such as those of the A380 and
the 747 -8I would not try to negotiate and obtain price discounts" from Airbus and Boeing on
"the basis of the strength of each company's respective sales offer, even wh en the superiority of
one aircraft over the other may be relatively apparent". 1415 The Panel found that "the fact that
Airbus may {have} face{d} relatively less pricing pressure from the 747 -8I when a potential
customer {was} looking for an LCA with a seating capacity that approximate {d} the maximum
capacity of the A380 {did} not necessarily signal the absence of reciprocal pricing constraints ."1416
Rather, according to the Panel, "given that there {would} be a range of customer demands for
LCA with a passenger c apacity exceeding 400 seats", one would "expect to find differing degrees
of reciprocal pricing constraints between the A380 and the 747 -8I, depending upon how close a
particular customer's needs reflect {ed} the relative advantage of one aircraft over the other."1417
The Panel concluded that , "{a}t either end of this range of customer needs, one aircraft {would}
impose greater pricing pressure on the other ."1418 However, according to the Panel, this did "not
imply the absence of competition, but only that the competitive constraints imposed by one LCA
on the other {would} be more or less intense depending upon which product more closely
satisfie{d} the relevant needs of a potential customer ".1419 As we understand it, this statement
suggests that the Panel considered the nature and degree of competition between these
two product types to vary depending upon the needs of a customer. In our view, this is in line with
the Panel's observation that the nature and degree of competition between prod uct types could
vary "depending upon the particular circumstances of a sale ".1420 We do not find the Panel to have
considered the nature and degree of competition between these two product types to be
altogether irrelevant, as the European Union suggests.
5.526. Turning to the sales campaigns at issue, the Panel considered that , although it had no
evidence before it "of actual customer evaluations of the economics of the A380 and the 747 -8I",
the United States' "HSBI evidence of Boeing's analysis of the competitive interaction between the
two aircraft in the 2007 Emirates and 2006 British Airways sales campaigns" 1421 suggested that,
"according to Boeing, at a certain point in time during those campaigns, [BCI]."1422 The Panel
found this to be consistent with "not only the evidence showing that Airbus considered competition
for the British Airways' sales to be 'intense'" 1423, but also that, from "the evidence {it had}
reviewed from four other sales campaigns (Asiana Airlines, Hong Kong Airlines, Skymark and
Qantas)", it was "apparent that Boeing presented the 747 -8I as an alternative to the A380 with a
view to winning sales from the relevant customers."1424 In particular, the Panel considered that the
sales campaign for British Airways showed that Airbus appeared "to have explicitl y recognized the
existence of ' intense' competitive pressure, with its then -CEO, Tom Enders, describing the British
Airways sales campaign as having involved 'an intensive year -long competitive evaluation' ."1425
Moreover, we also recall that, in its analysis of the sales campaigns for Transaero, Korean Air, and
Lufthansa, the Panel noted that , "{w}hile {it} agree {d} with the European Union that the
evidence … suggest{ed} that the three airlines purchased the A380 and the 747 -8I to fill different
capacity segments of their operations", the Panel did "not believe that this alone implie{d} that
the two LCA were sold to each customer in the absence of effective competition."1426

1414 Panel Report, para. 6.1394.
1415 Panel Report, para. 6.1408.
1416 Panel Report, para. 6.1408.
1417 Panel Report, para. 6.1408.
1418 Panel Report, para. 6.1408.
1423 Panel Report, para. 6.1409.
1424 Panel Report, para. 6.1409.
1425 Panel Report, para. 6.1402 (quoting EADS Press Release, "British Airways to buy 12 Airbus A380
aircraft for long haul fleet", 27 September 2007 (Panel Exhibit USA-256)). (emphasis added)
1426 Panel Report, para. 6.1405.

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5.527. Based on its analysis , the Panel found that "despite som e appreciable differences",
the A380 and 747 -8I are "sufficiently similar to be considered by air lines wanting to … operate
long-haul, slot -constrained missions requiring a maximum se ating capacity in excess
of 400 passengers".1427 The Panel concluded that the United States had established that, "for the
purpose of evaluating its claims of serious prejudice under Article 6.3 … the A380 and 747 -8I
{could} be considered to compete against each other in one single product market for VLA." 1428
The Panel further considered that its "conclusion reflect{ed} the Appellate Body's explicit
confirmation … that 'there {was} competition between the Airbus A380 and the Boeing 747 and
that Airbus and Boeing competed for the Emirates' Airlines A380 orders in 2000."1429
5.528. Based on the above, we see no interpretative error in the Panel's reading of the term
"market", and the standard it sought to apply. Nor do we agree with the European Union that the
Panel considered the nature and degree of competition in the VLA market to be irrelevant for
purposes of its analysis. Indeed, as noted, the Panel clarified that "{t}here {would} be weaker and
stronger competitive relationships within each market depending upon the particular
circumstances of a sale ."1430 We also disagree with the European Union to the extent that it
suggests that the Panel failed to consider whether these product types were sufficiently
substitutable to be placed i nto the same market, or that the Pane l disregarded the
European Union's argument that "the larger passenger capacity and advanced technologies of the
A380" meant that "the A380 ha{d} an insurmountable per{} seat operating cost advantage and
generate{d} hig her revenues … placing it in a separate product market." 1431 Rather,
we understand the Panel to have considered these arguments but rejected them based on its
review of the parties' arguments and of evidence regarding physical characteristics, end -uses,
customers, pricing constraints, and sales campaigns. In light of t he foregoing considerations,
we are satisfied that the Panel's analysis identifying the VLA product market reflects a proper
reading of the term "market" in Article 6.3 of the SCM Agreement.
5.529. Moreover, we understand that the Panel took into account the European Union's contention
that "differing degrees of less-than-vigorous competition exist{ed} between other combinations of
Airbus and Boeing aircraft" 1432, and that, "in some cases, an LCA product of one manufacturer
{could} impose significant competitive constraints on another LCA product without having to face
any or the same level of competitive constraint from that product itself ."1433 In particular,
the Panel recalled that, according to the European Union, there was "'limited' or 'very little'
competition between the new and current generations of Airbus a nd Boeing single -aisle and
twin-aisle aircraft" 1434; "'little' or 'weak' competition between the A330 an d all three families of
Boeing twin-aisle LCA"1435; and "'very limited' or 'very weak' competition between the A380 and
the 747-8".1436 However, on balance, the Panel considered that, "while it {was} apparent that the
three product markets the United States {had} chosen to rely upon to bring its complaint … {did}
not exhaustively capture how competition takes place between aircraft in the LCA sector at all

1427 Panel Report, para. 6.1386.
1428 Panel Report, para. 6.1410.
1429 Panel Report, para. 6.1410 (quoting Appellate Body Report, EC and certain member States – Large
Civil Aircraft, paras. 1227-1228).
1430 Panel Report, para. 6.1416.
1431 Panel Report, para. 6.1377 (referring to European Union's first written submission to the Panel,
paras. 626-629; second written submission to the Panel, para. 691; response to Panel question No. 49,
para. 222; Mourey Statement (Panel Exhibit EU-8 (BCI)), paras. 151-152 and 160; Supplemental Mourey
Statement (Panel Exhibit EU-124 (BCI/HSBI)), paras. 67-69).
1432 Panel Report, para. 6.1413.
1433 Panel Report, para. 6.1413.
1434 Panel Report, para. 6.1413 (referring to European Union's first written submission to the Panel,
paras. 491, 602, 604, and 718; second written submission to the Panel, paras. 636, 639, and 677; Mourey
Statement (Panel Exhibit EU-8 (BCI)), para. 82; Supplemental Mourey Statement (Panel Exhibit EU-124
(BCI/HSBI)), paras. 10, 13, 19, and 22).
1435 Panel Report, para. 6.1413 (referring to European Union's first written submission to the Panel,
para. 860; Supplemental Mourey Statement (Panel Exhibit EU-124 (BCI/HSBI)), paras. 10, 26, 35, 43, 50-51,
and 60).
1436 Panel Report, para. 6.1413 (referring to European Union's first written submission to the Panel,
para. 629; second written submission to the Panel, para. 690; response to Panel question No. 58; Mourey
Statement (Panel Exhibit EU-8 (BCI)), para. 176; Supplemental Mourey Statement (Panel Exhibit EU-124
(BCI/HSBI)), para. 65).

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times", it was satisfied that "they represent{ed} the three segments within which most
competitive interactions between the relevant aircraft {would} commonly take place."1437
5.530. As we see it, th is discussion by the Panel, including its emphasis on the three market
segments as areas where the "most competitive interactions" take place , clearly suggests that the
Panel considered the intensity of competition between concerned aircrafts to be relevant, and
sought to take it into account in its analysis. We therefore do not agree with the European Union
that the Panel sought simply to assess whether there were " some" comp etitive constraints or
interactions among different LCA models. Instead, we agree with the United States that, consistent
with the Appellate Body's guidance, the Panel was aware of the differences in the degree of
competition between products 1438 and "did not define markets based on the slightest competitive
constraints or interactions, as evidenced by its finding that the three -market delineation does not
'exhaustively capture how competition takes place between aircraft in the LCA sector at all
times'."1439 Our review above also suggests that the Panel's three -way product market delineation
was based on a proper analysis of the competition between relevant LCA that the Panel found to
demonstrate sufficient substitutability, in accordance with the standard articu lated by t he
Appellate Body in the original proceedings.
5.531. Finally, the European Union contends that the Panel considered the intensity of competition
to be "irrelevant" when it stated that " Airbus' and Boeing' s mere participation with a particular
product offering in a sales campaign {} was 'highly relevant to {the} task of determining the
existence of relevant product mark ets', because it indicated that the manufacturer had a
reasonable expectation of 'imposing some level of competitive constraint on its ri val's
offering'."1440
5.532. For its part, t he United States recalls the Panel's explanation that " it is difficult to believe
that Airbus or Boeing would go to the expense of participating in a sales campaign if either
company did not believe it had a reasonable ch ance of convincing a customer to purchase its own
LCA products ahead of those of its rival or, at the very least, imposing some level of competitive
constraint on its rival's offering." 1441 The United States submits that t he Panel was correct in this
analysis and that nothing suggests that the Panel considered the intensity, degree, or level of
competition to be "irrelevant".1442
5.533. We recall the Panel's finding that "evidence showing that Airbus and Boeing presented or
formally offered one or more LCA products for consideration in a particular sales campaign
{would} be highly relevant to {its} task of determining existence of relevant product markets."1443
The Panel considered such evidence to "strongly suggest that a customer's ultimate purchase
decision {would} be i nformed by its consideration of the relative strengths and weaknesses of
either company's respective offerings." 1444 In support, the Panel recalled the Appellate Body's
finding in the original proceedings dismissing the European Union's appeal against the ori ginal
panel's conclusion that "an order for A380s made by Emirates Airlines in 2000 constituted
'lost sales' to the United States' LCA industry, notwithstanding the absence of any formal aircraft
offer having been made on the part of Boeing."1445 Contrary to what the European Union suggests,
we do not understand the Panel to have treated participation in a particular sales campaign as
determinative of two products competing in the same market. Rather, the Panel stated that it was

1437 Panel Report, para. 6.1416. (emphasis added) In a footnote, the Panel also recalled that, during the
original appellate proceedings, "the parties appeared to accept (or at least did not object to the notion) that
competition in the LCA industry could be viewed as taking place in three distinct passenger aircraft product
markets, namely, the single-aisle, twin-aisle and VLA markets", noting further that the Appellate Body went on
to "complete the analysis" on the basis of the same three product markets. (Ibid., fn 2416 thereto)
1438 United States' appellee's submission, para. 349.
1439 United States' appellee's submission, para. 349 (quoting Panel Report, para. 6.1416). (emphasis
original)
1440 European Union's appellant's submission, para. 601 (quoting Panel Report, para. 6.1348 (emphasis
added by the European Union)).
1442 United States' appellee's submission, para. 333.
1443 Panel Report, para. 6.1348.
1444 Panel Report, para. 6.1399.
1445 Panel Report, para. 6.1349. See also Appellate Body Report, EC and certain member States – Large
Civil Aircraft, para. 1223.

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difficult to believe that "Air bus or Boeing would go to the expense of participating in a sales
campaign if either company did not believe it had a reasonable chance of convincing a customer to
purchase its own LCA products ahead of those of its rival" or, "at the very least, imposing some
level of competitive constraint on its rival's offering." 1446 We see nothing objectionable per se in
these statements. Nor do we understand the Panel to have discounted the intensity of competition
between the relevant LCA in coming to its three -way market delineation. Instead, as considered
above, the Panel's overall analysis, in our view, shows that the Panel's assessment and
identification of the three product markets was based on competition that was "meaningful"
between the relevant pairings of LCA.
5.534. In light of the foregoing considerations, we do not agree with the European Union to the
extent that it claims that the Panel erred in its interpretation of the term "market" in Article 6.3 of
the SCM Agreement.1447 Instead, our review above of the Panel's product market analysis,
including for each of the three LCA markets, shows that the Panel did not er r in its interpretation
of the term "market" in Article 6.3 of the SCM Agreement.
5.6.2.4 Whether the Panel erred in its application of Article 6.3 of the SCM Agreement
5.535. The European Union submits in the alternative that, even assuming that the Panel properly
interpreted Article 6.3 of the SCM Agreement, it nonetheless erred in applying this provision to the
facts of this case. 1448 In this regard, the European Union recalls that both parties agreed that,
under a broad approach to the interpretation of the term "market" , all LCA could be placed in the
same product market. 1449 The European Union adds that the evidence offered by the parties
"is consistent with the Panel's findings of the existence of competition between aircraft that the
United States placed into separate pr oduct markets"1450, pointing in particular to the competition
between the 747 -8 (placed in the VLA market) and the 777 -300ER and the A350XWB -1000
(placed in the twin -aisle LCA market), as cited by the Panel itself. 1451 Therefore, the
European Union contends that , "{h}aving recognised that competition existed {among} all LCA,
the Panel should have applied its product market standard to find a single product market in which
all LCA (if not also a range of other means of transport) competed".1452
5.536. The United States cou nters that the European Union's argument is based on "the flawed
premise that the Panel 'replaced the Appellate Body's 'significant competitive constraints' standard
with a standard based on the mere existence of competitive constraints'." 1453 The United States
further submits that neither party argued for broader product market definitions, and that, "in any
event, broadening the definitions would have risked including products in the same market that
placed insufficient competitive constraints on each other."1454
5.537. We understand this aspect of the European Union's appeal to be predicated on its view that
the Panel considered the existence of any or some competition to be sufficient to support a finding
that two products fall within the same product market. We hav e disagreed with that proposition
above. Instead, we have found that the Panel's three -way product market delineation was based
on a proper analysis of the competition among relevant LCA that the Panel found to demonstrate
sufficient substitutability, in accordance with the standard articulated by the Appellate Body in the
original proceedings . In these circumstances, we see no reason to further engage with the
arguments advanced by the European Union in this regard.

1446 Panel Report, para. 6.1348.
1447 European Union's appellant's submission, para. 615.
1448 European Union's appellant's submission, para. 616. We note that the European Union requests us
to consider this appeal only if we reject the European Union's appeal concerning the Panel's interpretation of
the term "market" in Article 6.3, and instead consider that the Panel properly interpreted the term "market".
1449 European Union's appellant's submission, para. 619.
1450 European Union's appellant's submission, para. 620.
1451 European Union's appellant's submission, para. 621 (referring to Panel Report, fn 2415 to
para. 6.1416).
1452 European Union's appellant's submission, para. 623.
1453 United States' appellee's submission, para. 348 (quoting European Union's appellant's submission,
para. 624).
1454 United States' appellee's submission, para. 350.

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5.6.2.5 Article 11 of the DSU
5.538. In a final set of arguments, the European Union claims that the Panel acted inconsistently
with its obligations under Article 11 of the DSU by viewing its task as consisting solely of carrying
out an examination of "whether there existed intra-market competition between products that the
United States had placed within each of its three alleged product markets" .1455 According to the
European Union, this was not sufficient , given that the Panel was also required to assess whether
"the competitive dynamic between a given pairing of aircraft, which the United States asserted to
be in two separate product markets, was such that the aircraft should instead be placed in the
same product market." 1456 The European Union contends that, "on the sole basis that the
United States alleged them to be in different product markets, the Panel neglected altogether to
examine whether the A321neo exerts competitive constraints on the 767, or whether the
777-300ER or the A350XWB -1000 exert competitive constraints on the 747 -8".1457
The European Union submits that this constitutes error under Article 11 of the DSU.1458
5.539. For its part, the United States submits that "the Panel determined that the three product
markets outlined by the United States provided a proper basis to analyze allegations of
displacement, impedance, and lost sales"1459, while recognizing, based on the voluminous evidence
adduced by the parties, that "important competitive relationships may also exist between pairings
or combinations of aircraft across two, or even all three, of the product markets."1460 However, the
Panel determined that, "while it {was} apparent that the three product markets the United States
ha{d} chosen to rely upon to bring its complaint of non-compliance {did} not exhaustively capture
how competition takes place between aircraft in the LCA sector at all times ", it was "satisfied that
at present (as in the original proceeding) they represent {ed} the three segments within which
most competitive interactions between the relevant aircraft will commonly take place." 1461
In respect of the European Union's assertion that the Panel neglected to examine, for example,
whether the A321neo exert ed competitive constraints on the 767, the United States submits that,
"{d}espite submitting thousands of pages of briefing and thousand s of exhibits, neither party
suggested that the A321neo (which is in the A320 family) and the 767 were in the same
market."1462 Accordingly, the United States maintains that there was no reason for the Panel to
"explain in detail why these products were not p laced in the same market ".1463 The United States
adds that the Panel "conducted an exhaustive review of all of the evidence and argumentation
submitted by the parties, and gave equal consideration to both parties' proposals" 1464, and did not
act inconsistently with Article 11 of the DSU.1465
5.540. For purposes of identifying relevant product market(s) in the context of a serious prejudice
analysis under Articles 6.3(a) and 6.3(b) of the SCM Agreement, the mandate of a panel under
Article 11 of the DSU is " to make an objective assessment of the competitive relationship between
specific products in the marketplace and to define the relevant product market in order to
determine whether particular products can be treated as forming part of a single product market
or several pr oduct markets ".1466 In this regard, a panel is called upon to carry out a holistic
consideration of all the relevant evidence and arguments before it in order to make an objective
determination of the relevant product market. A panel should assess whether it is appropriate to
examine serious prejudice claims on the basis of the particular market segmentation proposed by
the complainant or whether the range of products at issue compete in different and distinct

1455 European Union's appellant's submission, para. 629. (emphasis original)
1456 European Union's appellant's submission, para. 635. (emphasis original) In its opening statement at
the second session of the oral hearing, the European Union argued that, in assessing the scope of product
markets in a given case, a panel must ensure that products within a product market would compete more
closely with one another than with products outside that product market.
1457 European Union's appellant's submission, para. 630.
1458 European Union's appellant's submission, para. 637.
1459 United States' appellee's submission, para. 354.
1460 United States' appellee's submission, para. 355 (quoting Panel Report, para. 6.1416 (emphasis
original; fn omitted)).
1461 United States' appellee's submission, para. 355 (quoting Panel Report, para. 6.1416 (fn omitted)).
1462 United States' appellee's submission, para. 356.
1463 United States' appellee's submission, para. 356.
1464 United States' appellee's submission, para. 357.
1465 United States' appellee's submission, para. 358.
1466 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1123.

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markets. In so doing, the panel has to examine the respondent's arguments alleging the existence
of different market segmentations and rebutting the complainant's arguments.1467
5.541. Depending on the facts of a particular case, there can be multiple ways in which a
complainant may choose to frame the scope of it s serious prejudice claims. We recall that the
Appellate Body in the original proceedings recognized that "there is no inhibition on how a
complainant may choose to formulate its claim as to the scope of the 'subsidized product'" 1468,
adding that "it can do s o as it thinks best comports with the adverse effects it seeks to
challenge."1469 Accordingly, the Appellate Body agreed with the original panel that "Members of the
WTO have the sovereign right to structure their complaints as they choose." 1470 However, at the
same time, the Appellate Body emphasized "the difference between a WTO Member's freedom to
formulate its complaint" 1471 and the duty of a panel to scruti nize "whether the complaint,
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."1472
5.542. The Panel in these compliance proceedings noted the European Union's argument that LCA
are currently "bought and sold in up to six or seven distinct product markets, two of which are
allegedly 'temporal' monopoly markets where either Airbus or Boeing is … the sole credible
supplier".1473 At the same time, the Panel noted the United States' argument that "the same three
… LCA product markets relied upon by the Appellate Body in the or iginal proceeding to 'complete
the analysis' continue to exist."1474
5.543. As discussed above, in assessing the three -way market segmentation proposed by the
United States, we understand the Panel to have conducted its own objective assessment of the
relevant prod uct markets in light of the competing arguments and evidence presented by the
parties. As noted, the Panel began its analysis with the three -way market segmentation proposed
by the complainant but, in conducting its analysis, the Panel also addressed the a rguments by the
European Union regarding the existence of "up to six or seven distinct product markets". 1475
In particular, the Panel took into account the Appellate Body's guidance in the original proceedings
regarding the range of factors that may assist a panel in determining whether two products are in
the same market, in the sense that they "create competitive constraints on each other". 1476
The Panel also carefully assessed whether LCA customers sought to procure a range of products to
satisfy their needs a nd requirements . Indeed , "when customers procure a range of products to
satisfy their needs, this may give an indication that all such products could be competing in the
same market ."1477 The Panel analysed the relevant qualitative factors concerning demand -side
substitutability in its assessment of the nature and extent of actual or potential competition
between specific products . It also noted that "producing accurate and reliable quantitative
evidence of the degree of demand -side substitution between different LCA products would be a
formidable task ."1478 Based on its analysis of the arguments and evidence before it, the Panel
found it "appropriate to examine the United States' claims of serious prejudice on the basis of the
three separate product markets {the Panel had} identified".1479
5.544. In so doing , however, the Panel cautioned that it was " not {its} view that the degree of
competition existing within each of these markets {would} be identical between all pairings or
combinations of aircraft" 1480, and further , that "{t}here {would} be weaker and stronger
competitive relationships within each market depending upon the particular circumstances of a

1467 See Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1131.
1468 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1131.
1469 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1131.
1470 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1130.
1471 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1130.
1472 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1130.
1473 Panel Report, para. 6.1157.
1474 Panel Report, para. 6.1157.
1475 Panel Report, para. 6.1157.
1476 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1120.
1477 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1120.
1478 Panel Report, para. 6.1205.
1479 Panel Report, para. 6.1416.

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sale."1481 In this context , the Panel observed that "important competitive relationships {could}
also {have} exist{ed} between pairings or combinations of aircraft across two, or even all three,
of the product markets ."1482 The Panel further stated that, while the three product markets the
United States had chosen to rely upon to bring its complaint did "not exhaustively capt ure how
competition {took} place between aircraft in the LCA sector at all times", it was satisfied that
"they represent{ed} the three segments within which most competitive interactions between the
relevant aircraft {would} commonly take place ."1483 That said, we note that the European Union
did not argue before the Panel that the 747 -8I and the 777-300ER and the A350XWB-1000 should
have been placed into the same product market. Nor did it contend that the A321neo and the 767
competed in the same market. To t he contrary, we understand the European Union's position
before the Panel to have been that the "allegedly 'outdated' and 'inferior' technology {of the 767}
mean{t} that it {did} not compete in the same product market as the A330 and that, in any case,
it ha{d} been replaced by the 787 ."1484 In respect of the 777 -300ER, the European Union argued
that the 777 family was in a "temporal" monopoly market 1485, while the A350XWB-1000 competed
closely with the 787 family in the market for technologically advanced and fu el-efficient new
generation aircraft.1486 The European Union did not place the 747 -8I into this product market but,
rather, placed it into a product market of its own. 1487 We fail to see why the Panel would therefore
have been required to separately analyse and make findings on whether "the A321neo exert{ed}
competitive constraints on the 767, or whether the 777 -300ER or the A350XWB -1000 exert{ed}
competitive constraints on the 747 -8" such that they should have been placed in the same
market.1488 Rather, as we see i t, the Panel was "required to make an objective assessment of the
competitive relationship between specific products in the marketplace and to define the relevant
product market"1489, taking properly into account the European Union's arguments and evidence
regarding the existence of up to six or seven distinct product markets .1490 The Panel had no duty,
in our view, to make additional findings regarding the nature and degree of competition among
LCA that neither party had argued were in meaningful competition or were sufficiently
substitutable.
5.545. We note that a panel is required, under Article 11 of the DSU, "to 'consider all the evidence
presented to it, assess its credibility, determine its weight, and ensure that its factual findings
have a proper basis in that evidence '".1491 A panel does not err simply because it declines to
accord to the evidence or to an argument the weight that one of the parties believes should be

1481 Panel Report, para. 6.1416.
1482 Panel Report, para. 6.1416. (emphasis original; fn omitted)
1483 Panel Report, para. 6.1416. (emphasis added) In a footnote, the Panel also recalled that, during the
original appellate proceedings, "the parties appeared to accept (or at least did not object to the notion) that
competition in the LCA industry could be viewed as taking place in three distinct passenger aircraft product
markets, namely, the single-aisle, twin-aisle and VLA markets", noting further that the Appellate Body went on
to "complete the analysis" on the basis of the same three product markets. (Ibid., fn 2416 thereto)
1484 Panel Report, para. 6.1293 (referring to European Union's first written submission to the Panel,
paras. 607-619; second written submission to the Panel, paras. 626-628; response to Panel question No. 70).
The Panel noted that the European Union "also appear{ed} to argue that there may be no product market at
all in which the 767-300ER is currently sold". (Ibid., para. 6.1157 (fn omitted))
1485 Panel Report, para. 6.1156, Table 15: Competitive relationships between LCA according to the
European Union.
1486 Panel Report, para. 6.1293.
1487 Panel Report, para. 6.1156, Table 15: Competitive relationships between LCA according to the
European Union.
1488 European Union's appellant's submission, para. 630.
1489 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1123.
1490 In the original proceedings, the Appellate Body stated that "{t}he {original panel} was also required
to assess the European Communities' allegation that there are, in fact, five distinct product markets of Airbus
and Boeing LCA". (Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1131)
1491 Appellate Body Report, US – Carbon Steel (India), para. 4.78 (quoting Appellate Body Reports,
China – Rare Earths, para. 5.178, in turn referring to Appellate Body Reports, Brazil – Retreaded Tyres,
EC – Bed Linen (Article 21.5 – India), paras. 170, 177, and 181; EC – Sardines, para. 299; EC – Tube or Pipe
Korea ‒ Alcoholic Beverages, paras. 161-162; Korea – Dairy, para. 138; US – Carbon Steel, para. 142;
US ‒ Gambling, para. 363; US – Oil Country Tubular Goods Sunset Reviews, para. 313; EC ‒ Selected Customs
Matters, para. 258).

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accorded to it. 1492 As we see it, in this case, the Panel properly assessed the United States'
three-way market segmentation in light of the arguments and evidence before it, including those
advanced by the European Union regarding the existence of more segmented market delineations ,
before concluding that it was "appropriate to examine the United States' claims of serious
prejudice on the basis of the three separate product markets {the Panel had} identified above".1493
In coming to this conclusion, the Panel did not suggest that the United States' identification of the
relevant product markets was the only way to analyse the adverse effects of the challenged
subsidies. The fact that the Panel did not agree with the six- or seven-way market segmentation
proposed by the European Union does not mean that the Panel committed legal error amounting to
a violation of Article 11 of the DSU.
5.546. For all these reasons, we see no basis to find that the Panel acted inconsistently with
Article 11 of the DSU.
5.6.2.6 Overall conclusion
5.547. Regarding the term "market" in Article 6.3 of the SCM Agreement, for the purposes of
conducting an adverse effects analysis, two products are in the same market if they are sufficiently
substitutable and they exercise " meaningful" competitive constraints on each other.
A consideration of quantitative tools and evidence may assist a panel in defining the relevant
product markets and in answering the question of whether products exercise meaningful
competitive constraints on each other and are sufficiently substitutable to fall in the same product
market. However, like the Panel, we do not see a reason to preclude that a careful scrutiny of
qualitative evidence may also be sufficient, provided that it permits an informative and meaningful
analysis of the relevant product markets. Depending on the particularities of a given case, it may
be sufficient for a panel to examine qualitative evidence regarding demand -side and supp ly-side
substitutability, product characteristics, end-uses, and customer preferences in order to reach a
conclusion as to the nature and degree of competition between two products. Having reviewed the
Panel's analysis of competition in the single -aisle LCA, twin-aisle LCA, and VLA product markets,
we are satisfied that the Panel's identification of the product markets in the present dispute was
based on a proper analysis of the competition among the relevant products, which the Panel found
to demonstrate s ufficient substitutability, in accordance with the standa rd articulated by the
Appellate Body in the original proceedings. We are also satisfied that the Panel's analyse s
identifying the single -aisle LCA, twin-aisle LCA, and VLA product markets reflect a proper reading
of the term "market" and we do not agree with the European Union to the extent that it argues
that the Panel erred in its interpretation of the term "market" in Article 6.3 of the SCM Agreement.
5.548. Accordingly, we uphold the Panel's finding, in paragraph 6.1416 of the Panel Report, that
the United States had brought its adverse effects claims with respect to appropriately defined
product markets for LCA, namely, the global markets for single-aisle LCA, twin-aisle LCA, and VLA.
5.549. That said, we wish to emphasize that the identification of relevant product markets is a
threshold question, the disposition of which informs the subsequent analysis of whether a
complainant has established that the effect of a particular subsidy is serious prejudice. While it
may be possible to conduct an analysis of adverse effects and reach meaningful findings of serious
prejudice in instances where "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, indirect or
remote"1494 – this must, however, "be properly accounted for" in the serious prejudice analysis.1495

Korea ‒ Alcoholic Beverages, para. 164.
1493 Panel Report, para. 6.1416.
1494 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1136.
1495 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1136.

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5.6.3 "Product effects" of LA/MSF subsidies on Airbus LCA
5.6.3.1 Introduction
5.550. As discussed ab ove, in examining the causal link between the LA/MSF subsidies and the
alleged serious prejudice, the Panel began by reviewing the "product effects" of the LA/MSF
subsidies.1496 The Panel found that the pre -A350XWB LA/MSF subsidies continue to be a genuine
and substantial cause of the present-day market presence of the A320, A330, and A380 families of
Airbus LCA.1497 The Panel also found that the aggregated LA/MSF subsidies, with the exception of
LA/MSF for the A300 and A310, are a genuine and substantial cause o f the market presence of the
A350XWB.1498
5.551. On appeal, the European Union maintains that the Panel's erroneous interpretation of
Article 7.8 of the SCM Agreement "led it to assess, erroneously, adverse effects of withdrawn
subsidies"1499, and made its causation a ssessment "for an overly broad basket of subsidies". 1500
The European Union further contends that the Panel "compounded" its errors by committing a
number of additional errors in its causation analysis. 1501 With respect to the pre-A350XWB LA/MSF
subsidies, the European Union alleges that the Panel erred by relying solely on the original panel's
finding that Airbus would not have existed with its current range of product offerings during the
original reference period (2001-2006), because Airbus would not h ave lau nched those products
"as and when" it did "but for " the pre -A350XWB LA/MSF subsidies. 1502 According to the
European Union, while such a "but for" approach can identify the "necessary" cause of the current
market presence of Airbus' product offerings 1503, it is i ncapable of determining a genuine and
substantial cause in this case, due to its failure to account for the passage of time and relevant
events during that time, including the expiry of several LA/MSF subsidies and non -subsidized
investments in Airbus' A320 and A330 families of Airbus LCA.1504
5.552. As a preliminary matter, we note that the errors alleged above by the European Union
regarding the Panel's findings on the "product effects" of the pre -A350XWB LA/MSF subsidies on
the market presence of the A320 and A33 0 families of Airbus LCA concern primarily the LA/MSF
subsidies that had expired before the end of the implementation period , namely, the subsidies for
the A300, A310, A320, A330, and A340. In particular, the European Union contends that
"the basket of sub sidies considered by the Panel included subsidies that were granted more than
four decades ago, most of which the Panel itself found have since expired ."1505 In the
European Union's view, "{c}onsistent with Article 7.8 of the SCM Agreement, the compliance
Panel's task was, therefore, to examine if the passage of time, and events that have occurred
during that time, including the expiry of the subsidies and massive non -subsidised post -launch
investments, have resulted in 'remov{al} of the adverse effects' found to exist in the original
proceedings."1506
5.553. In section 5.4.2 of this Report, we have found that the Panel erred in its interpretation of
Article 7.8 of the SCM Agreement in finding that the European Union has a compliance obligation
in respect of subsidies th at had expired prior to the adoption of the panel and Appellate Body
reports in the original proceedings – i.e. before the beginning of the implementation period.
In addressing the European Union's consequential appeal in section 5.5 of this Report , we have

1496 As noted above, the Panel used the term "product effects" to refer to the effects of LA/MSF subsidies
on the ability of Airbus to launch and bring to market an Airbus LCA as and when it did, and further found that
"product effects" consisted of "direct effects" and "indirect effects", depending on whether the effects concern
Airbus' ability to launch the particular model of LCA specifically funded by an LA/MSF subsidy (direct), or other
models of LCA (indirect). (See supra fn 1052)
1497 Panel Report, para. 6.1534.
1498 Panel Report, paras. 6.1778 and 7.1.d.xiii.
1499 European Union's appellant's submission, para. 774. (fn omitted)
1500 European Union's appellant's submission, para. 776.
1501 European Union's appellant's submission, para. 776.
1502 European Union's appellant's submission, para. 834 (quoting Original Panel Report, paras. 7.1920,
7.1940, 7.1984, and 7.2025).
1503 European Union's appellant's submission, para. 834.
1504 European Union's appellant's submission, paras. 777, 854, and 857.
1505 European Union's appellant's submission, para. 854 (referring to Panel Report, para. 6.907).
1506 European Union's appellant's submission, para. 854.

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therefore highlighted that the pertinent question for purposes of these compliance proceedings is
whether the subsidies granted or maintained by the European Union – i.e. the subsidies existing in
the post-implementation period (after 1 December 2011) – cause adverse effects. Thus, to the
extent that some subsidies have expired, a further examination of the removal of the effects of
those subsidies would not be necessary. In other words, it is not pertinent to examine whether the
Panel's findings on the "product effects" of the expired subsidies can support its ultimate
conclusion of non -compliance under Article 7.8 of the SCM Agreement. In line with this view, we
do not consider it necessary to make separate findings on the European Union's appeal insofar as
it concerns the Panel's alleged failure to assess properly the passage of time and the events during
that time in reaching its findings on the "product effects" of the expired subsidies.1507
5.554. Furthermore, we have noted above that whether the Panel had a sufficient basis for its
ultimate conclusions is a question that can only be answered following a careful review of the
Panel's reasoning and analysis as it relates to the LA/MSF subsidies existing in the
post-implementation period. Therefore, in addressing the errors alleged by the European Union in
respect of the Panel's adverse effects analysis 1508, we will focus our review on the Panel's analysis
and findings regarding the effects of subsidies existing in the post-implementation period, and the
European Union's appeal thereof, to determine whether those findings support the Panel's ultimate
conclusion regarding serious prejudice.
5.555. With respect to the A380 LA/MSF subsidies , which had not expired, t he European Union
claims on appeal that, to the exte nt that the Panel found that the A380 LA/MSF subsidies resulted
in " direct effects" on the A380, such a finding lacks sufficient evidentiary basis. 1509 As to the
Panel's finding of the "product effects" of LA/MSF subsidies on the A350XWB, the European Union
alleges, first, that the Panel's finding that the A350XWB LA/MSF subsidies had "direct effects" on
the launch of the A350XWB lacks sufficient evidentiary basis 1510, and is contradicted by certain
other findings made by the Panel. 1511 Second, the European Union claims that the Panel erred in
finding that the A380 LA/MSF had "indirect effects" on Airbus' ability to launch the A350XWB.1512
5.556. In carrying out our analysis of these claims, we bear in mind the findings from the original
proceedings concerning the effects of the LA/MSF subsidies on Airbus' ability to launch the LCA
products at issue in the original proceedings as and when it did. As noted, the expired subsidies
are relevant for our review of the Panel's findings not to determine whether they cause
"adverse effects", but only as part of a matrix of analysis that seeks to understand the effects of
the subsidies existing in the post -implementation period. This is particularly the case given that,
as further discussed below, the subsidies at issue in these compl iance proceedings operate along
the same causal pathway as the subsidies that were found to have caused adverse effects in the
original proceedings.1513
5.557. With these considerations in mind, we begin by providing an overview of the Panel's
findings on the "prod uct effects" of LA/MSF subsidies. Thereafter, we recall briefly the causation
standard under Articles 5 and 6 of the SCM Agreement, as explained by the Appellate Body in past
disputes. We then describe the relevant findings from the original proceedings co ncerning the
"product effects" of the pre -A350XWB LA/MSF, and review the extent to which the findings from
the original proceedings inform ed the Panel's findings on adverse effects in these compliance
proceedings. Finally, we proceed to review the European Union's appeal of the Panel's findings
concerning the "product effects" of the LA/MSF subsidies exist ing in the post -implementation
period, namely, its findings regarding the A380 and A350XWB LA/MSF subsidies.

1507 As noted above, such events include the expiry of certain LA/MSF subsidies and non-subsidized
investments in the A320 and A330 families of Airbus LCA.
1508 European Union's appellant's submission, paras. 776-786.
1509 European Union's appellant's submission, paras. 878-884.
1510 European Union's appellant's submission, paras. 888, 899, and 913.
1511 European Union's appellant's submission, paras. 901 and 913.
1512 European Union's appellant's submission, paras. 890-895.
1513 See sections 5.6.3.4 and 5.6.3.5 of this Report.

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5.6.3.2 Summary of Panel findings
5.558. The Panel explaine d at the outset of its analysis that the effects of the relevant subsidies
should be determined by conducting a unitary counterfactual analysis, which "entails comparing
the actual market situation that is before the adjudicator with the market situation t hat would
have existed in the absence of the challenged subsidies". 1514 The Panel agreed with the
United States that the starting point of the counterfactual analysis in th ese compliance
proceedings should be the counterfactual that formed the basis of the or iginal panel and
Appellate Body findings on the effects of the pre -A350XWB LA/MSF subsidies in the 2001 -2006
period.1515 Moreover, the counterfactual analysis in this dispute requires consideration of the
extent to which "the design, structure and operation o f the challenged LA/MSF subsidies" are such
that the same or similar effects found to exist in the 2001 -2006 reference period continue to be
present in the post-implementation period (i.e. after 1 December 2011) .1516 Having recalled the
relevant findings from the original proceedings 1517, the Panel considered that the effects of the
pre-A350XWB LA/MSF subsidies in the 2001 -2006 period may be characterized as having been
indispensable to:
a. the very existence of Airbus, implying that in the absence of the pre -A350XWB LA/MSF
subsidies, Airbus would not have been present on the mar ket (the "plausible"
scenario); or
b. the ability of Airbus to offer a full range of competitive LCA, implying that in the absence
of the pre -A350XWB LA/MSF subsidies, a "much weaker" Airb us "with at best a more
limited offering of LCA models" 1518 would have been present on the market
(the "unlikely" scenario).1519
5.559. Having reviewed the findings from the original proceedings, the Panel explained that it
would begin its evaluation by first determining the effects of the pre-A350XWB LA/MSF subsidies in
the post-implementation period on the A320, A330, and A380 families of Airbus LCA , before
examining the extent to which all of the challenged LA/MSF subsidies (including the pre-A350XWB
and the A350XWB LA/MSF subsidies) allowed Airbus to launch and bring to market the A350XWB
as and when it did.
5.6.3.2.1 Findings on the "product effects " of pre -A350XWB LA/MSF subsidies on the
A320, A330, and A380
5.560. The Panel considered that in order for the United States to succee d in its argument that
the pre-A350XWB LA/MSF subsidies have essentially the same "product effects" today as they did
at the time of the original proceedings, the United States would have to demonstrate that: (i) a
non-subsidized Airbus would not exist tod ay; or (ii) any non -subsidized Airbus company coming

1514 Panel Report, para. 6.1453 (quoting Appellate Body Report, EC and certain member States – Large
Civil Aircraft, para. 1110). The Panel explained that, in contrast to a "unitary approach", a "two-step" analysis
first seeks to identify the market phenomena described in Article 6.3(a)-(d) of the SCM Agreement and then,
as a second step, examines whether there is a causal relationship between the phenomena and the challenged
subsidies. The Panel recalled that, while the Appellate Body accepted the validity of this approach in the
original proceedings, it explicitly stated that a "unitary analysis" would be preferable. (Ibid., fn 2490 thereto
(referring to Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1107
and 1109)).
1515 Panel Report, paras. 6.1457 and 6.1461. See also United States' first written submission to the
Panel, paras. 335-352; second written submission to the Panel, paras. 367-373. As further discussed in
para. 5.591 below, the original panel discussed four scenarios "for the LCA industry in the counterfactual world
that would exist in the absence of subsidies to Airbus". (Original Panel Report, para. 7.1984) Scenarios 1
and 2, which were considered "plausible" by the original panel, contemplated that a non-subsidized Airbus
would have had no market presence in the 2001-2006 period. Scenarios 3 and 4, which the original panel
considered "unlikely", envisaged that a non-subsidized Airbus would be competing in the 2001-2006 period as
a "much weaker" company "with at best a more limited offering of LCA models". (Ibid., paras. 7.1984
and 7.1993)
1516 Panel Report, para. 6.1462.
1517 See Panel Report, paras. 6.1464-6.1479.
1518 Panel Report, para. 6.1475 (quoting Original Panel Report, paras. 7.1984 and 7.1993).

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into existence after the end of 2006 would not have developed and brought to market the A320,
A330, and A380 (or a comparable range of LCA products), within a period of approximately five to
nine years thereafter.1520 Noting the complexities of LCA production and the dynamics and history
of competition in the LCA industry, the Panel found it difficult to see how any non -subsidized
Airbus company coming into existence after the end of 2006 could have develope d a full range of
the same or comparable LCA within such a short space of time.1521
5.561. The Panel noted that the European Union did not argue that, in the absence of the
challenged LA/MSF subsidies, Airbus would have come into existence at any moment after 2006
and developed a full range of LCA by 1 December 2011 (or any tim e thereafter), nor that a
"much weaker" non-subsidized Airbus, with "at best a more limited offering of LCA models" during
the 2001-2006 period, could have developed the same or comparable ran ge of LCA that it offers
today.1522 Instead, the Panel noted that the European Union's "core argument" was that any
"product effects" found to exist up to the end of 2006 have today either: (i) dissipated over time;
or (ii) been significantly attenuated by a number of non-subsidized Airbus investments in the A320
and A330.1523 The Panel then turned to address these arguments.1524
5.562. In respect of the first argument, recalling the Appellate Body's recognition that the "life" of
a subsidy will not necessarily define the duration of its effects 1525, the Panel considered that the
extent to which the effects of a subsidy will dissipate with the passage of time and eventually
come to an end will be a fact-specific matter that may be informed, but not necessarily defined, by
how the "life" of that subsidy has evolved over time.1526 The Panel noted that the ex ante "lives" of
all of the A300, A310, and A320 LA/MSF subsidies "came to an e nd before the conclusion of
the 2001-2006 reference period", but the effects of those subsidies, to gether with the effects of all
of the other challenged subsidies, were found in the original proceedings to be a "genuine and
substantial" cause of serious prejudice. 1527 The Panel saw no reason why the logic underpinning
those findings should not be equally applicable for the purpose of determining the extent to which
the effects of the challenged LA/MSF subsidies in these compliance proceedings have dissipated
and come to an end with the passage of time.1528
5.563. The Panel recalled that the causation findings in th e original proceedings were based on
the existence of two types of "product effects" attributable to the LA/MSF subsidies:
(i) "direct effects" – namely, the effects of any given LA/MSF subsidy on Airbus' ability to launch
and bring to market the particula r model of Airbus LCA specifically funded by that LA/MSF loan;
and (ii) "indirect effects " – namely, the "learning", scope, and financial effects that any given
LA/MSF subsidy provided specifically for one model of LCA may have on Airbus' ability to launch
and bring to market another model of LCA. 1529 The Panel considered that the duration of the
"direct effects" of any particular LA/MSF subsidy should be determined on the basis of the extent
to which those effects support the market presence of the specifical ly funded aircraft over time.
Where the facts show that the very existence and ongoing market presence of a particular aircraft
programme is dependent upon specifically designated LA/MSF subsidy, then as a matter of logic,

1520 Panel Report, para. 6.1480.
1521 Panel Report, para. 6.1481.
1522 Panel Report, para. 6.1481 (quoting Original Panel Report, paras. 7.1984 and 7.1993).
1523 Panel Report, para. 6.1481.
1524 The Panel further observed that, "{a}dditionally, and in the alternative", the European Union had
argued that any lingering present-day effects of the challenged LA/MSF subsidies were not the cause of any
present adverse effects because the United States' claims of Boeing lost sales and displacement in the various
LCA product markets could be explained by a number of factors unrelated to the effects of LA/MSF.
(Panel Report, para. 6.1481) The Panel examined the "alternative" argument in the final part of its analysis of
the United States' claims of Boeing lost sales, displacement, and impedance in the various LCA product
markets. (Ibid., paras. 6.1782-6.1783, 6.1790-6.1797, and 6.1810-6.1816)
1525 Panel Report, para. 6.1488.
1526 Panel Report, para. 6.1489.
1527 Panel Report, para. 6.1490 (referring to paras. 6.879 and 6.1076).
1528 Panel Report, para. 6.1491.
1529 Panel Report, para. 6.1492. According to the Panel, learning, scope, and financial effects refer to the
extent to which LA/MSF subsidies enable Airbus to: (i) develop the "knowledge, know-how and experience" to
launch other LCA models; (ii) share inputs and spread costs between different LCA models; and (iii) lower the
cost of financing new LCA models and generate revenues that would not otherwise exist in the absence of
LA/MSF. (Ibid., paras. 6.1510-6.1511)

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the Panel considered it likely th at the "direct effects" of that LA/MSF subsidy would continue to be
felt throughout the marketing life of the specifically funded aircraft. 1530 As for the "indirect effects"
of LA/MSF subsidies, the Panel was of the view that the duration of such "indirect effects" should
be "determined on the basis of the extent to which the 'learning', scope and financial effects
associated with any given LA/MSF measure provided for the purpose of one specific model of LCA
support the market presence of one or more other models of LCA over time".1531 In sum, the Panel
stated that it did "not see how, as a factual matter, the mere passage of time could have brought
the relationship of 'genuine and substantial ' cause and effect between the pre -A350XWB LA/MSF
subsidies and the A320, A330 and A380 to an end while those aircraft continue to be sold."1532
5.564. Turning to the alleged non -subsidized investments in the A320 and A330 families of LCA ,
the Panel had "no doubt" that the post -launch investments described by the European Union were
significant and instrumental to Airbus' ability to upgrade the technologies and production
processes associated with the original A320 and A330 programmes in a way that enabled Airbus to
sustain their competitiveness. 1533 Nonetheless, the Panel recalled that, pursuant to the two
"plausible" counterfactual scenarios, the effects of the pre-A350XWB LA/MSF subsidies were found
to explain "the very existence of Airbus in the 2001 -2006 period".1534 The Panel reasoned that,
because a significant part of Airbus' post-launch investments took place before the end of 2006,
"it must logically follow that they too could not have been undertaken in the absence of the effects
of the challenged LA/MSF subsidies."1535 In the Panel's view, the same was true with respect to the
post-launch investments the European Union identified as having taken place after the end
of 2006. The Panel considered it difficult to contemplate how a non -subsidized Airbus entering the
LCA market in 2007 (at the earliest) would have been able to develop the technical know-how and
have the financial strength to launch and bring to market two aircraft types comparable to those
with respect to which Airbus decided to make the post -2006 investments.1536 The Panel therefore
found that the "direct effects" and "indirect effects " of the pre -A350XWB LA/MSF subsidies
continued to be a "genuine and substantial" cause of the market presence of the current versions
of the A320 and A330 families of Airbus LCA, although they were not the only cause.1537
5.565. In conclusion, the Panel was not convinced that the relevant arguments and evidence
before it "demonstrate {d} that the mere passage of time or the few events which the
European Union ha{d} identified to have taken place since the beginning of 2007 (or even before
then), ha{d} materially eroded the causal link that was found to exist in the original proceeding up
until the end of 2006". 1538 In the Panel's view, the European Union's arguments and evidence
concerning the passage of time and post-launch investments were "factually unpersu asive".1539
Consequently, the Panel found that the "direct effects" and "indirect effects" of the pre-A350XWB
LA/MSF subsidies continue to be a genuine and substantial cause of the present -day market
presence of the A320, A330 , and A380 families of Airbus LCA . In other words, in the absence of
the pre-A350XWB LA/MSF subsidies, Airbus would not be selling these aircraft today.1540
5.6.3.2.2 Findings on the "product effects " of the challenged LA/MSF subsidies on
the A350XWB
5.566. With regard to the A350XWB, the Panel sought to det ermine whether Airbus could have
launched the A350XWB as and when it did in December 2006 in the absence of the "individual

1530 Panel Report, para. 6.1508. (emphasis omitted) By contrast, the Panel observed that, where the
very existence and ongoing market presence of an aircraft that was specifically funded with LA/MSF subsidies
is not dependent on that funding, in the sense that the same aircraft would have been developed and brought
to market at some point in time without the specifically designated LA/MSF subsidy, then it would be "highly
unlikely for the direct effects of that LA/MSF funding to endure throughout the entire marketing life of the
relevant LCA programme". (Ibid. (emphasis original))
1531 Panel Report, para. 6.1513.
1533 Panel Report, para. 6.1524.
1534 Panel Report, para. 6.1525.
1535 Panel Report, para. 6.1525.
1536 Panel Report, para. 6.1526.
1537 Panel Report, para. 6.1527.
1538 Panel Report, para. 6.1531.
1539 Panel Report, para. 6.1534.
1540 Panel Report, para. 6.1534.

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and/or combined impact" of: (i) the "direct effects" of A350XWB LA/MSF subsidies; and
(ii) the "indirect effects" of the pre-A350XWB LA/MSF subsidies.1541 In its analysis, the Panel used
the two "unlikely" counterfactual scenarios from the original proceedings as the starting point 1542,
having concluded that, under the two "plausible" counterfactual scenarios adopted in the original
proceedings, "there {was} no doubt that the A350XWB could not have been launched and brought
to market in the absence of LA/MSF."1543
5.567. The parties' arguments before the Panel focused on the extent to which the subsidized
Airbus that actually existed in the 2006 -2010 period could have launched the A350XWB in the
absence of the individual and/or combined impact of the "direct effects" of the A350XWB LA/MSF
subsidies and the "indirect effects" of the pre -A350XWB LA/MSF subsidies . The Panel explained
that this was based on "a counterfactual that is different to the one that form {ed} the basis of the
question" that the Panel had posed, and that neither party had advanced any arguments as to the
ability of the non-subsidized Airbus company that would exist in the "unlikely" counterfactual
scenarios to launch the A350XWB. 1544 Nonetheless, the Panel considered that, by examining the
impact of LA/MSF on the subsidized Airbus company that actually existed from 2006 to 2010,
"inferences {could} be drawn about the extent to which the non -subsidized Airbus company that
would {have} exist{ed} in the 'unlikely' counterfactual scenarios could have done the same",
because "the non-subsidized Airbus company operating in the 'unlikely' counterfactuals would be,
by definition, a 'much weaker' competitor 'with at best a more limited offering of LCA models' than
the Airbus company that actually existed."1545 Adopting this analytical framework, the Panel turned
to examine the merits of the parties' arguments regard ing the ability of Airbus – as it actually
existed in 2006 – to launch the A350XWB as and when it did, with a view to drawing inferences
concerning whether the non -subsidized Airbus company that would have existed in the "unlikely"
counterfactual scenarios could have launched the A350XWB as and when it did.1546
5.6.3.2.2.1 Findings on the "direct effects" of the A350XWB LA/MSF subsidies on
the A350XWB
5.568. The Panel began by setting forth the factual background t o the launch of the A350XWB,
in the form of a "narrative" of the A350XWB programme "running from its origins through to the
period during which the A350XWB LA/MSF contracts were entered into". 1547 The Panel divided its
narrative into three main parts, beginning with an examination of the "pre -launch period" 1548,
and then turn ing to the "{l}aunch and the A350XWB Business Case" 1549, and the "post -launch
period".1550
5.569. Beginning with the "pre -launch period", the Panel identified t hree "material" topics:
(i) the origins of the A350XWB programme; (ii) the A350XWB programme's developmental status
leading up to launch; and (iii) Airbus' and EADS' financial situation leading up to the launch.1551
Based on its analysis of the evidence pertaining to these topics, the Panel made the following
findings with respect to the pre -launch period: (i) "ser ious financial difficulties had arisen for

1542 See 5.591 below. See also supra fn 1515.
1543 Panel Report, para. 6.1535. The Panel explained that, under the "plausible" counterfactual
scenarios, a non-subsidized Airbus would not have existed in 2006; and that there was, furthermore, no
evidence before the Panel to suggest (and the European Union did not argue) that a non-subsidized Airbus
would have come into being any time thereafter. (Ibid.)
1544 Panel Report, para. 6.1537.
1546 Panel Report, para. 6.1538.
1547 Panel Report, para. 6.1540. The Panel referred to this as the "Contracting Period". See also
para. 6.1539.
1548 This is the period consisting of events surrounding the A350XWB programme that occurred before
the launch of the A350XWB, that is, before 1 December 2006. (Panel Report, para. 6.1541)
1549 This relates to the A350XWB Business Case presented to the EADS Board of Directors on [BCI], in
preparation for the launch of the A350XWB, and to the official approval by EADS of the launch of the A350XWB
on the basis of the Business Case, on 1 December 2006. (Panel Report, para. 6.1568; A350XWB Business Case
Presentation (Panel Exhibit EU-130 (HSBI)))
1550 Panel Report, para. 6.1574. This period relates to certain events surrounding the A350XWB
programme occurring after the launch of the A350XWB, and through the Contracting Period. (Ibid.)
1551 Panel Report, para. 6.1541.

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Airbus and EADS that adversely affected their financial condition moving forward"1552; (ii) although
it was forecast to be a very expensive project, Airbus deemed the A350XWB programme important
enough to pursue beca use of, inter alia , its considerable strategic importance to Airbus'
competitiveness; (iii) Airbus and EADS pursued multiple strategies to put themselves in a position
in which they could be sufficiently confident of their ability to fund the A350XWB progr amme, one
of which was by securing commitments from the member States regarding the future provision of
some sort of financial assistance in connection with the A350XWB programme; and (iv) these
strategies allowed Airbus and EADS to overcome their financia l problems, to the point where they
were prepared to proceed with the A350XWB launch decision.1553
5.570. Turning to the A350XWB Business Case Presentation on [BCI] in preparation for the
launch of the A350XWB, the Panel took "particular note" of three aspects. 1554 First, based on
different press reports, the Panel was of the view that disagreements among EADS' shareholders
regarding how the A350XWB would be funded delayed the launch, and such disagreements were
resolved, at least in part, with a French Government guarantee to provide certain financial support
for the programme. 1555 Second, the Panel found that the assumption that the A350XWB
programme would be "funded in part with financing that involved member State [BCI] permeated
the A350XWB Business Case". 1556 Finally, the Panel considered that the business case highlighted
both risks and strategic benefits associated with the A350XWB programme.1557
5.571. The Panel next analysed evidence from the post-launch period relating to the following four
topics: (i) the developmental st atus of the A350XWB programme; (ii) Airbus' and EADS' financial
position during this period; (iii) negotiations between Airbus and the member States concerning
financial assistance fo r the A350XWB programme generally, and A350XWB LA/MSF specifically;
and ( iv) certain government documents discussing the importance of member State financial
assistance in connecti on with the A350XWB programme. The Panel m ade the following
findings: (i) as of the First Contract Date 1558, EADS had experienced certain successes with efforts
to mitigate its financial problems that had arisen in the pre -launch period, but continued to face
financial problems moving forward 1559; (ii) although Airbus had completed significant work on the
A350XWB in the absence of A350XWB LA/MSF, the most cash-intensive portions of the programme
began to occur around or shortly after the First Contract Date 1560; (iii) statements made by certain
UK and Airbus officials, the European Commission State Aid Decisions 1561, and a written
assessment by the UK Government of the merits of Airbus' request for A350XWB LA/MSF 1562
(UK Appraisal), support the proposition that it would have been extremely difficult for Airbus and
EADS to effectively fund the A350XWB programme in the absence of A350XWB LA/MSF1563;
and (iv) Airbus and the member States continued to be in close contact regarding the eventual
receipt of member State financial assistance in connection with the A350XWB programme, and
there is no material evidence that Airbus ever questioned the availability of such assistance.1564
5.572. Having set out its narrative of the A350XWB programme, the Panel assessed the parties'
arguments regarding the extent to which the A350XWB LA/MSF subsidies had an impact on the
ability of the Airbus company that actually existed in the 2006 -2010 period to launch the
A350XWB as and when it did . In doing so, the Panel focused its analysis on the impact of the
A350XWB LA/MSF subsidies on the "viability" of the programme with respect to both the launch
date and the First Contract Date .1565 The Panel examined four main aspects of the A350XWB
programme bearing upon the issue of viability , namely: (i) Airbus' expected ability to effectively

1552 Panel Report, para. 6.1567. See also e.g. paras. 6.1544, and 6.1550-6.1553.
1553 Panel Report, para. 6.1567.
1554 Panel Report, para. 6.1573.
1556 Panel Report, para. 6.1573. See also paras. 6.1569-6.1570.
1557 Panel Report, para. 6.1573. See also paras. 6.1571-6.1572.
1558 The Panel used the term "First Contract Date" to refer to the date on which the evidence establishes
that the first LA/MSF contract came into being. (Panel Report, para. 6.1631)
1559 Panel Report, para. 6.1624. See also paras. 6.1585-6.1587.
1560 Panel Report, paras. 6.1584 and 6.1624.
1561 Panel Report, paras. 6.1613-1623.
1562 UK Appraisal (Panel Exhibit EU-(Article 13)-34 (HSBI)).
1563 Panel Report, paras. 6.1600-6.1609, and 6.1624.
1565 Panel Report, para. 6.1639.

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fund the programme with financing on market terms; (ii) the progr amme's base -case NPV;
(iii) the strategic reasons for Airbus to pursue the programme not already taken into account in
the base-case NPV; and (iv) the programme's risks.1566
5.573. Beginning with Airbus' ability to fund the programme in the absence of A350XWB LA /MSF,
the Panel examined evidence pertaining to: (i) increased use of risk-sharing partners (RSPs) 1567;
(ii) increased profitability and cash generation1568; (iii) disposal of non-core assets; (iv) a reduction
in shareholder distributions; (v) equity -related financing 1569; (vi) cash reserves 1570;
and (vii) increased debt. 1571 In additi on to the extent of the financial resources available to
effectively fund the A350XWB programme, the Panel considered three other factors bearing upon
the issue of viability vis-à-vis the date of launch and the First Contract Date, namely :
(i) the programme's base -case NPV ; (ii) the programme's strategic benefits ; and (iii) the
programme's risks.1572
5.574. Taking all of these factors into account, the Panel found that, while "the alternative funding
options available to Airbus coupled with the strong strategic reas ons it had for launching and
developing a new generation twin -aisle aircraft meant that the A350XWB programme would have
been sufficiently attractive and, therefore, viable to Airbus even without A350XWB LA/MSF", the
evidence demonstrated that pursuing the programme in the absence of A350XWB LA/MSF would
have been "a more complicated, more costly and riskier endeavour" 1573, such that, in the absence
of A350XWB LA/MSF, it would be highly likely that Airbus would, to some degree, have had "to
make certain compromises with respect to the pace of the programme and/or the features of the
aircraft".1574 Consequently, the Panel found that, without A350XWB LA/MSF, "the Airbus company
that actually existed could have pursued such a programme only by a narrow margin, with a high
likelihood that it would, to some degree, have had to make certain compromises with respect to
the pace of the programme and/or the features of the aircraft."1575
5.575. Following its findings on the impact of A350XWB LA/MSF on the subsidized Airbus
company's ability to launch and bring to market the A350XWB , and recalling that, under both
"unlikely" counterfactual scenarios, a non -subsidized Airbus operating in the 2001-2006 period

1566 Panel Report, para. 6.1638.
1567 The Panel considered that, while it was theoretically possible for Airbus to involve a greater number
of RSPs in the A350XWB programme by some degree, it was not persuaded that Airbus could have in practice
relied on RSPs to a level that would have come anywhere close to doubling their involvement compared to the
1568 The Panel found it far from clear that EADS was in a position to cut further significant costs from its
budget at any relevant time, at least without inviting disruptions and other potential problems to its operations.
(Panel Report, para. 6.1659)
1569 While the Panel accepted that disposal of non-core assets by EADS, a reduction in shareholder
distributions by EADS, and equity-related financing may have been options for EADS, it concluded that the
extent to which they could be credible sources of funding for the A350XWB programme in the absence of
A350XWB LA/MSF, at any relevant time remained speculative. (See Panel Report, paras. 6.1657, 6.1664, and
6.1668)
1570 The Panel considered that, although EADS had significant cash that it could have diverted to the
A350XWB programme, doing so would have entailed significant risks for EADS given the uncertainties
surrounding its future cash positions and the competing pressures on its cash reserves. (Panel Report,
para. 6.1690)
1571 While the Panel expressed certain reservations regarding the probative value of the evidence
submitted by the European Union, the Panel detected little evidence that EADS would have had "no appreciable
debt-raising capacity in the relevant time periods in the absence of A350XWB LA/MSF", and thus accepted that
this was likely an option that could have been pursued to at least some material degree. (Ibid., para. 6.1700
(emphasis original)).
1572 Panel Report, para. 6.1701. See also paras. 6.1702-6.1712.
1573 Panel Report, para. 6.1717. According to the Panel, any single one of the potentially available
funding options to Airbus, via EADS, would have had its own risks, costs and/or difficulties, and would have
been "insufficient on its own to replace either the absolute monetary value or the relative financial security
provided through the generally back-loaded, unsecured and success-dependent repayment terms of A350XWB
1574 Panel Report, para. 6.1716. Making such compromises would, in the Panel's view, be a way to
reduce costs and/or risk associated with the programme. Further, the Panel noted several pieces of evidence
on the record indicating how financial troubles may delay an LCA programme. (Ibid., para. 6.1716 and fn 3074
thereto (additional text in fn omitted))

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would have been "a 'much weaker' company 'with at best a more limited offering of LCA models'",
the Panel found that a non-subsidized Airbus operating in the "unlikely" counterfactual scenarios
would have been unable to launch the A350XWB or an A350XWB -type aircraft by the end of
2006.1576 The Panel explained that a non -subsidized Airbus operating in the "unlikely"
counterfactual scenarios at the end of the 2006 would "not have had the same range and quality
of aircraft on the market that the subsidized Airbus did at the time of the launch of the A350XWB",
and that "a non -subsidized Airbus operating in the 'unlikely' counterfactual scenarios would have
had neither the technical or managerial expertise nor the financial resources that were available to
the Airbus company that actually existed at the end of 2006."1577
5.6.3.2.2.2 Findings on the "indirect effects" of the pre-A350XWB LA/MSF subsidies on
the A350XWB
5.576. Next, the Panel considered the extent to which the "indirect effects" of the pre-A350XWB
LA/MSF subsidies contributed to the ability of the subsidized Airbus company that actually existed
over the relevant period to undertake the A350XWB programme "as and when it did". 1578 The
Panel recalled that the indirect effects of LA/MSF take the form of: (i) "learning effects"; (ii) "scope
and scale effects"; and (iii) "financial effects". 1579 Starting with the learning effects , the Panel
examined "duelling expert reports" presented by both parties 1580, as well as "historical record
evidence in the form of press reports, the A350XWB Business Case, Airbus/EADS presentation s
and other materials "1581, and found the evidence to show that "the A350XWB programme
significantly benefitted from Learning Effects arising from previous, subsidized Airbus LCA
programmes, especially (but not only) the A380 programme ."1582 The Panel thus found the
learning effects of the pre-A350XWB LA/MSF subsidies to be "wide -ranging and significant, and
their accumulation central and critical to the ability of Airbus to launch and bring the A350XWB to
market as and when it did". 1583 The Panel however considered it "difficult to materially attribute
the same degree of importance to any Learning Effects from the A300 and A310 LA/MSF
subsidies".1584
5.577. With regard to financial effects, the Panel examined the impact of the
pre-A350XWB LA/MSF subsidies on the A350XWB programme in terms of (i) enterprise value 1585;
(ii) return on capital employed (ROCE) 1586; (iii) mitigation of A380 and A340 programme
issues1587; (iv) the report by Professor David Wessels of the Wharton Business School 1588;

1576 Panel Report, paras. 6.1718-6.1719 and 6.1722.
1577 Panel Report, para. 6.1722.
1578 Panel Report, para. 6.1723.
1579 Panel Report, paras. 6.1724-6.1725.
1580 Panel Report, para. 6.1726. See also paras. 6.1727-6.1744.
1581 Panel Report, para. 6.1726. See also paras. 6.1745-6.1746.
1582 Panel Report, para. 6.1747.
1584 Panel Report, fn 3222 to para. 6.1760. The Panel explained in this regard that the specific A350XWB
components and systems that it found to have benefitted from "learning effects" "generally appear{ed} to be
derivations of similar components and systems used on more recent Airbus LCA programmes such as the
A380". (Ibid.)
1585 Before the Panel, the United States argued that "pre-A350XWB LA/MSF made EADS more attractive
to investors by positively impacting EADS' enterprise value". (Panel Report, para. 6.1762)
1586 ROCE is calculated by dividing a company's earnings by its invested capital. (See Panel Report,
fn 3230 to para. 6.1764) Before the Panel, the United States argued that pre-A350XWB LA/MSF allowed EADS
to "alter its ROCE to make itself appear more attractive to investors". (Ibid., para. 6.1764 (fn omitted))
1587 Before the Panel, the United States argued that the back-loaded and delivery-based repayment
terms of Airbus' outstanding balances of pre-A350XWB LA/MSF "partially insulated Airbus from the financial
fallout from the problems Airbus experienced with its A380 and A340 programmes, thereby making it easier for
Airbus to launch the A350XWB". (Panel Report, para. 6.1767 (referring to United States' first written
1588 Professor David Wessels, "Assessing Airbus' Capacity to Fund Large Scale Projects Without LA/MSF",
17 October 2012 (Wessels Report) (Panel Exhibit USA-364). Before the Panel, the United States relied on the
Wessels Report to argue that, if Airbus had launched its subsidized LCA programmes using market financing,
the "resulting debt burden would have been so great as to prohibit the launch and development of the
A350XWB at any relevant time". (Panel Report, para. 6.1768)

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and (v) revenues.1589 On balance, the Panel found that "the evidence … demonstrate{d} that the
A350XWB programme significantly benefitted from two of the five Financial Effects of the
pre-A350XWB LA/MSF subsidies … namely, the enhanced revenue and debt reduction effects",
which "enabled Airbus to launch and bring to market all of its existing Airbus LCA
programmes".1590 The Panel, however, considered it "difficult to materially attribute such Financial
Effects related to revenues to the A300 and A310 programmes".1591
5.578. Finally, in res pect of the scope and scale effects, the Panel noted that the United States
relied on the findings in the original proceedings "without referring to any specific evidence". 1592
As a result, while the Panel accepted that the A350XWB "must have benefitted from the scope and
scale effects of pre -A350XWB LA/MSF arising from the existence of Airbus' pre -existing models of
LCA", it found that it could give this line of argument only "limited weight".1593
5.579. In conclusion, with respect to the indirect effects of pre -A350XWB LA/MSF subsidies, the
Panel found that "the indirect effects of pre-A350XWB LA/MSF were fundamental to Airbus' ability
to launch and develop the A350XWB programme", and had no doubt that it would not have been
possible to launch the A350XWB if "Airbus { had} not benefitted from these indirect effects of the
pre-A350XWB LA/MSF measures".1594 The Panel found it "apparent" that "a non -subsidized Airbus
would have had neither the technical expertise nor the financial resources that were available to
the actual A irbus company operating at the end of 2006 as a result of the indirect effects of
pre-A350XWB LA/MSF ."1595 Accordingly, the Panel found that its assessment of the
"indirect effects" of the pre-A350XWB LA/MSF subsidies on the A350XWB confirmed its conclusion
that "a non-subsidized Airbus operating in the 'unlikely' counterfactual scenarios could not have
launched and brought to market the A350XWB or an A350XWB-type aircraft."1596
5.580. On this basis, using all four counterfactual scenarios from the original proceedings
concerning the effects of the pre -A350XWB LA/MSF subsidies until the end of 2006 as the starting
point of its analysis, the Panel found it "apparent that the A350XWB could not have been launched
and brought to market in the absence of LA/MSF" 1597, with the ex ception of the LA/MSF subsidies
provided for the A300 and A310.1598
5.6.3.3 Causation under Articles 5(c) and 6.3 of the SCM Agreement
5.581. It is well established that, in disputes involving claims under Part III of the
SCM Agreement, a complainant must demonstrate not only the existence of the relevant subsidies
and the adverse effects to its interests, but also that the subsidies have caused such effects.1599
The Appellate Body has consistently articulated the causal link required as "a genuine and
substantial relationship of cause and effect".1600 In other words, the subsidies must contribute, in a
"genuine" and "substantial" way, to producing or bringing about one or more of the effects, or
market phenomena, enumerated in Article 6.3 of the SCM Agreement.1601 The Appellate Body has
noted that the "genuine" nature of the causal link requires a complainant to show that the nexus

1589 Panel Report, para. 6.1770. The United States argued that, insofar as Airbus used its own funds to
finance the A350XWB programme, such funds were attributable to revenues generated from sales of previous
LCA that most likely would not have existed but for the LA/MSF subsidies. (Ibid., para. 6.1761) The Panel also
observed, generally, that certain of the financial effects alleged by the United States go beyond the financial
effects that the original panel and the Appellate Body articulated in the original proceedings. (Ibid., fn 3223 to
para. 6.1761)
1592 Panel Report, para. 6.1773.
1593 Panel Report, para. 6.1773.
1597 Panel Report, para. 6.1778.
1599 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 913.
1600 Appellate Body Reports, US – Upland Cotton, para. 438; US – Upland Cotton (Article 21.5 – Brazil),
para. 374; EC and certain member States – Large Civil Aircraft, para. 1232; US – Large Civil Aircraft
(2nd complaint), para. 913.
1601 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 913.

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between cause and effect is "real" or "true". 1602 As for the "substantial" component of the causal
relationship, "this concerns the relative i mportance of the causal ag ent (the subsidies at issue)
in bringing about the adverse effect(s) in question".1603
5.582. The mere presence of other causal factors that contribute to a particular market effect
does not, in itself, preclude the su bsidy from being found to be a genuine and substantial cause of
that effect. Indeed, "a panel need not determine {the subsidy} to be the sole cause of that effect,
or even that it is the only substantial cause of that effect".1604 However, the panel must "take care
to ensure that it does not attribute the effects of those other causal factors to the subsidies at
issue, and that the other causal factors do not dilute the causal link between those subsidies and
the alleged adverse effects such that it is not possible to characterize that link as a genuine and
substantial relationship of cause and effect."1605 Ultimately, a final determination as to whether the
requisite causal link has been established can only be made if, "having given proper consideration
to all other relevant contrib uting factors and their effects, the panel is satisfied that the
contribution of the subsidy has been demonstrated to rise to that of a genuine and substantial
cause."1606
5.583. Provided that the panel adheres to the standard for causation described above, "a panel
has a certain degree of discretion in selecting an appropriate methodology for determining whether
the 'effect' of a subsidy" is one of the effects set out in Article 6.3.1607 One such methodology is
the use of counterfactuals, which, in general terms, "entails comparing the actual market situation
that is before the adjudicator with the market situation that would have existed in the abse nce of
the challenged subsidies". 1608 The Appellate Body has noted that a "but for" approach could be a
permissible way of co nducting a counterfactual analysis 1609 if "the subsidy is both a necessary
cause of the market phenomenon and a substantial cause".1610
5.584. Another methodological issue concerns the collective assessment of the effects of multiple
subsidies. As explained by the Appellate Body in US – Large Civil Aircraft (2nd complaint), one way
to conduct such a collective assessment is through aggregation, whereby a panel " group{s}
together subsidy measures that are sufficiently similar in their design, structure, and operation in
order to ascertain their aggregated effects in an integrated causation analysis and determine
whether there is a genuine and substantial causal relationship between these m ultiple subsidies,
taken together, and the relevant market phenomena identified in Article 6.3 of the
SCM Agreement".1611 The Appellate Body cautioned that , in each case, " a panel is subject to the

1602 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), fn 1865 to para. 913. The
Appellate Body noted that the dictionary definitions of "genuine" include "{h}aving the character claimed for it:
real, true, not counterfeit", and "{n}atural or proper to a person or thing". (Ibid. (quoting Shorter Oxford
English Dictionary, 6th edn, A. Stevenson (ed.) (Oxford University Press, 2007), Vol. 1, p. 1094))
1603 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), fn 1866 to para. 913. The
Appellate Body noted that the dictionary definitions of "substantial" include "{h}aving solid worth or value, of
real significance; solid; weighty; important, worthwhile" and "{o}f ample or considerable amount or size;
sizeable, fairly large". (Ibid. (quoting Shorter Oxford English Dictionary, 6th edn, A. Stevenson (ed.) (Oxford
University Press, 2007), Vol. 2, p. 3088))
1604 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 914. (emphasis original)
1605 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 914. (fns omitted) See also
Appellate Body Reports, US – Upland Cotton, para. 437; EC and certain member States – Large Civil Aircraft,
para. 1232.
1606 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 914.
1607 Appellate Body Reports, US – Upland Cotton, para. 436; EC and certain member States – Large Civil
Aircraft, para. 1376.
1608 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1110.
1609 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 375.
1610 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1233. (emphasis
original) In particular, in situations where the subsidy at issue is shown to be a necessary cause, but is very
remote, and other factors or intervening causes contribute to the occurrence of the market phenomenon in
question, then a "but for" approach may not be sufficient to establish the requisite causal link. (Ibid.)
1611 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1285. Another approach to
collective assessment is "cumulation", whereby a panel may begin by analysing the effects of a single subsidy,
or an aggregated group of subsidies, to determine whether it constitutes a genuine and substantial cause of
adverse effects. Having reached that conclusion, a panel may then assess whether other subsidies – either
individually or in aggregated groups – have a genuine causal connection to the same effects, and complement

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constraint that it must employ an approach that will enable i t to take due account of all of the
subsidies that provide a relevant and identifiable competitive advantage to the recipient and its
products in the market and that relate to alleged adverse effects phenomena."1612
5.585. Finally, we recall that t he original panel in the present dispute conducted a two-step
analysis by first examining the existence of certain market phenomena (displacement and lost
sales) before analysing whether the subsidies at issue caused serious prejudice in the form of such
market phenomena.1613 Although the Appellate Body proceeded on the same basis in its analysis,
it nonetheless noted that it was "difficult to understand the market phenomena described in the
various subparagraphs of Article 6.3 in isolation from the challenged subsidies". 1614 Thus, t he
Appellate Body found that panels may undertake an analysis of serious prejudice under either a
unitary or two-step approach1615, although " a unitary approach that uses a counterfactual will
generally be the more appropriate approach".1616
5.6.3.4 Findings in the original proceedings and their relevance for these compliance
proceedings
5.586. As discussed above, the question of whether the expired subsidies cause adverse effects in
the post-implementation period is not within the scope of these compliance proceedings in light of
our interpretation of Article 7.8 of the SCM Agreement . Nonetheless, findings from the original
proceedings in relation to the expired subsidies, in particular those concerning the causal pathway
linking those subsidies and the relevant market phenomena, remain relevant for those proceedings
insofar as they inform our understanding of the effects of the subsidies existing in the
post-implementation period (after 1 December 2011) . As the Panel noted, findings by the original
panel and the Appellate B ody "establish no t only what the effects of the pre -A350XWB LA/MSF
subsidies were in the 2001-2006 period, but they also describe the design, structure and operation
of those subsidies, and therefore how LA/MSF impacted Airb us' operations until the end
of 2006".1617 As such, they inform our understanding of the causal pathway through which the
existing subsidies may cause adverse effects in the post-implementation period. With this in mind,
we turn to recall the relevant findings from the original proceedings, particularly those concerning
the causal pathway linking the LA/MSF subsidies and the alleged market phenomena in the original
reference period (2001-2006).
5.587. In the original proceedings, the United States advanced a "product" theory of causation,
arguing that "the subsidies had an impact on 'Airbus' ability to launch and bring to the market
models of LCA that … would not otherwise have been possible at the time and in the way that it
did without the support of those subsidies' ."1618 Under this "product" theory of causation, "market
distortion and adverse effects flow directly from Airbus' entry at a particular time with a particular

and supplement the effects of the first subsidy (or group of subsidies) that was found, alone, to be a genuine
and substantial cause of the alleged market phenomena. (See ibid., para. 1287)
1612 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1290. (emphasis added)
1613 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1106.
1614 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1109.
1615 Under a unitary approach, the analysis of the particular market phenomena identified in the
subparagraphs of Article 6.3 is not conducted separately from the analysis of whether there is a causal
relationship between those market phenomena and the challenged subsidies. In contrast, under a two-step
approach, the analysis first seeks to identify the market phenomena and then, as a second step, examines
whether there is a causal relationship. (Appellate Body Report, EC and certain member States – Large Civil
Aircraft, para. 1107. See also Appellate Body Reports, US – Large Civil Aircraft (2nd complaint), fn 1855 to
1616 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1109.
1617 Panel Report, para. 6.1461.
1618 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1243 (quoting
Original Panel Report, para. 7.1877). In the original proceedings, the United States advanced two theories of
causation, referred to by the original panel as the "product" and "price" theories of causation. The principal
focus of the United States' "price" theory of causation was the argument that the challenged subsidies, and in
particular LA/MSF, provided Airbus with the financial means to be flexible with its pricing of LCA in competitions
against Boeing, thereby enabling it to win sales, capture market share, and significantly depress and suppress
the prices of LCA between the years 2001 and 2006. (Original Panel Report, para. 7.1997) The original panel
rejected the United States' "price" theory of causation. The United States did not appeal this aspect of the
original panel's analysis. (See Appellate Body Report, EC and certain member States – Large Civil Aircraft,
para. 1243 and fn 2670 thereto)

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aircraft, which in the United States' view would not have been possible but for the subsidies. "1619
In analysing causation, the original panel began by examining a r eport prepared by
Dr Gary Dorman1620 (Dorman Report) , which simulated the cash flows that would be generated
under six hypothetical LCA programmes, in comparison with a base case scenario in which the NPV
of the programme was calculated without the LA/MSF subsidies. 1621 The original panel found that
the Dorman Report supported the proposition that "Airbus product launches would not have
occurred in the absence of LA/MSF"1622 and demonstrated 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".1623
5.588. The original panel went on to analyse the business cases of various Airbus LCA
programmes and the public statements relied on by the United States. For the A300, A310, A320,
A330, and A340, the original panel found that LA/MSF was necessary for Airbus to have launched
these LCA as originally designed and a t the time that it did. 1624 The original panel noted,
in particular, the complexities and high risks involved in launching an LCA programme1625, and the
high percentage of the development costs of these models that the LA/MSF subsidies financed.1626
Moreover, the o riginal panel emphasized 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" .1627 Thus, the original panel found that , for
example, "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."1628
5.589. With respect to the A330 -200 and A340-500/600, the original panel noted that both were
"derivative aircraft" whose development was dependent upon the prio r production of, respectively,
the original A330 and A340. 1629 The original panel considered that, " while the particular grant of
LA/MSF specific to the A330 -200 may not have been necessary to its launch, on the whole,
… LA/MSF was necessary to the launch of the A330 -200, as without the grant of LA/MSF for the
development of the original model (and all models preceding that model), the A330-200 could not
have been launched when it was without significantly higher costs. "1630 The original panel further
considered that " LA/MSF was also essential to the development of the A340 -500/600" because it
was "appropriate not only to consider the LA/MSF directly linked to the particular aircraft model
but also to consider the role that LA/MSF played in the launch of the aircraft on which it is based,
as well as all other Airbus LCA launched before it."1631
5.590. Finally, with regard to the A380, as further described in section 5.6.3.5 below, the original
panel considered various arguments and evidence submitted by both parties, including the Airbus

1619 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1243 (quoting
Original Panel Report, para. 7.1879 (fn omitted)). (emphasis added)
1620 Gary J. Dorman, NERA, The Effect of Launch Aid on the Economics of Commercial Airline Programs,
6 November 2006 (Original Panel Exhibit US-70 (BCI)).
1621 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1244-1245. The
European Communities submitted a critique of the Dorman Report by its own economic expert, Dr Paul
Watchel. (Ibid., para. 1246 (referring to Paul Watchel, Critique of "The Effect of Launch Aid on the Economics
of Commercial Airline Programs" by Dr. Gary J. Dorman, 31 January 2007 (Original Panel Exhibit EC-12) and
clarification, 20 May 2007 (Original Panel Exhibit EC-659)))
1622 Original Panel Report, para. 7.1887.
1623 Original Panel Report, para. 7.1912.
1624 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1255 (referring to
Original Panel Report, paras. 7.1934, 7.1936, and 7.1938-7.1939).
1625 The original panel observed that the parties had described the development of LCA as an endeavour
that requires huge up-front investments 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. (Original Panel
Report, para. 7.1933)
1626 As the original panel found, LA/MSF subsidies accounted for 90% to 100% of the development costs
for the A300 and A310, up to 90% for the A320, and between 60% and 90% for the A330 and A340. (Original
Panel Report, paras. 7.1934-7.1939)
1627 Original Panel Report, para. 7.1936. (fn omitted)
1628 Original Panel Report, para. 7.1938.
1629 Original Panel Report, paras. 7.1940-7.1941.
1630 Original Panel Report, para. 7.1940.
1631 Original Panel Report, para. 7.1941. (emphasis added)

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A380 business case , and found that, "the A380 business case suggest {ed}, but by no mean s
demonstrat{ed}, that as a stand -alone proposition the project might have been economically
viable even without LA/MSF" .1632 However, noting the "technical capabilities" derived from its
development of earlier aircraft models, and the fact 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", the original panel concluded that "either directly or
indirectly, LA/MSF was a necessary precondition for Airbus ' launch in 2000 of the A380. "1633
Thus, with regard to the "product effects" of the above -mentioned LA/MSF subsidies, the original
panel concluded that "Airbus' ability to launch, develop, and introduce to the market, each of its
LCA models was dependent on subsidized LA/MSF".1634
5.591. The original panel went on to discuss four scenarios "for the LCA industry in the
counterfactual world that would {have} exist{ed} in the absence of subsidies to Airbus". 1635
Scenarios 1 and 2, which the original panel considered "plausible", contemplated that a
non-subsidized Airbus would have had no market p resence in the 2001 -2006 period. 1636
Scenarios 3 and 4 were regarded as "unlikely", which envisaged that a non -subsidized Airbus
would have been competing in the 2001-2006 period, against either Boeing or Boeing and another
US producer. To the original panel, under either of the "unlikely" scenarios, Airbus would have
been a "much weaker" company "with at best a more limited offering of LCA models". 1637
In conclusion, the original panel found that, in the absence of the LA/MSF subsidies, Airbus would
"not have been able to launch and develop the LCA models it ha {d} actually succeeded in bringing
to the market", and 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 a t Boeing's expense, {was}
clearly an effect of the subsidies" at issue in the original proceedings.1638
5.592. The original panel's above analysis regarding the relevant causal pathway of the LA/MSF
subsidies remained undisturbed on appeal. On appeal, the Appellate Body examined, in particular,
the European Union's claim that the original panel acted inconsistently with Article 11 of the DSU
in its causation finding with respect to LA/MSF for the A380. 1639 The Appellate Body dismissed the
claim, finding that the origina l panel had acted within the bounds of its discretion as initial trier of
facts.1640 Moreover, the Appellate Body found that, even in the counterfactual scenario posited by
the European Union, in which Airbus would have been able to launch an A320-type LCA in 1987
and an A330-type LCA in 1991, "the {original panel's} conclusion that Airbus would not have been
able to launch the A380 in 2000 … but for LA/MSF provided in relation to earlier models of LCA
would hold".1641 The Appellate Body also affirmed its agreement with the original panel's view that
"Airbus' technical capabilities were derived in large part from its experience in the development of
earlier models of LCA".1642 Thus, the Appellate Body upheld the original panel's finding that "either
directly or indirectly, LA/MSF was a necessary precondition for the launch of the A380 in 2000."1643
5.593. In light of the above findings from the original proceedings, the Panel observed that, due
to the similar design, structure, and operation of the LA/MSF subsidies in the origi nal

1632 Original Panel Report, para. 7.1948.
1633 Original Panel Report, para. 7.1948. (emphasis added)
1634 Original Panel Report, para. 7.1949.
1635 Original Panel Report, para. 7.1984.
1636 Original Panel Report, para. 7.1984. The original panel noted that, under these "plausible"
counterfactual scenarios, the LCA industry would have been characterized by the existence of either a Boeing
monopoly, or a duopoly involving Boeing and another US LCA producer (possibly, McDonnell Douglas). (Ibid.)
1637 Original Panel Report, para. 7.1993.
1639 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1312-1356.
Specifically, the European Union argued that the original panel erred: (i) in its assessment of the A380
business case; (ii) in its evaluation of Airbus' ability to fund the A380 without LA/MSF; and (iii) in its analysis of
1640 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1356. Further
details of the Appellate Body's findings in the original proceedings on the A380 are discussed in
section 5.6.3.5.1 below.
1641 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1352.
1642 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1355.
1643 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1356 (quoting
Original Panel Report, para. 7.1948).

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proceedings1644, the original panel conducted an aggregated analysis of the effects of th ose
subsidies on the basis of two types of "product effects" attributable to the such subsidies: "direct
effects" and "indirect effects ".1645 Referring to the original p anel's findings, the Panel defined
"direct effects" as "the effects of any given LA/MSF loan on Airbus' ability to launch and bring to
market the particular model of Airbus LCA specifically funded by that LA/MSF loan". 1646 The Panel
defined "indirect effects" as "the 'learning', scope and financial effects that any given LA/MSF loan
provided for the specific purpose of one model of LCA may have on the ability of Airbus to launch
and bring to market another model of LCA."1647
5.594. As for the different types of "indire ct effects", the Panel explained that, according to
findings of the original panel: (i) learning effects "result from the extent to which LA/MSF enables
Airbus to launch and bring to market one particular model of LCA, and thereby develop the
knowledge, know-how and experience to support the launch and development of other models of
Airbus LCA" 1648; (ii) economies of scope arise "when, for example, basic aircraft design and
components are shared across different models of LCA, making i t possible to share input s
(and therefore spread costs) between the production processes of different aircraft" 1649;
and (iii) financial effects "result from not only the impact of the 'learning' and scope effects on the
cost of financing new models of LCA, but also the revenues gene rated from sales and deliveries of
LCA that would not exist in the absence of LA/MSF, as well as the below -market interest rates
charged on the repayment of LA/MSF".1650
5.595. Our review of the original panel's findings supports the notion that the "product effect s" of
the LA/MSF subsidies have at least two dimensions: one concerns Airbus' ability to launch the LCA
model that an LA/MSF subsidy directly finances, and the other relates to Airbus' ability to launch
other LCA models. As the Panel correctly noted, the o riginal panel's causation findings "were
inextricably linked to the 'learning', scope and financial effects of the LA/MSF subsidies across
Airbus' different models of LCA ".1651 At the same time, we caution that this nomenclature serves
only as an analytical tool and does not change the substance of the findings from the original
proceedings. In particular, we do not see it as creating a rigid dichotomy between the two kinds of
"product effects" of LA/MSF fo und in the original proceeding s. As noted, the original panel found
that "either directly or indirectly, LA/MSF was a necessary precondition" for the launch of certain
Airbus LCA models such as the A380.1652 For purposes of the original panel's conclusion reg arding
the "product effects", it was not necessary for the original panel to have made a separate finding
with regard to each of these two dimensions.
5.6.3.5 Whether the Panel erred in its findings on the "product effects" of the LA/MSF
subsidies existing in the post-implementation period
5.596. Keeping in mind the above considerations regarding the relevance of the findings from the
original proceedings for these compliance proceedings , we turn to review the Panel's findings
regarding the effects of the subsidies exist ing in the post -implementation period
(after 1 December 2011), and the European Union's appeal of such findings. We note that, while
contending that the pre-A380 LA/MSF subsidies "ceased to exist" before the implementation period
and were therefore not within the scope of its compliance obligation 1653, the European Union does
not dispute that the A380 LA/MSF subsidies continued to exist during the post -implementation
period. Indeed, as the Panel found, one of the 36 "steps" identified in the European Union's

1644 Panel Report, para. 6.1448.
1645 Panel Report, para. 6.1446 (referring to Original Panel Report, paras. 7.1935-7.1948;
Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1269, 1281, 1352, 1355,
and 1356) and para. 6.1492.
1647 Panel Report, para. 6.1492. (emphasis added; fn omitted)
1648 Panel Report, para. 6.1510.
1650 Panel Report, para. 6.1511. The Panel noted that the original panel did not specifically refer to
"direct effects" and "indirect effects" in its findings. Nonetheless, the Panel considered that "the 'direct' and
'indirect' effects nomenclature provides a useful way of understanding the {original} panel's evaluation of the
1652 Original Panel Report, para. 7.1948.
1653 Panel Report, para. 6.794. See also paras. 6.869 and 6.1069.

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Compliance Communication is the "bringing 'to an end'" of all of the subsidies found to have
caused adverse effects in the original proceedings, "with the exception of the French, German,
Spanish and UK A380 LA/MSF" subsidies.1654
5.597. The Panel further found that, subsequent to the original reference period (2001-2006), the
European Union granted new LA/MSF subsidies to Airbus for developing its A350XWB family of
LCA, and that these subsidies were "closely connected" with the adopted DSB recommendations
and ruling s from the original proceedings and the European Union's alleged compliance
"actions".1655 The Panel found, in particular, that the A350XWB LA/MSF subsidies are similar in
nature to the pre -A350XWB LA/MSF subsidies, and that "the effects of A350XWB LA/MSF could
undermine the European Union's compliance."1656 Moreover, in evaluating whether the A350XWB
LA/MSF constitutes a subsidy under Article 1.1 of the SCM Agreement, the Panel found that,
"{o}verall, … the LA/MSF contracts for the A350XWB resemble the contracts at issue in the
original proceeding, based on the type of terms, including the similarity of disbursement
mechanisms, the levy -based repayments of the principal along an anticipated schedule of
deliveries and the imposition of royalties, the fact that no security is provided for the debt amount,
and the existence of conditional guarantees that are limited only to the performance of
obligations."1657 Thus, despite "some pertinent differences", the Panel found that "the A350XWB
LA/MSF contracts share the same core features as the LA/MSF measures considered in the original
proceeding".1658 We note that neither participant has disputed these factual findings by the Panel.
5.598. The Panel considered that the same approach used to assess the "product effects" of the
LA/MSF subsidies – i.e. through the lenses of their "direct effects" and "indirect effects " – may be
equally applicable for its aggregated analysis of the effects of the LA/MSF subsidies in these
compliance proceedings.1659 As noted above in paragraph 5.413, the Pan el's aggregated analysis
covered all of the challenged LA/MSF subsidies, that is, including the expired subsidies. Pursuant
to our interpretation of Article 7.8 of the SCM Agreement, we disagree with the Panel to the extent
that it considered the effects o f the expired LA/MSF subsidies to be a part of its aggregated
assessment. Instead, our review in this section focuses on the Panel's findings relating to a subset
of those subsidies, namely, the subsidies existing in the post -implementation period. We recall in
this regard that a panel may group together subsidy measures that are sufficiently similar in their
design, structure, and operation in order to ascertain their aggregated effects in an "integrated
causation analysis" , so as to determine "whether there is a genuine and substantial causal
relationship between these multiple subsidies, taken together, and the relevant market
phenomena identified in Article 6.3 of the SCM Agreement."1660 As we understand it, the
European Union does not contest that the LA/MSF subsidies for the A380 and the A350XWB are
similar in their design, structure, and operation .1661 For this reason, we consider it appropriate to
assess the aggregated effects of the A380 and A350XWB LA/MSF subsidies – i.e. the LA/MSF

1654 Panel Report, para. 6.14.
1655 Panel Report, para. 6.150.
1657 Panel Report, para. 6.286.
1658 Panel Report, para. 6.286.
1659 Panel Report, para. 6.1451.
1660 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1285.

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subsidies that the European Union continued to "grant or maintain" in the post -implementation
period – in an integrated causation analysis.1662
5.599. As further discussed below, the European Union alleges specific errors regarding the
Panel's findings on the "direct" and "indirect" effects of individual LA/MSF subsidies. With respect
to the A380, the European Union challenges the Panel's assessment of the " direct effects" of the
A380 LA/MSF subsidies on Airbus' ability to bring to market the A380. Similarly, the
European Union takes issue with the Panel's assessment of the effects of A350XWB LA/MSF
subsidies ("direct effects") and A380 LA/MSF subsidies ("indirect effects") on Airbus' ability to
launch the A350XWB as and when it did. While we address these s pecific aspects of the
European Union's appeal below, we note that, under the aggregated approach towards the
assessment of all LA/MSF followed by the Panel, it was neither required to find that each subsidy
is, individually, a genuine and substantial cause of the relevant phenomenon , nor to assess the
relative contribution of each subsidy , considered in isolation, within the group to the resulting
effects.1663 Against this background, we turn to the European Union's specific allegations of error
with a view to ascertaining whether the P anel's analysis regarding the "product effects" of the
subsidies existing in the post-implementation period support a finding of a genuine and substantial
causal relationship between these subsidies, taken together, and the market phenomena identified
in the post-implementation period.
5.6.3.5.1 "Product effects" of A380 LA/MSF subsidies on the A380
5.600. The European Union claims that, "{t}o the extent" that the Panel found that A380 LA/MSF
subsidies resulted in "direct effects", the Panel acted inconsistently with Artic le 11 of the DSU
because any such finding lacks a "sufficient evidentiary basis". 1664 According to the
European Union, given the Panel's observation that A380 LA/MSF subsidies were "not critical to
{the} very existence" of the A380 1665, there is no basis for its finding that A380 LA/MSF subsidies
were a "necessary" cause of the market presence of the aircraft, let alone a "genuine and
substantial" cause.1666 The European Union also highlights that the "the Panel did not find that,
absent A380 LA/MSF, Airbus would ha ve delayed the launch of the A380, or that the A380 would
have been any different in technology." 1667 Alleging that "the Panel's findings are limited to its
affirmation that A380 LA/MSF was 'not critical to {the} very existence' of the A380" 1668,
the European Union asserts that there "is simply no finding to s upport the conclusion that
A380 LA/MSF resulted in 'direct effects' on 'Airbus' ability to launch and bring to market'
the A380."1669 The United States responds that neither the original panel, nor the Panel, m ade a
finding that the A380 LA/MSF subsidies were not critical to the existence of the A380. 1670 Instead,
according to the United States, the findings from the original proceedings establish that the A380

1662 As noted in paragraphs 5.389-5.390 and footnote 978 above, the European Union submitted
two approaches for estimating the "ex ante" lives of the LA/MSF subsidies – the "Loan Life" approach and the
"Marketing Life" approach. The Panel expressed doubt as to whether the Loan Life approach would be the most
appropriate methodology for determining the ex ante "lives", and noted that "it would be at least equally
appropriate" to utilize the Marketing Life approach. (Ibid., para. 6.878) The Panel, however, did not find it
necessary to express a definitive view on which of the two approaches should be accepted. (Ibid., para. 6.879)
Ultimately, the Panel found that the LA/MSF subsidies for the A330-200 and the A340-500/600 expired,
respectively, in [BCI] – that is, after the end of the implementation period – on the basis of the Loan Life
approach for assessing the ex ante "lives" of subsidies. (Panel Report, fn 1547 to para. 6.879). We note that,
under the Marketing Life approach, the LA/MSF subsidy for the A330-200 would have expired by [BCI] – that
is, before the end of the implementation period – and the LA/MSF subsidy for the A340-500/600 would have
expired by [BCI]. (Ibid., Table 11: PwC ex ante "lives" analysis for LA/MSF) As further discussed in footnote
2030 and paragraph 5.719 below, we do not find specific findings and supporting analysis from the original
proceedings or in the Panel Report regarding how the "product effects" of these two subsidies contributed to
the alleged serious prejudice in the post-implementation period.
1663 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1285.
1664 European Union's appellant's submission, para. 884.
1665 European Union's appellant's submission, para. 880 (quoting Panel Report, para. 6.1507 and
referring to fn 2597 thereto).
1666 European Union's appellant's submission, para. 881.
1667 European Union's appellant's submission, para. 883. (emphasis original)
1668 European Union's appellant's submission, para. 883 (quoting Panel Report, para. 6.1507 and
referring to fn 2597 thereto).
1669 European Union's appellant's submission, para. 883 (quoting Panel Report, para. 6.1492).
1670 United States' appellee's submission, para. 479.

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LA/MSF subsidies resulted in "direct effects"1671 and these findings cannot be challenged as part of
the present compliance proceedings.
5.601. As we see it, the crux of the European Union's appeal is its contention that neither the
original panel, nor the Panel, found that the A380 LA/MSF subsidies had any effect on the Airbus'
ability to launch and bring to market the A380 as and when it did. 1672 Before the Panel, the
European Union made a similar argument with respect to the original proceedings, claiming that
the original panel's causation findings concerning the A380 were based " not on the impact of
A380 MSF on the launch decision, but solely on the impact of all previous MSF".1673 We therefore
understand that, in challenging the Panel's alleged finding on the "direct effects" of A380 LA/MSF,
the European Union is taking issue with the manner in which the Panel understood the causal
pathway through which A380 LA/MSF, taken alone, affected Airbus' ability to launch, bring to
market, and continue developing the A380 as and when it did.
5.602. In paragraph 6.1507 of its Re port, the Panel stated that , "where LA/MSF provided for the
specific purpose of launching and bringing an aircraft to market is not critical to its very existence,
then the direct effects of the relevant LA/MSF funding could not normally be said to last fo r the
entire marketing life of the relevant programme." 1674 In a footnote to this statement, the Panel
recalled that:
the panel in the original proceeding found that it was likely that "the A330 -200 could
have been launched even in the absence of the specific LA/MSF granted in respect of
that programme" because it was a derivative of the A330 and, therefore, required a
comparatively small amount of funding to develop. The original panel also found that
the A380 business case suggested, "but by no means demonstrates", that as a
stand-alone proposition, the A380 might have been economically viable even without
the A380 LA/ MSF. Ultimately, however, in respect of both models of LCA, the panel
found that they could not have been launched and brought to market in the absence
of the indirect effects of other LA/MSF subsidies.1675
The European Union argues that the Panel's statements in paragraph 6.1507 and the footnote
thereto of its Report amount to a " finding" that A380 LA/MSF was "not critical to {the} very
existence" of the A380 and that, therefore, the LA/MSF for the A380 had no "direct effects".1676
Moreover, the European Union asserts that neith er the original panel, nor the Panel, found that
A380 LA/MSF had the effect of advancing the launch of the A380.1677
5.603. We have so me difficulty in accepting the European Union's reading of the Panel Report.
In discussing the dissipation of "direct effects" of an LA/MSF subsidy, the Panel made it clear that
an LA/MSF subsidy that was not critical to the very existence of an aircraft could nonetheless have
"direct effects", although they may not last the entire marketing life of the aircraft. 1678 The Panel
also recalled the original panel's finding that "the A380 business case suggested, 'but by no means
demonstrates', that as a stand-alone proposition, the A380 might have been economically viable
even without the A380 LA/MSF ."1679 This finding by the original panel does not, however, suggest
that A380 LA/MSF had no effects on Airbus' ability to launch the A380 as and when it did.

1671 United States' appellee's submission, para. 477 (referring to Panel Report, para. 6.1528).
1672 European Union's response to questioning at the oral hearing.
1673 European Union's first written submission to the Panel, para. 981. (emphases original)
1674 Panel Report, para. 6.1507. (emphasis original; fn omitted)
1675 Panel Report, fn 2597 to para. 6.1507 (quoting and referring to Original Panel Report, paras. 7.1940
and 7.1948). (emphasis original)
1676 European Union's appellant's submission, para. 880 (quoting Panel Report, para. 6.1507 and
referring to fn 2597 thereto).
1677 European Union's appellant's submission, para. 883. See also European Union's first written
1678 Panel Report, para. 6.1507.
1679 Panel Report, fn 2597 to para. 6.1507 (quoting and referring to Original Panel Report, paras. 7.1940
and 7.1948). In fact, although the original panel acknowledged that the A380 business case predicted a
positive NPV in the absence of LA/MSF, it was "not persuaded that the A380 business case alone demonstrates
that Airbus would have launched the A380 even in the absence of LA/MSF". (Original Panel Report,
para. 7.1944)

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5.604. In this context, we recall that the original panel , having examined the evidence on the
record, agreed with the United States that, even if Airbus had been confident that the A380
programme would have been viable without LA/MSF, it would not have been able to fund the
programme relying exclusively on its own resources and "outside financing".1680 The original panel
rejected the European Communities' argument that the creation of EADS increased Airbus'
financial flexibility. For the original panel, it was not cl ear how or to what degree the corporate
restructuring of Airbus Industrie GIE, Aérospatiale, CASA, and Deutsche Airbus affected the ability
of Airbus France (or Airbus SAS) to raise the very large amounts of capital needed for the A380
programme.1681 Finally, the original panel also observed that the European Communities had
"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 thro ugh
risk-sharing supplier arrangements, Airbus would necessarily have been able to do the same with
respect to the A380." 1682 The Appellate Body upheld the original panel's overall conclusion that
"either directly or indirectly, LA/MSF was a necessary precondition for Airbus' launch in 2000 of the
A380"1683, noting that it was based on multiple considerations, including the A380 business case,
evidence o f 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.
5.605. We agree with the United States that these findings from the original proceedings reveal
that, without A380 LA/MSF, Airbus would have been unable to fund the timely launch of the A380
programme relying exclusively on its own financial resources and outside financing.1684 This in turn
suggests that A380 LA/MSF had "direct effects" on Airbus' ability to launch the A380 . We recall
that, in these compliance proceedings, the United States bears the burden of establishing that the
subsidies granted or maintained by the European Union in the post -implementation period
continue to cause adverse effects. Before the Panel, the Unit ed States argued that
"{s}erial infusions of LA/MSF have enabled Airbus to cover the full spectrum of LCA demand and
to replace uncompetitive models with state-of-the-art aircraft".1685 As further discussed below 1686,
the findings by the original panel and the Appellate Body, together with the Panel's findings
regarding the A350XWB, indicate to us that , following the original reference period, the LA/MSF
subsidies for the A380 allowed Airbus to build on the platform provided by the technical experience
and financial resources derived from the grant of LA/MSF subsidies for previous LCA models.
5.606. We note that, pursuant to the Panel's finding regarding the allocation of benefit and expiry
of the LA/MSF subsidies, the benefit conferred by the French, German, Spanish, and UK LA/MSF
subsidies for the A380 had not expired by the end of the implementation period, that is,

1680 Original Panel Report, paras. 7.1945-7.1947. The original panel's analysis of "outside financing"
available to Airbus included an assessment of the extent to which Airbus could increase its use of risk-sharing
supplier arrangements to fund the launch of the A380. (Ibid., paras. 7.1945-7.1947)
1681 Original Panel Report, para. 7.1947.
1682 Original Panel Report, para. 7.1947. The original panel acknowledged that Airbus used risk-sharing
supplier arrangements, but did not see any 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 original panel did not consider the availability of risk-sharing supplier
arrangements in respect of the A340-500/600 to be persuasive in this regard, because those were derivative
aircraft that entailed much smaller development costs and a much lower level of risk to Airbus' overall
operations. In the original panel's view, the willingness of suppliers to take on some of the risk of that much
smaller programme did not demonstrate that any supplier or suppliers would be prepared to do so in respect of
up to 33% of the much greater costs of the A380. Finally, the original panel noted that the information in the
Airbus A380 business case suggested that the RSPs' involvement in the A380 programme may not have been
on strictly market terms for all participants. (Ibid.)
1683 Original Panel Report, para. 7.1948; Appellate Body Report, EC and certain member States – Large
Civil Aircraft, para. 1356.
1684 United States' appellee's submission, para. 479 (referring to Appellate Body Report, EC and certain
member States – Large Civil Aircraft, para. 1256).
1685 United States' first written submission to the Panel, para. 354.
1686 See paras. 5.643-5.647 below.

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1 December 2011. 1687 Indeed, the Panel obser ved that one of the 36 "steps" identified in the
European Union's Compliance Communication is the "bringing 'to an end'" of all of the subsidies
found to cause adverse effects in the original proceeding s "with the exception of the French,
German, Spanish a nd UK A380 LA/MSF measures". 1688 Thus, the European Union acknowledges
that the A380 LA/MSF subsidies had not "expired" by the end of the implementation period.
5.607. We further recall that findings from the original proceedings establish that the A380 was
launched in 2000, and the amount of the financial contribution under the French, German,
Spanish, and UK LA/MSF contracts was found to be, in millions, [BCI], respectively.1689 Both the
original panel and the Appellate Body found that the A380 LA/MSF subsidies conferred a benefit on
Airbus within the meaning of Article 1.1 of the SCM Agreement.1690 The findings from the original
proceedings also establish that, unlike the pre-A380 LA/MSF subsidies, which were disbursed
decades ago, the disbursements of the A380 LA/ MSF subsidies continued well beyond the original
reference period. The original panel noted that disbursements under the French A380 LA/MSF
contract would be provided to Airbus [BCI]1691, and that the German and Spanish A380 LA/MSF
contracts both provided for [BCI].1692 As the original panel found, in all three cases, the
outstanding instalments represented a part of the total (and maximum) amount of funding that it
was agreed and planned would be transferred to Airbus for the A380 pro gramme. Thus, the
original panel considered it "clear" that "Airbus maintain {ed} a contractual right to receive {the
specified funding amounts} at a predetermined moment in the future so long as it continue {d} to
develop the A380."1693
5.608. We also consider important the Panel's finding tha t the A380 programme suffered
"extensive" production delays in 2005 and 2006 .1694 The Panel found that these delays resulted in
increased development costs for the A380. 1695 They also led to the cancellation of orders for
the A380 and gave rise to significant contractual penalty payments to A380 customers. 1696

1687 See Panel Report, para. 6.872, Table 11: PwC ex ante "lives" analysis for LA/MSF. We also note the
Panel's statement that, "{a}ccording to the European Union, the conclusions reached by PwC demonstrate that
the benefit conferred through all of the challenged subsidies with the exception of the French and Spanish
A340-500/600 LA/MSF measures, the French, German, Spanish, and UK A380 LA/MSF measures, and a
number of the Spanish Government regional development grants, was fully amortized prior to the end of the
implementation period." (Ibid., para. 6.16 (referring to European Union's first written submission to the Panel,
paras. 205-223) (emphasis original))
1689 Original Panel Report, para. 7.380, Table 1: Approximate amount of funding provided for under the
challenged LA/MSF measures.
1690 Original Panel Report, para. 7.490. The original panel found that the differences between the
interest rates under the French, German, Spanish, and UK A380 LA/MSF subsidies and the relevant market
benchmark ranged from a number that is HSBI to [BCI], respectively. (Original Panel Report, para. 7.488,
Table 7: LA/MSF Rates of Return Compared with Market Rates of Return) The Appellate Body, having found
several errors in the original panel's analysis and noted that those differences should be lower, nonetheless
upheld the original panel's final conclusion that those subsidies conferred a benefit. (See Appellate Body
Report, EC and certain member States – Large Civil Aircraft, paras. 923-929)
1691 Original Panel Report, para. 7.378 (referring to French A380 LA/MSF contract (Original Panel
Exhibit US-116 (BCI)), Annexe 3).
1692 Original Panel Report, para. 7.378 (referring to German A380 LA/MSF contract (Original Panel
Exhibit US-72 (BCI) (English translation)), clause 4.2; BT-Drs. 14/10002 (Original Panel Exhibit US-124
(English translation)), p. 3; Spanish A380 LA/MSF contract (Original Panel Exhibit US-73 (BCI)), 3rd clause).
The original panel found that all of the funds committed under the UK A380 LA/MSF contract had "already been
provided to Airbus". (Original Panel Report, para. 7.377)
1693 Original Panel Report, para. 7.378. (emphasis added)
1694 Airbus first announced a six-month delay in the A380 delivery schedule in 2005. In June 2006 – the
month before Airbus unveiled the A350XWB at the Farnborough Air Show – Airbus announced a second delay
in the A380 delivery schedule of a further six months, which was reportedly expected to cost Airbus hundreds
of millions of euros. Then, three months after unveiling the A350XWB, in October 2006, Airbus announced a
third delay in the A380 programme of an additional year. (Panel Report, para. 6.1551) The first A380 was
delivered on 12 October 2007. (Ascend database, Deliveries made, data request as of 7 April 2014 (Panel
Exhibit EU-512))
1695 Panel Report, para. 6.1551 (referring to Mario Heinen, Airbus Senior Vice President A380,
EADS/Airbus presentation "The A380 Program", presented at the Global Investor Forum, 19-20 October 2006
(Panel Exhibit EU-419), slide 18).
1696 Panel Report, para. 6.1551 (referring to EADS Press Release, "A350 XWB launch: EADS Gives Go
Ahead for Airbus to Launch the A350 XWB", 1 December 2006 (Panel Exhibit USA-569)).

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Moreover, because LCA customers generally pay a substantial portion of the sale price upon
delivery1697, the Panel considered that the delays meant that Airbus would realize certain revenues
from the A380 later than expected for the A380s that were ultimately delivered. 1698 The Panel
noted that EADS documents indicated that earnings before interest and taxes (EBIT) at Airbus
"was also negatively affected by €2.5 billion in 2006"1699, in part due to the A380 difficulties, and a
2007 UK Government report indicated that "{p}artly as a result of cost overruns and late delivery
payments to its customers, Airbus reported a loss of £389 million for 2006." 1700 Characterizing
these A380 problems as "severe", the Panel observed that they "precipitated a management crisis"
that saw the departure of two CEOs in less than four months.1701 In our view, these findings by the
Panel reflect the gravity and severity of the financial implications for Airbus of the extensive
production delays su ffered by the A380 in 2005 and 2006. During that time , Airbus continued to
receive disbursements as part of the French, Spanish, and German A380 LA/MSF contracts.1702
5.609. In sum, the original panel's findings indicate that, although the A380 may have been
"economically viable" in the absence of A380 LA/MSF, it does not follow from this that A380
LA/MSF had no "direct effects". Instead, the findings from the original proceedings indicate that
Airbus could not have launched the A380 as and when it did by relying ex clusively on its own
financial resources and outside financing. In this sense, A380 LA/MSF had a genuine impact on
Airbus' ability to fund the timely launch of the A380. The original panel's findings, together with
the Panel's analysis, indicate that these "direct effects" of A380 LA/MSF continued after the original
reference period, given that the A380 LA/MSF subsidies had not expired, as well as the fact that
Airbus continued to receive significant sums of money as disbursements under the French,
German, and Spanish A380 LA/MSF contracts at a time when it was experiencing severe financial
difficulties resulting from the extensive production delays in the A380 programme. We therefore
disagree with the European Union's claim under Article 11 of the DSU that the Panel's
understanding of the "direct effects" of A380 LA/MSF on Airbus' ability to launch, bring to market,
and continue developing the A380 as and when it did lacks a sufficient evidentiary basis.
5.6.3.5.2 "Product effects" of LA/MSF subsidies on the A350XWB
5.610. Having found that "the A350XWB could not have been launched and brought to market in
the absence of LA/MSF" 1703, the Panel reached the conclusion that "the direct and indirect effects
of the aggregated LA/MSF subsidies, with the exception of the LA/MSF subsidi es provided for the
A300 and A310, are a 'genuine and substantial' cause of the current market presence of the
A350XWB family of Airbus LCA". 1704 The European Union challenges the Panel's findings and
analysis of the "product effects" of LA/MSF subsidies on t he A350XWB on two grounds. First,
the European Union alleges that the Panel failed to make an objective assessment of the matter,
as required by Article 11 of the DSU, to the extent that it found that the A350XWB LA/MSF
subsidies resulted in "direct effect s" on the launch of th e A350XWB .1705 Second, the
European Union claims that the Panel erred in its application of Articles 5(c) and 7.8 of the

1698 Panel Report, para. 6.1551 (referring to A380 Business Case (Panel Exhibit EU-20 (HSBI)), p. 19,
1699 Panel Report, para. 6.1551 (quoting "Risk Factors", EADS Financial Statements and Corporate
Governance, Book 2, 2006, pp. 8-13 (Panel Exhibit USA-496), p. 12). The Panel further noted that an Airbus
press release from February 2007 indicates that Airbus reported a negative EBIT for 2006 and, "following the
A380 delays, faces significant cash needs and deteriorating profits in the future" (Ibid., fn 2680 to
para. 6.1551 (quoting Airbus Press Release, "Power8 prepares way for 'new Airbus'", 20 February 2007 (Panel
Exhibit USA-94)))
1700 Panel Report, para. 6.1551 (quoting UK House of Commons Trade and Industry Committee, "Recent
Developments with Airbus", Ninth Report of Session 2006-2007, Volume I: Report and formal minutes,
19 June 2007 (Panel Exhibit USA-25), p. 8).
1701 Panel Report, para. 6.1551 (quoting Aude Lagorce, "Airbus refuses to rule out state loans on the
A350XWB", MarketWatch, 4 December 2006 (Panel Exhibit USA-359)).
1703 Panel Report, para. 6.1778.
1704 Panel Report, para. 7.1.d.xiii. (emphasis original)
1705 European Union's appellant's submission, para. 896 (referring to Panel Report, para. 7.1.d.xiii).

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SCM Agreement in finding that the A380 LA/MSF subsidies had "indirect effects" on Airbus' ability
to launch the A350XWB.1706
5.611. With respect to the finding of " direct effects" of A350XWB LA/MSF allegedly made by the
Panel, the European Union recalls the Panel's statement that, "in the absence of A350XWB
LA/MSF …, the Airbus company that actually existed in the 2006 to 2 010 period would have been
able to launch and bring to market the A350XWB or an A350XWB -type aircraft ."1707 The
European Union asserts that this statement "by definition preclud{es} a finding that A350XWB
LA/MSF resulted in 'direct effects'". 1708 To the extent that the Panel nonetheless made a finding of
"direct effects" of A350XWB LA/MSF, the European Union argues that the "only basis" 1709 for it is
the Panel's conclusion that there was a "high likelihood" that, without A350XWB LA/MSF, the
Airbus company that actua lly existed in 2006 -2010 would, "to some degree, have had to make
certain compromises with respect to the pace of the programme and/or the features of the
aircraft".1710 The European Union claims that, in reaching this conclusion, the Panel failed to make
an objective assessment of the matter as required by Article 11 of the DSU. 1711 As for the finding
of "indirect effects" allegedly made by the Panel , the European Union asserts that, having found
that A380 LA/MSF was "not critical" to the very existence of the A 380, and therefore did not have
"direct effects" on the A380, the Panel erred in its application of Articles 5(c) and 7.8 of the
SCM Agreement to the extent that it found that A380 LA/MSF resulted in "indirect effects" on
the A350XWB.1712
5.612. As with its appeal of the Panel's analysis of the "direct effects" of A380 LA/MSF, we note
that the European Union takes issue with the Panel's assessment of the effects of individual
("indirect effects") – on Airbus' ability to launch the A350XWB as and when it did. Given the
Panel's aggregated assessment of the effects of all LA/MSF, the Panel did not make separate
findings that A350XWB LA/MSF and A380 LA/MSF were, individually, a genuine a nd substantial
cause of the launch of the A350XWB. Nor was the Panel required to make such findings. 1713
Instead, the Panel first examined the causal mechanism through which individual subsidies,
including the A350XWB LA/MSF and A380 LA/MSF subsidies, affected Airbus' ability to launch the
A350XWB as and when it did, before analysing the relationship between the collective effects of all
LA/MSF subsidies and the launch of the A350XWB in December 2006.1714 Given that the Panel was
not required to find that each of the LA/MSF subsidies was, individually, a genuine and substantial
cause of the launch of the A350XWB, we understand the European Union, in challenging the
Panel's findings of "direct effects" and " indirect effects" of the A350XWB LA/MSF and A380
LA/MSF, respectively, to be taking issue with the manner in which the Panel understood the causal
mechanism through which the se existing individual subsidies affected Airbus' ability to launch the
A350XWB as and when it did.
5.613. In light of these considerations, and having already recalled the main aspects of the
Panel's analysis and findings on the "product effects" of LA/MSF subsidies on the A350XWB 1715,
we turn to consider whether the Panel acted inconsistently with Article 11 of the DSU to the extent
that it found that the A350XWB LA/MSF subsidies resulted in "direct effects" on the launch of the
A350XWB. We then examine whether the Panel erred in its application of Articles 5(c) and 7.8 of

1706 European Union's appellant's submission, para. 895 (referring to Panel Report, para. 6.1507 and
fn 2597 thereto).
1707 European Union's appellant's submission, paras. 888 and 897 (quoting Panel Report, para. 6.1717
(emphasis original)).
1708 European Union's appellant's submission, para. 888.
1709 European Union's appellant's submission, para. 898.
1710 European Union's appellant's submission, para. 898 (quoting Panel Report, para. 6.1717).
1711 European Union's appellant's submission, paras. 888 and 896.
1712 European Union's appellant's submission, para. 895 (quoting Panel Report, para. 6.1507 and
referring to fn 2597 thereto).
1713 See para. 5.599 above.
1714 As we have explained above, pursuant to our interpretation of Article 7.8 of the SCM Agreement, we
disagree with the Panel to the extent that it considered the effects of the expired LA/MSF subsidies to be a part
of its aggregated assessment.
1715 See section 5.6.3.2.2 of this Report. The A350XWB was launched on 1 December 2006 and was
therefore not at issue in the original proceedings. Accordingly, there are no findings from the original
proceedings concerning the "product effects" of LA/MSF subsidies on the A350XWB.

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the SCM Agreement in finding that the A380 LA/MSF subsidies had "indirect effe cts" on
the A350XWB.1716
5.6.3.5.2.1 The Panel's assessment of the "direct effects" of the A350XWB LA/MSF
subsidies
5.614. As noted above, the Panel's analysis in relation to the "direct effects" of the A350XWB
LA/MSF was based, to a large extent, on an examination of the abili ty of the subsidized Airbus
company that actually existed during the 2006-2010 period to launch the A350XWB as and when it
did.1717 The European Union claims that the Panel acted inconsistently with Article 11 of the DSU in
concluding that, without A350XWB LA /MSF, there was a "high likelihood" that the Airbus company
that actually existed in 2006 -2010 would, "to some degree, have had to make certain
compromises with respect to the pace of the programme and/or the features of the aircraft". 1718
The European Union advances three related lines of arguments in support of its Article 11 claim.
First, the European Union argues that the Panel did not cite any evidence, or offer any reasoning,
to support its "probabilistic" conclusion. 1719 For the European Union, the Panel's conclusion
therefore "lacks a sufficient evidentiary basis". 1720 Second, the European Union points out that a
number of the Panel's intermediate findings, and several pieces of evidence, "strongly indicate that
Airbus would not have found a compromise on tim ing or features of the A350XWB to be
commercially viable", thereby contradicting the Panel's "speculation" that, absent LA/MSF,
compromises would have been made on the timing or technology of the A350XWB. 1721
Finally, the European Union avers that the Panel d id not examine whether an alternative aircraft
with anything less than the features of the A350XWB, offered on the market later in time than the
A350XWB, would have been viable or commercially attractive for Ai rbus, thereby "vitiat{ing}"
the Panel's "probabilistic" conclusion.1722
5.615. The United States responds that the Panel made numerous findings and cited extensive
evidence in support of the conclusion challenged by the European Union.1723 For the United States,
the European Union's insistence that the Panel paid too little attention to the evidence showing
that timing or feature compromises would have made the A350XW B unattractive and unviable,
if correct, only proves that Airbus as it actually existed would not have launched the A350XWB at
all in the absence of A350XWB LA/MSF.1724
5.616. We begin with the European Union's assertion that the Panel did not cite any evidence, or
offer any reasoning, in support of its conclusion that, without A3 50XWB LA/MSF, there was a
"high likelihood" that the Airbus company that actua lly existed in 2006 -2010 would,
"to some degree, have had to make certain compromises with respect to the pace of the
programme and/or the features of the aircraft". 1725 The United States asserts that the Panel's
analysis of the "direct effects" of A350XWB LA /MSF includes a numbe r of intermediate findings,
not challenged on appeal, that support and "inexorably" lead to the Panel's ultimate conclusion
challenged by the European Union.1726 We note that, before reaching this conclusion, the Panel
analysed, in consid erable detail, Airbus' ability to fund effectively the A350XWB programme with

1716 We note that the Panel began its analysis by assessing the "direct effects" of A350XWB LA/MSF,
before turning to the "indirect effects" of pre-A350XWB LA/MSF. In its appellant's submission, the
European Union reverses this order of analysis, challenging first the Panel's finding of "indirect effects" and
then turning to its "direct effects" finding. This is because, in challenging the Panel's finding of "indirect effects"
of the A380 LA/MSF subsidies, the European Union relies heavily on its arguments concerning the "direct
effects" of the same subsidies, which are contained in the last section of its claims concerning the Panel's
analysis of the effects of pre-A350XWB LA/MSF. In our analysis, we follow the Panel's sequence of analysis
because it helps in understanding the analytical framework adopted by the Panel for examining the effects of
A350XWB LA/MSF.
1717 See para. 5.567 above.
1718 European Union's appellant's submission, para. 898 (quoting Panel Report, para. 6.1717).
1719 European Union's appellant's submission, para. 899.
1720 European Union's appellant's submission, para. 888. See also paras. 912-913.
1721 European Union's appellant's submission, paras. 901 and 907.
1722 European Union's appellant's submission, para. 900.
1723 United States' appellee's submission, paras. 495-501.
1724 United States' appellee's submission, para. 505.
1725 European Union's appellant's submission, para. 898 (quoting Panel Report, para. 6.1717).
1726 United States' appellee's submission, para. 499 (referring to Panel Report, para. 6.1539).

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financing on market terms. 1727 The Panel recalled that the European Union did not argue that, in
the absence of A350XWB LA/MSF, Airbus could have "effectively funded" the A350XWB
programme on its own , but only that it could have done so with the help of its parent company,
EADS.1728 Having found that EADS would have, in principle, been willing to involve itself in the
financing of the A350XWB 1729, the Panel turned to examine the extent of the financial resources
available to Airbus and EADS , and considered evidence pertaining to the following specific sources
of funding: (i) increased use of RSPs; (ii) disposal of non -core assets; (iii) increased profitability
and cash generation; (iv) a reduction in shareholder distributions; (v) equity-related financing;
(vi) cash reserves; and (vii) increased debt.1730
5.617. Regarding the extent to which Airbus could have involved a greater number of RSPs in the
A350XWB programme in the absence of LA/MSF, alt hough the Panel acknowledged that this was
theoretically possible, it was not persuaded that Airbus could have, in practice, relied on RSPs to a
level that would have come anywhere close to doubling their involvement compared to the actual
situation, as cl aimed by the European Union. 1731 In reaching its conclusion, the Panel identified
certain risks associated with the enhanced use of RSPs. 1732 As to the disposal of non -core assets
by EADS, while the Panel accepted that this may have been an option for EADS, it c oncluded that
the extent to which this was a credible source of funding for the A350XWB programme in the
absence of A350XWB LA/MSF at any relevant time was "speculative". 1733 Turning to increased
profitability and cash generation, the Panel considered it far from clear that EADS was in a position
to further cut significant costs from its budget at any relevant time, at least without inviting
disruptions and other potential problems to its operations. 1734 With respect to the potential
reduction in shareholder dist ributions by EADS, the Panel accepted that this may have been an
option for EADS, but concluded that the extent to which this was a credible source of funding
remained "speculative".1735 The Panel reached a similar conclusion as to the possibility of raising
additional funds via equity-related financing.1736
5.618. Regarding EADS' cash reserves, the Panel looked at the actual and projected net cash
positions and concluded that, moving forward from either the time of launch or the First Contract
Date, EADS had "significa nt cash" that it could have diverted to the A350XWB programme.
Given the uncertainties surrounding EADS' future cash positions at each of these dates, however,
and given the competing pressures on EADS' cash reserves, the Panel considered that doing so
would have entailed "significant risks" for EADS – risks that unsecured, back -loaded, and

1727 The Panel analysed Airbus' ability to fund the programme on market terms in the context of its
discussion of the "viability" of the A350XWB in the absence of A350XWB LA/MSF. (See Panel Report,
paras. 6.1636-6.1638)
1728 Panel Report, para. 6.1640.
1729 Panel Report, paras. 6.1644-6.1645.
1730 Panel Report, para. 6.1645. See also paras. 6.1646-6.1700.
1731 Panel Report, para. 6.1656.
1732 The Panel recalled its earlier statements indicating that Airbus appeared to enhance aggressively its
reliance on RSPs relative to its previous LCA programmes (which entailed significant risks to the programme),
that Airbus appeared to employ RSPs to the maximum extent Airbus deemed feasible (i.e. the amount of
outsourcing and supplier involvement was at saturation), and that enhanced use of RSPs would have been
problematic from a general administrative standpoint. (Panel Report, para. 6.1650) For the Panel, this
demonstrated that "materially increasing reliance on RSPs in the absence of A350XWB LA/MSF, even if Airbus
had been willing to do so, would have entailed significant risks for the programme and would have been
difficult". (Ibid. (referring to para. 6.500 et seq. of its Report)) The Panel also found that, "at least to some
extent, it would have been more costly and more difficult for Airbus to secure additional RSP involvement in
the absence of A350XWB LA/MSF" (Ibid., para. 6.1651), and that "RSPs would have encountered challenges in
accessing market financing that would have allowed them to increase their involvement in the A350XWB
programme in the absence of A350XWB LA/MSF". (Ibid., para. 6.1653 (fn omitted))
1733 Panel Report, para. 6.1657.
1734 Panel Report, para. 6.1659.
1735 Panel Report, para. 6.1664. The Panel also saw "little reason" to doubt the United States' evidence
or argument that such a decision to reduce shareholder distributions would have been, at least in part,
interpreted as an indicator of EADS' financial fragility by the market. Thus, the extent to which EADS would
have felt comfortable reducing shareholder distributions such as dividends to help fund the A350XWB
programme remained "unclear" to the Panel. (Ibid., para. 6.1663) The Panel also detected no evidence of a
historic practice by EADS of sacrificing shareholder distributions to help finance specific projects. (Ibid.)
1736 Panel Report, para. 6.1668. Although the Panel accepted that this may have been an option for
EADS, it considered that the extent to which this was a credible source of funding remained "somewhat
speculative". (Ibid.)

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success-dependent instruments like LA/MSF tend to shift away from EADS. 1737 In reaching this
conclusion, the Panel made a number of intermediate findings. Discussing the re levance of the net
cash position, it appeared "likely" to the Panel that, at least for the years such figures cover, EADS
either had or was expected to have sufficient net cash levels that , "on their face", were capable of
covering the A350XWB -related expe nses Airbus had accrued up until such times that A350XWB
LA/MSF had instead covered. 1738 However, the Panel cautioned that the face value of these net
cash positions did not actually represent the amount of cash that EADS could or would have
directed to the A 350XWB programme. In this regard, the Panel considered the record to reflect
that EADS was "hesitant to substantially deplete its cash reserves during the relevant times". 1739
Based on the evidence before it, the Panel saw "compelling reasons" as to why EADS would be
hesitant to deplete its cash reserves to a significant degree. 1740 Therefore, the Panel considered
that not only were the net cash projections themselves subject to uncertainties, but it was also
uncertain as to what specific cash needs EADS would have in the future. The Panel also considered
it "reasonably clear" that at least a portion of EADS' net cash positions would h ave to be held in
reserve to maintain a proper balance between its ability to raise debt and its maintenance of an
acceptable credi t rating. 1741 Finally, turning to EADS ' debt capacity as a potential source of
funding, the Panel detected "little evidence" that EADS would have had no appreciable debt-raising
capacity in the relevant time periods in the absence of A350XWB LA/MSF , and thus accepted that
this was likely an option that could have been pursued to at least some material degree.1742
5.619. Our review of the Panel's assessment of each of the individual sources of funding reveals
that, in determining the availability and extent of each indi vidual funding source, the Panel
identified the specific limitations and risks associated with each source. We note that, on appeal,
the European Union does not take issue with the above aspects of the Panel's analysis. The Panel
considered that any single one of the potentially available funding options would have been
insufficient, on its own, to replace either the absolute monetary value or the relative financial
security provided through the generally back -loaded, unsecured , and success -dependent
repayment terms of A350XWB LA/MSF .1743 Having addressed each of the individual source s of
funding, the Panel found that, "on balance", the assortment of financial resources that Airbus, via

1737 Panel Report, para. 6.1690.
1738 Panel Report, para. 6.1673. The Panel explained that EADS' net cash position at any point in time is
"simply the accumulated result of its positive and negative cash flows up until that time, less financial
liabilities". (Ibid.) For the Panel, if EADS were to have financed the A350XWB programme in the absence of
A350XWB LA/MSF with net cash, EADS would have had to have, at any given time, a net cash balance capable
of covering not only the A350XWB-related expenses that had accrued up until that point that had been covered
by MSF assistance but also all its other relevant cash needs. In this regard, the Panel noted that, at year-end
2006 and 2009, EADS had net cash balances of approximately EUR 4.2 billion and EUR 9.8 billion, respectively,
which exceeded the total amount of monies to which Airbus was entitled under the A350XWB LA/MSF
measures. The net cash projections contained in the 2007 and 2009 Operating Plans likewise indicated to the
Panel expected net cash levels that appear "in excess of the total sum of monies received by Airbus under the
A350XWB LA/MSF contracts for almost every year for which they contain net cash projections". (Ibid. (referring
to CompetitionRx Report (Panel Exhibit EU-127 (BCI/HSBI)), Tables 36 and 39, and Annex G.1 (Table 2)))
1739 Panel Report, para. 6.1674.
1740 Panel Report, para. 6.1675. The Panel explained, e.g. that EADS may well have needed the cash to
cover contingencies arising from not only its non-LCA businesses but also cost overruns and/or revenue
shortfalls associated with Airbus' LCA programmes. In this regard, the Panel recalled that unexpected A380
delays that accumulated in the latter part of 2006 had massive expected impacts on EADS' cash positions for
multiple years into the future. The Panel also recalled that the A350XWB programme itself carried significant
risks, the occurrence of which would put further strain on EADS' financial resources. (Ibid.)
1741 Panel Report, para. 6.1676 (referring to CompetitionRx Report (Panel Exhibit EU-127 (BCI/HSBI)),
Annex G.1, para. 14).
1742 Panel Report, para. 6.1700. The Panel accepted that the presence of "undrawn funds" to the tune of
EUR 1.5 billion and EUR 500 million under the Euro Medium-term Note (EMTN) programme at approximately
the time of launch and the First Contract Date, respectively, suggested EADS' "ability to raise at least some
additional debt in the relevant time-periods". (Ibid., para. 6.1696)
1743 Panel Report, para. 6.1715. The Panel considered this to be supported by the European Union's
statements regarding how the A350XWB programme would have been funded in the absence of A350XWB
LA/MSF. (Ibid., fn 3068 thereto (referring to and quoting European Union's response to Panel question
No. 135, para. 118 (arguing that "with the assistance of its financial advisors, EADS would put in place a mix of
financing … that meets the financing requirement and maximises the profits of the programme." (emphasis
added by the Panel)))) The Panel further explained that this was especially the case because none of the
potentially available funding options would have provided Airbus with the same significant "risk-sharing"

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EADS, had at its disposal would have been, "collectively", sufficient to replace effectively the
monies that Airbus is entitled to under the actual A350XWB LA/MSF contracts. 1744 However, the
Panel did not share the European Union's "optimism" regarding how easily EADS could have
martialled th ese resources for the purpose of the A3 50XWB programme.1745 In this regard, the
Panel stated that each of the potentially available – and "to some degree speculative" – funding
options would have "carried its own risks, costs and/or difficulties". 1746 Besides referring to the
specific risks associate d with each funding option discussed above1747, the Panel also recalled its
analysis of: (i) the LA/MSF negotiations; (ii) the UK Appraisal; and (iii) the European Commission
State Aid Decisions. 1748 With respect to the LA/MSF negotiations, the Panel recalled th at its
analysis of the record evidence suggested that EADS' desire for LA/MSF measures for the
A350XWB stemmed from the "lack of other options".1749 Turning to the UK Appraisal1750, terming it
as the "most credible source" of analysis in the record regarding EAD S' ability to proceed with the
A350XWB in the absence of A350XWB LA/MSF 1751, the Panel fou nd that the Appraisal
"strongly supports the proposition that it would have been very difficult for Airbus and EADS to
effectively fund the A350XWB programme … in the ab sence of A350XWB LA/MSF". 1752
Finally, recalling its analysis of the State Aid Decisions discussing the challenges for aerospace
companies in accessing market financing for projects 1753, the Panel found that the Decisions
"indicate that the A350XWB programme and certain of its constituent projects entailed significant
risks, and that securing market financing to fund certain such constituent projects was infeasible
due, at least in part, to systemic problems faced by companies in the LCA and aerospace
industries, in which Airbus and EADS are participants".1754
5.620. Furthermore, the Panel stated that it could not assess the availability of each funding
option in a "vacuum" and considered that the implementation of o ne option would have
"generally limited the availability o f others".1755 In this regard, the Panel recalled several findings
from its examination of Airbus' ability to fund the programme: (i) reducing EADS' cash reserves
could have put EADS' credit rating at further risk 1756; (ii) enhancing RSP involvement could have
invited production disruptions or at least required additional or a diversion of management
resources, which could, in turn, have adversely impacted Airbus' other aircraft programmes and/or
possibly even EADS' expected cash flows 1757; and (iii) cutting dividends may have shaken investor
confidence in the company, making it more difficult to raise debt or equity.1758 Moreover, the Panel
noted that EADS' financial situation, at the time of launch and through the period during which the
A350XWB LA/MSF contracts were entered into, displayed "considerable problems".1759 The Panel
thus concluded that "EADS would have faced significant challenges when assembling and
implementing a combination of the funding options that were potentially available to it for a
programme with the risk profile of the A350XWB programme".1760

1744 Panel Report, para. 6.1715.
1745 Panel Report, para. 6.1715.
1747 Panel Report, fn 3067 to para. 6.1715 (referring to para. 6.1640 et seq. of its Report).
1749 Panel Report, fn 3067 to para. 6.1715 (referring to para. 6.1588 et seq. of its Report). See also,
para. 6.1598.
1750 Panel Report, fn 3066 to para. 6.1715 (referring to para. 6.1600 et seq. of its Report).
1753 Panel Report, fn 3067 to para. 6.1715 (referring to para. 6.1613 et seq. of its Report).
1754 Panel Report, para. 6.1623.
1755 Panel Report, para. 6.1715.
above.
above.
1759 Panel Report, para. 6.1715 and fn 3073 thereto (referring to para. 6.1550 et seq. of its Report
(Airbus/EADS financial position pre-launch), para. 6.1580 et seq. (Airbus/EADS financial position post-launch),
para. 6.1600 et seq. (discussing the UK Appraisal that contains certain relevant HSBI assessments of EADS'
financial position), and para. 6.1689 (discussing significant limitations of the EADS Operating Plans' financial
projections that existed during these times)).
1760 Panel Report, para. 6.1716.

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5.621. Thus, in addition to determining whether each of the individual funding options available to
Airbus was, on its own, sufficient to fund the launch of the A350XWB, the Panel also undertook a
collective assessment of whether an assortment of funding sources would be sufficient to replace
the monies that Airbus was entitled to under the A350XWB LA/MSF contracts. In finding that
"EADS would have faced significant challenges when assembling and implementing a combination
of the funding options that were potentially available to it for a programme with the risk pr ofile of
the A350XWB programme"1761, the Panel acknowledged the interrelationship between the different
funding sources and considered that the implementation of o ne option would have
"generally limited the availability of others".1762 Moreover, in carrying out its collective assessment,
the Panel recalled the risks identified by it with respect to each funding option, as well as the
overall risks and complications associated with the A350XWB programme.
5.622. In the Panel's view, all th ese reasons suggested that, had EADS pursued the A350XWB
programme at any relevant time in the absence of either (i) assurances from the member States
regarding their willingness to help finance the programme , or (ii) the A350XWB LA/MSF measures
themselves, "EADS would have had to accept that it may have been putting the overall health of
the company at greater and … considerable, risk". 1763 This, in turn, led the Panel to believe that
"it {was} highly likely that, in the absence of A350XWB LA/MSF, Airbus woul d, to some degree,
have had to make certain compromises with respect to the pace of the programme and/or the
features of the aircraft". 1764 In a footnote to this statement, the Panel explained that
"{m}aking such compromises would … be a way to reduce costs a nd/or risk associated with the
programme".1765 In the same footnote, the Panel "note{d} several pieces of evidence in the record
indicating how financial troubles may delay an LCA programme". 1766 The Panel thus considered
that pursuing the programme in the absen ce of A350XWB LA/MSF would have been "a more
complicated, more costly and riskier endeavour". 1767 It was "{o}n this basis" that the Panel found
that, although the Airbus company that actually existed in the 2006 to 2010 period would, in the
absence of A350XWB LA/MSF, "have been able to launch and bring to market the A350XWB or an
A350XWB-type aircraft", it could have done so only by a " narrow margin" and with a
"high likelihood that it would, to some degree, have had to make certain compromises with respect
to the pace of the programme and/or the features of the aircraft".1768
5.623. Our review above renders it clear that, as part of its analysis of the LA/MSF negotiations,
the UK Appraisal, and the European Commission State Aid Decisions, as well as the ability of

1761 Panel Report, para. 6.1716.
1762 Panel Report, para. 6.1715.
1763 Panel Report, para. 6.1716
1766 Panel Report, fn 3074 to para. 6.1716. The full text of the footnote reads:
Making such compromises would, in our view, be a way to reduce costs and/or risk associated
with the programme. Further, we note several pieces of evidence in the record indicating how
financial troubles may delay an LCA programme. (See e.g. UK Appraisal,
(Exhibit EU-(Article 13)-34) (HSBI), para. 16 (lines 2-4); UK House of Commons Business,
Innovation and Skills Committee, "Full Speed ahead: maintaining UK excellence in motorsport
and aerospace", Sixth Report of Session 2009-10, Report, formal minutes, and oral and written
evidence, 9 March 2010, (Exhibit USA-44), para. 18 (explaining that "{e}ach {LA/MSF} applicant
has to demonstrate … that government investment is essential for the project to proceed on the
scale and in the timeframe specified") (emphasis added); "Competitiveness of the EU Aerospace
Industry with focus on Aeronautics Industry, within the framework contract of sectoral
competitiveness studies ENTR/06/054", Ecorys, December 2009, (Exhibit USA-151), p. 27
(discussing the possibility of delays in A350XWB programme in light of economic conditions
brought about by the financial crisis); Pilita Clark and Peggy Hollinger, "Deferrals to take toll on
EAD's cash pile", Financial Times, December 2009, (Exhibit USA-153) (reporting that industry
analysts had doubts regarding EADS' ability to pursue its new LCA programmes);
Standard & Poor's Global Credit Portal Ratings Direct, Research Update: S&PCORRECT: EADS
Rating Cut To 'A-/A-2', L-T Still On Watch Neg, On Further Restructure Delay, 12 October 2006,
(Exhibit USA-511), p. 2 (discussing possibility of launch delay); and A350XWB Business Case
Presentation, (Exhibit EU-130) (HSBI), slide 90 (contemplating a [BCI] even in the presence of
the assumed receipt of the Launch Financing Instrument, but also outlining costs of such a
delay)).
1767 Panel Report, para. 6.1717.
1768 Panel Report, para. 6.1717.

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Airbus to fund the programme, the Panel identified and explained several risks, costs, and
complications for the A350XWB programme that would arise in the absence of A350XWB
LA/MSF.1769 It was the Panel's understanding of these "considerable" risks, costs, and
complications for the launch and development of the A350XWB in the absence of A350XWB
LA/MSF that led it to conclude that there was a high likelihood that Airbus would, to some degree,
have had to make certain compromises with respect to the timing and/or fe atures of the aircraft.
The Panel explained that making such compromises would, in its view, be "a way" to reduce the
costs and/or risk associated with the programme. 1770 In support, the Panel expressly cited several
pieces of evidence that, in its view, "ind icat{ed} how fina ncial troubles may delay an
LCA programme".1771
5.624. While the European Union summarily challenges the Panel's conclusion as lacking a
sufficient evidentiary basis, it does not identify or allege any specific errors in the Panel's extensive
assessment of the risks, costs, and complications that would arise for the A350XWB programme in
the absence of A350XWB LA/MSF. 1772 In its appellant's submission, the European Union also does
not provide an explanation of why the evidence cited by the Panel, i ndicating how financial
troubles may delay an LCA programme, does not support its view that making compromises on the
timing and/or features of the A350XWB would be "a way" to manage or mitigate the costs and/or
risks associated with the programme. In resp onse to questioning at the oral hearing,
the European Union clarified that the evidence cited by the Panel concerned the LCA industry,
in general, and did not specifically address the likelihood of compromises with respect to
the A350XWB.1773
5.625. We note that, i n addition to citing several pieces of evidence relating to how financial
troubles may generally delay an LCA programme, the Panel referred to the UK Appraisal as well as
a UK Government report from March 2 010, entitled "Full Speed ahead: maintaining UK excellence
in motorsport and aerospace" .1774 Given the apparent rigour of its underlying analysis, timeliness,
and objective context, the Panel considered the UK Appraisal to be the "most credible source" of
analysis on the record regarding EADS' ability to pro ceed with the A350XWB in the absence of
A350XWB LA/MSF. 1775 As to the UK Government report, the Panel considered it to
"strongly suggest{} that the data on which the UK Appraisal relied in making its recommendation
to provide A350XWB LA/MSF to Airbus should h ave demonstrated that A350XWB LA/MSF was
'essential' for the A350XWB programme 'to proceed on the scale and in the timeframe
specified'".1776 Conversely, the Panel's understanding of the documents in this manner suggests
that, without A350XWB LA/MSF, the A350 XWB programme would not be able to proceed on the

1769 Panel Report, fn 3067 to para. 6.1715. See also paras. 6.1588 et seq., 6.1600 et seq.,
6.1613 et seq., and 6.1640 et seq.
1772 As noted above, the Panel discussed these aspects as part of its analysis of, inter alia, the LA/MSF
negotiations, the UK Appraisal, and the State Aid Decisions, as well as the ability of Airbus to fund the
programme.
1773 European Union's response to questioning at the oral hearing.
1774 Panel Report, fn 3074 to para. 6.1716 (referring to, inter alia, UK Appraisal
(Panel Exhibit EU-(Article 13)-34 (HSBI)), para. 16 (lines 2-4); UK House of Commons Business, Innovation
and Skills Committee, "Full Speed ahead: maintaining UK excellence in motorsport and aerospace",
Sixth Report of Session 2009-10, Report, formal minutes, and oral and written evidence, 9 March 2010
(Panel Exhibit USA-44), para. 18). The Panel also referred to the A350XWB Business Case Presentation
(Panel Exhibit EU-130 (HSBI)). (Ibid)
1775 Panel Report, fn 3066 to para. 6.1715. The Panel also rejected the European Union's argument that,
insofar as these documents were prepared by and for UK governmental agencies, they could be seen as being
limited to a much narrower question, namely, whether the A350XWB programme would go ahead in the
United Kingdom without a UK MSF loan. Instead, the Panel considered it:
entirely appropriate that the UK Appraisal would consider the implications for the A350XWB
programme of all four relevant member States supplying or failing to supply A350XWB LA/MSF to
Airbus … for the simple reason that, as discussed in the UK Appraisal itself, Airbus' need for
UK A350XWB LA/MSF and the benefits to the UK of the UK supplying A350XWB LA/MSF to Airbus
depend in large part on the extent to which the other member State governments were also
expected to grant similar financial aid to Airbus.
(Ibid., para. 6.1605 (referring to UK Appraisal (Panel Exhibit EU-(Article 13)-34 (HSBI)), paras. 4 and 16)
(emphasis original))

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scale and in the timeframe specified, thus supporting a finding of a high likelihood of compromises
with respect to the features and timing of the A350XWB without LA/MSF. On appeal,
the European Union does not explain why the Panel's understanding of these documents ,
which focus specifically on Airbus and the A350XWB programme, and the weight it attached to
them amounts to an error under Article 11 of the DSU. We therefore disagree with the
European Union's view that the Panel did not cite any evidence, or offer any reasoning, to support
its "probabilistic" conclusion.1777
5.626. We now turn to consider the European Union's second argument that a number of the
Panel's factual findings, and several pieces of evidence, " strongly indicate that Airbus would not
have found a compromise on timing or features of the A350XWB to be commercially viable",
thereby contradicting the Panel's "subsequent speculation" that , absent LA/MSF, compromises
would have been made on the timing or features of the A350XWB. 1778 Referring to the Panel's
statement that "the A350XWB was not born in a vacuum" 1779, the European Union points out that
the A350XWB was born in a competitive environment in which Boeing had gained a competitive
edge that required an "urgent competitive response" from Airbus and any launch delay would have
undermined the effectiveness of such a response. 1780 For the European Union, these statements
confirm that the "commercial viability of the A350XWB was inherently tied to the timing of the
aircraft's launch, and that compromises by Airbus with respect to timing would have undermined
the viability of the A35 0XWB as a competitive response to the 787". 1781 Turning to the features of
the aircraft, the European Union notes the Panel's observation that the large number of
improvements that Airbus offered on the A350XWB, compared to the Original A350 1782, were key
to the aircraft's ability to compete with the 787 and the 777. 1783 "Conversely", the European Union
argues, any compromise on the features of the aircraft would have "prejudiced the new aircraft's
competitive position" and undermined its commercial viability.1784
5.627. We agree with the European Union that several of the Panel's findings and observations
underscore the importance of the features and timing of the A350XWB for its competitiveness in
the twin-aisle LCA market. Discussing the origins of the A350XWB programme, th e Panel observed
that the Original A350 was rejected by customers "as not being able to match the weight savings
and fuel efficiency" of the Boeing 787.1785 Compared to the Original A350, the Panel noted that the
A350XWB was expected to have a wider and compo site fuselage, larger composite wings, higher
cruise speed, and more powerful engines, in order to compete effectively with the Boeing 777 and
787.1786 The Panel also considered it apparent that "time was of the essence", given that sales of
the A330 and A340 were suffering "significant setbacks" due to competition from Boeing and the
launch of the 787, which would have a "developmental head start" of around two years on any
Airbus LCA that could replace the Original A350. 1787 The importance of the timing of the A350XWB
is also evident from the Panel's observation that Airbus public ly unveiled the A350XWB in
July 2006 without having yet achieved sufficient certainty that it had the technical expertise to
build the A350XWB as envisioned – particularly as regards to the extensive use of composite
materials in the new aircraft. 1788 To make a formal launch decision, Airbus thus developed a new
and accelerated "front-loaded design and production process" for the A350XWB that would ensure

1777 European Union's appellant's submission, para. 899.
1778 European Union's appellant's submission, paras. 901 and 907.
1779 European Union's appellant's submission, para. 902 (quoting Panel Report, para. 6.1542).
1780 European Union's appellant's submission, para. 902 (referring to Panel Report,
paras. 6.1362-6.1544). See also para. 903.
1782 Airbus A350 aircraft design proposed between 2004 and 2006. (Panel Report,
paras. 6.1542-6.1543)
1783 European Union's appellant's submission, para. 905 (referring to Panel Report, para. 6.1546).
1784 European Union's appellant's submission, para. 905.
1785 Panel Report, para. 6.1543 (quoting European Union's first written submission to the Panel,
para. 1113 (fns omitted)).
1786 Panel Report, para. 6.1546.
1787 Panel Report, para. 6.1544. The Panel recalled the European Union's explanation that Boeing's
launch of the 787 in 2004 caused the market share of the A330 to drop at a time when A340 sales were
already falling because the aircraft could not effectively compete with the more fuel-efficient 777.
(Ibid. (referring to European Union's first written submission to the Panel, para. 1108))
1788 Panel Report, para. 6.1547 (referring to A350XWB Chief Engineering Statement (Panel
Exhibit EU-18 (BCI/HSBI) paras. 14-15 and 43)).

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that the aircraft was technically f easible and attained "a given level of maturity of the aircraft
design much earlier than Airbus had achieved in previous aircraft developments".1789
5.628. In fact, in our view, the Panel's analysis establishes the importance of the timing and the
features of the A3 50XWB not only for the competitiveness of that aircraft against the Boeing 777
and 787 in the twin -aisle LCA market, but also for ensuring "Airbus' continued relevance as a
healthy competitor to Boeing in all market segments at least through the foreseeabl e future".1790
We recall in this regard the Panel's discussion of the problems with the production of the A380,
which it termed as being "particularly serious". 1791 The A380 programme suffered
three "extensive" production delays around the time when Airbus publi cly unveiled the A350XWB
in July 2006.1792 As discussed in greater detail above 1793, the Panel found that these delays
resulted in increased development costs for the A380, cancellation of orders for the A380,
significant contractual penalties for the delays, as well as the deferred realization of revenues for
the A380s that were ultimately delivered. 1794 Given the significance that the Panel attached to
these problems, a successful and timely launch of the A350XWB appears to have been important
to ease the pressure on Airbus' ability to bring to market and sell the A380.
5.629. While we agree that the Panel considered that the features and timing of the A350XWB
were crucial for its competitiveness and commercial success, we fail to see how this aspect of the
Panel's analysis "contradict{s} the speculation underlying any finding of 'direct effects'", as alleged
by the European Union.1795 The extent to which the features and timing of the A350XWB had an
impact on its competitiveness is distinct from the issue of whether the A350XWB LA/MSF subsidies
had an impact on Airbus' ability to launch the A350XWB as and when it did. As we see it, the fact
that a compromise on the timing or features of the A350XWB would have undermined its
competitiveness and commercial viability 1796 simply illustrates why Airbus would have sought to
avoid such compromises. Indeed, the Panel identified several considerations that would have
provided Airbus "with a strong commercial incentive to go ahead with the A350XWB programme,
assuming that it could find appropriate financing".1797 That Airbus would, therefore, ideally wish to
avoid any such compromises does not answer the question of whether, absent A350XWB LA/MSF,
Airbus would, in fact, have been able to launch the A350XWB as and when it did. This was th e
question the Panel set out to address in its analysis of the "direct effects" of A350XWB LA/MSF. 1798
As discussed above, based on its review of alternative sources of f unding available to Airbus,
the Panel concluded that, without A350XWB LA/MSF, the Airbus company that actually existed
could have pursued the A350XWB programme only by a "narrow margin, with a high likelihood
that it would, to some degree, have had to make certain compromises with respect to the pace of
the programme and/or the features of the aircraft".1799
5.630. We thus agree with the United States that1800, rather than suggesting a contradiction in
the Panel's reasoning, the Panel's view that the competitiveness of the A350XWB was tied closely
to its features and timing supports its ultimate understand ing of the "direct effects" of A350XWB
LA/MSF. Indeed, the Panel's analysis suggests that even a slight delay in the launch of the
A350XWB could have had significant implications for Airbus' competitiveness, particularly in light
of the developmental head start that the Boeing 787 had over the A350XWB, as well as the serious
financial difficulties for Airbus and EADS in the pre -launch period. Moreover, the Panel considered

1789 Panel Report, para. 6.1548 (quoting A350XWB Chief Engineering Statement (Panel Exhibit EU-18
(BCI/HSBI)), para. 33).
1790 Panel Report, para. 6.1572.
1791 Panel Report, para. 6.1551.
1792 Panel Report, para. 6.1551.
1793 See para. 5.608 above.
1794 Panel Report, para. 6.1551 (referring to Mario Heinen, Airbus Senior Vice President A380,
EADS/Airbus presentation "The A380 Program", presented at the Global Investor Forum, 19-20 October 2006
(Panel Exhibit EU-419), slide 18; EADS Press Release, "A350 XWB launch: EADS Gives Go Ahead for Airbus to
Launch the A350 XWB", 1 December 2006, (Panel Exhibit USA-569); A380 Business Case, p. 19, section 6.4
(Panel Exhibit EU-20 (HSBI)); Original Panel Report, para. 7.1719).
1795 European Union's appellant's submission, para. 901.
1796 European Union's appellant's submission, para. 907.
1798 Panel Report, para. 6.1539.
1799 Panel Report, para. 6.1717.
1800 United States' appellee's submission, paras. 505-506.

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the A350XWB to be a "very expensive" programme 1801, with "high risks and uncertainties". 1802
In such an environment, the Panel's findings indicate that A350XWB LA/MSF provided Airbus with
increased confidence and certainty to embark successfully on a programme with the risk profile,
costs, and ambition of the A350XWB, thereby enabling its timely launch.
5.631. Finally, we also have difficulty accepting the European Union's third and related argument
that the Panel, in reaching its conclusion, did not examine whether an alternative aircraft with
anything less than the features of the A350XWB, offered on the market later in time than the
A350XWB, would have been commercially viable or attractive for Airbus to have launched. 1803
As discussed above, the question before the Panel, based on the United States' claim, was
whether, in the absence of A350XWB LA/MSF, Airbus had the ability to launch the A350XWB
as and when it did .1804 In answering this limited question, the Panel sufficiently engaged with the
arguments and evidence submitted by the parties, and conducted a detailed analysis as outlined
above. Moreover, t he European Union refers to several statements by the Panel, discussed
above1805, that highlight the strategic importance for Airbus to have launched the A350XWB with
the features and at the time it had planned. As we see it, these statements by the Panel sup port
the view that the Panel considered that an alternative aircraft with fewer features and/or offered
later in time would not have been as competitive as a timely launched A350XWB.1806
5.632. The Appellate Body has underscored that a claim under Article 11 of the DSU must not be
"vague or ambiguous". 1807 Instead, a challenge under Article 11 of the DSU "must be clearly
articulated and substantiated with specific arguments". 1808 In these compliance proceedings, the
European Union summarily alleges that the Panel's conclu sion lacks a sufficient evidentiary basis.
The European Union has not engaged with the Panel's detailed reasoning leading up to that
conclusion, or the evidence cited by the Panel, so as to explain the basis of its allegation. While we
agree that the Panel considered that the features and timing of the A350XWB were crucial for its
competitiveness and commercial success, we fail to see how this aspect of the Panel's analysis
contradicts its ultimate conclusion, as alleged by the European Union. We therefore do not
consider that the European Union has substantiated its claim under Article 11 of DSU with the
specificity and precision that is required under this provision. In light of the foregoing, we find that
the European Union has failed to establish that the Panel acted inconsistently with Article 11 of the
DSU in concluding that, " without A350XWB LA/MSF, the Airbus company that actually existed
{in 2006-2010} could have pursued such a programme only by a narrow margin, with a high
likelihood that it would, to some degree, have had to make certain compromises with respect to
the pace of the programme and/or the features of the aircraft."1809
5.6.3.5.2.2 The Panel's assessment of the "indirect effects" of the A380 LA/MSF
subsidies
5.633. We now turn to the European Union's claim that the Panel erred in its application of
Articles 5(c) and 7.8 of the SCM Agreement in finding that the A380 LA/MSF subsidies had
"indirect effects " on Airbus' ability to launch the A350XWB as and when it did . Recalling its
argument that the Pan el did not find that the A380 LA/MSF subsidies had "direct effects" on the
A3801810, the European Union submits that "where LA/MSF {subsidies} for an aircraft do not result
in 'direct effects' with respect to that aircraft, those {subsidies} are incapable of resulting in
'indirect effects' on a subsequently -launched aircraft."1811 According to the European Union, where

1801 Panel Report, para. 6.1567.
1802 Panel Report, para. 6.1705.
1803 European Union's appellant's submission, para. 900.
1804 Panel Report, para. 6.1539. We note that before the Panel, the United States alleged that A350XWB
LA/MSF, "enabled" Airbus to launch the A350XWB, "when and as it was". (United States' first written
1805 See paras. 5.626-5.628 above.
1806 Panel Report, paras. 6.1542-6.1544.
1807 Appellate Body Report, US – Steel Safeguards, para. 498. See also Appellate Body Report,
US ‒ Zeroing (EC), para. 253.
1808 Appellate Body Report, US – Steel Safeguards, para. 498. See also Appellate Body Report,
US ‒ Zeroing (EC), para. 253.
1810 European Union's appellant's submission, para. 886.
1811 European Union's appellant's submission, para. 894.

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LA/MSF subsidies are found not to have "direct effects", the aircraft funded by those subsidies
"would, by definition, have existed (in its present form and at the time it was launched) absent the
{subsidies}".1812 In these circumstances, the European Union submits that any "learning", "scope
and scale", or "financial effects" flowing from the A380 programme would have existed absent the
A380 LA/MSF subsidies, and therefore cannot be attributed to them.1813 The United States
responds that the original panel's findings conclusively resolved that the A380 LA/MSF subsidies
had "direct effects" on the A380. 1814 Moreover, the United States considers the European Union's
assertion that a finding of no "direct effects" of the A380 LA/MSF subsidies means, by definition,
that the aircraft funded by th ose subsidies would have existed as and when it did without the
LA/MSF to be a "fallacy" because it ignores the indirect effects of previous LA/MSF subsidies.1815
5.634. We note that the European Union's appeal does not take issue with the substantive aspects
of the Panel's "indirect effects" analysis. Instead, the European Union's claim of error is premised
entirely on its argument that the Panel found that the A380 LA/MSF had no "direct effects" on the
A380.1816 According to the European Union, having found that the A380 LA/MSF subsidies were not
critical to the very existence of the A380, the Panel erred in finding that those subsidies resulted in
"indirect effects" on the A350XWB.1817
5.635. As discussed in greater detail above 1818, the original panel analysed the manner in which
the A380 LA/MSF subsidies contributed to Airbus' ability to launch the A380 as and when it did.
In our view, th e reasoning and analysis by the original panel establishes that the A380 LA/MSF
subsidies had "direct effects" on the A380, in the sense that those subsidies contributed in a
genuine way to Airbus' ability to launch the A380 as and when it did. Given the original panel's
findings identifying the "direct effects" of the A380 LA/MSF subsidies on Airbus' ability to launch
the A380 as and when it did 1819, we see no reason why the Panel was precluded from examining
the "indirect effects" of the A380 LA/MSF subsidies on th e A350XWB. This view is further
supported by our earlier conclusion that the Panel's findings establish that the A380 LA/MSF
subsidies continued to have effects on Airbus' ability to bring to market and to continue developing
the A380 after the original re ference period. We therefore reject the European Union's argument
that the Panel erred in finding that the A380 LA/MSF subsidies resulted in "indirect effects" on
the A350XWB.1820
5.636. Having rejected the European Union's argument, and given that our focus is on t he effects
of the subsidies existing in the post -implementation period, we consider it useful to recall briefly
the Panel's "indirect effects" analysis, particularly as it relates to the "indirect effects" of the
existing A380 LA/MSF subsidies on the A350XWB. The Panel found that the "indirect effects" of the
pre-A350XWB LA/MSF subsidies were "fundamental" to Airbus' ability to launch the A350XWB as
and when it did. 1821 In reaching this finding, the Panel examined the evidence and arguments

1812 European Union's appellant's submission, para. 894.
1813 European Union's appellant's submission, paras. 886 and 893.
1814 United States' appellee's submission, para. 483.
1815 United States' appellee's submission, para. 484 (referring to Original Panel Report, para. 7.1940).
1816 European Union's appellant's submission, paras. 886 and 890.
1817 European Union's appellant's submission, para. 895 (referring to Panel Report, para. 6.1507 and
fn 2597 thereto).
1818 See section 5.6.3.5.1 of this Report.
1819 We recall that the Appellate Body upheld the original panel's overall conclusion with respect to the
A380 programme. (See para. 5.604 above)
1820 We would, however, disagree with the Panel insofar as its analysis of the "indirect effects" of the
expired LA/MSF subsidies served as the basis for its ultimate conclusion in respect of Airbus' ability to launch
the A350XWB as and when it did. As explained above, the European Union is not under an obligation to take
appropriate steps to remove the adverse effects caused by the expired subsidies. We acknowledge, however,
that understanding the mechanism through which expired subsidies caused the effects found in the original
proceedings provides useful background for our analysis of the issue at hand, that is, the causal link between
the subsidies existing in the post-implementation period – including the A380 LA/MSF – and the relevant
market phenomena.
1821 Panel Report, para. 6.1774.

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presented by the pa rties in the context of t wo broad categories of "indirect effects", namely,
"learning effects" and "financial effects".1822
5.637. Assessing the extent of the "learning effects " from Airbus' previous subsidized LCA
programmes on Airbus' ability to launch the A350XWB , the Panel considered the evidence to
demonstrate that the "A350XWB programme significantly benefitted from Learning Effects arising
from previous, subsidized Airbus LCA programmes, especially (but not only) the A380
programme".1823 In reaching its conclusio n, the Panel identified several specific types of
"learning effects" that it considered as "materially benefit{ing}" the A350XWB. 1824 First, the Panel
found that Airbus gained managerial know -how from its previous subsidized LCA programmes.
In this regard, the Panel referred to, inter alia, evidence that "Airbus would change its design and
testing processes to avoid problems it had encountered on the A380 ."1825 Second, the Panel found
that the A350XWB "benefitted somewhat" from Airbus' pre-existing infrastructure and engineering
resources used for previous subsidized LCA programmes. 1826 Third, the Panel considered that the
A350XWB benefitted from Airbus' evolutionary experience with composite materials and
structures.1827 Fourth, the Panel identified several specific st ructural features of the A350XWB that
benefitted from Airbus' prior LCA experience. 1828 In this context, the Panel noted that the
A350XWB Chief Engineering Statement concedes that the A350XWB wings' "high-lift system bears
similarities to the A380's ".1829 Similarly, the Panel considered t hat certain of the A350XWB's
on-board systems benefitted from Airbus' prior LCA experience.1830 Specifically, the Panel found
that Airbus ' experience from the A380 benefitted the A350XWB's hydraulic pressure levels and
flight control architecture, amongst others. 1831 Indeed, the Panel explained that the specific
A350XWB components and systems that it considered to have benefitted from learning effects
"generally appear to be derivations of similar components and systems used on m ore recent
Airbus LCA programmes such as the A380". 1832 Finally, the Panel had "little doubt" that Airbus
benefitted from its prior LCA experience in the form of being able to market effectively its LCA
including the A380 .1833 The above review indicates that, ev en though the Panel considered the
extent to which Airbus benefitted from the technological platform provided by all of its previous
subsidized LCA programmes, it was of the view that the A350XWB significantly benefitted from the
"learning effects" of the A380 in particular.
5.638. Turning to the "financial effects", the Panel found the evidence before it to demonstrate
that the A350XWB programme "significantly benefitted from two of the five Financial Effects of the
pre-A350XWB LA/MSF subsidies, which enabled Air bus to launch and b ring to market all of its
existing Airbus LCA programmes – namely, the enhanced revenue and debt reduction effects". 1834
The Panel also recalled the original panel's finding that the A380 LA/MSF measures were subsidies
and that replacing th em with market financing would therefore have been more expensive for
Airbus. The Panel concluded that, if Airbus had financed all its pre -A350XWB LCA with market
financing, its resulting debt burden would have made it extremely difficult, and most likely
impossible, to launch the A350XWB as and when it did.1835 In our view, these findings by the Panel
indicate that A380 LA/MSF had "financial effects" on Airbus' ability to launch the A350XWB as and
when it did.

1822 Panel Report, para. 6.1725. With respect to the third kind of "indirect effects", namely, "scope and
scale effects", the Panel gave them "limited weight" given the fact that the United States did not specifically
identify such effects in relation to the A350XWB. (Ibid., para. 6.1773)
1823 Panel Report, para. 6.1747.
1824 Panel Report, para. 6.1753.
1825 Panel Report, para. 6.1754. The Panel noted, e.g. that the cracks on the wings of the A380 "alerted
Airbus to the general risks posed by thermal problems to new wing designs". (Ibid., fn 3201 thereto)
1826 Panel Report, para. 6.1755.
1827 Panel Report, para. 6.1756.
1828 Panel Report, para. 6.1757.
1829 Panel Report, para. 6.1757 (referring to A350XWB Chief Engineering Statement (Panel
1830 Panel Report, para. 6.1758.
1831 Panel Report, para. 6.1758 and fns 3218-3219 thereto.
1833 Panel Report, para. 6.1759.
1835 Panel Report, para. 6.1769.

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5.6.3.5.2.3 Conclusion on the "product effects" of existing LA/MSF subsid ies on
the A350XWB
5.639. In addressing the European Union's appeal of the Panel's analysis of the "direct effects" of
the A350XWB LA/MSF subsidies on the A350XWB, we have found above that the European Union
has failed to establish that the Panel act ed inconsistently with Article 11 of the concluding that,
"without A350XWB LA/MSF, the Airbus company that actually existed {in 2006-2010} could have
pursued such a programme only by a narrow margin, with a high likelihood that it would, to some
degree, have had to make certain compromises with respect to the pace of the programme and/or
the features of the aircraft." 1836 We have also rejected the Eu ropean Union's claim that the Panel
erred in finding that the A380 LA/MSF subsidies had "indirect effects" on the A350XWB. In doing
so, we recalled several findings by the Panel indicating that, in launching the A350XWB, Airbus
significantly benefitted fro m the "learning effects" and "financial effects" flowing from the
subsidized A380 programme. The Panel's findings regarding the "direct effects" of the A350 XWB
LA/MSF subsidies, read together with its findings concerning the "indirect effects " of the
A380 LA/MSF subsidies, indicate to us that, without the aggregated "product effects " of the
existing LA/MSF subsidies for the A380 and A350XWB programmes, Airbus would not have been
able to launch the A350XWB as and when it did.
5.6.3.6 Overall conclusion
5.640. Upon examining the "product effects" of LA/MSF subsidies, the Panel found that "the direct
and indirect effects of the aggregated pre -A350XWB LA/MSF subsidies continue to be a 'genuine
and substantial' cause of the current market presence of the A320, A330 and A380". 1837 The Panel
further found that "the direct and indirect effects of the aggregated LA/MSF subsidies, with the
exception of the LA/MSF subsidies provided for the A300 and A310, are a 'genuine and substantial'
cause of the current market presence of the A350XWB".1838
5.641. The errors alleged by the European Union regarding the P anel's findings on the
"product effects" of the pre -A350XWB LA/MSF subsidies on the market presence of the A320 and
A330 families of Airbus LCA concern primarily the LA/MSF subsidies that were found by the Panel
to have expired before the end of the implementation period – namely, the subsidies for the A300,
A310, A320, A330, and A340. We recall that, under our interpretation of Article 7.8 of the
SCM Agreement, the European Union does not bear a compliance obligation with respect to the
subsidies that were found by the Panel to have expired by the end of the implementation period .
Thus, to the extent that some subsidies have expired, a further examination of the removal of the
effects of those subsidies would not be necessary. In other words, it is not pertinent to examine
whether the Panel's findings on the "product effects" of the expired subsidies can support its
ultimate conclusion of non -compliance under Arti cle 7.8 of the SCM Agreement. In line with this
view, we do not consider it necessary to make separate findings on the European Union's claims
on appeal insofar as they concern the Panel's alleged failure to assess properly the passage of time
and the even ts during that time in reaching its findings on the "product effects" of the expired
subsidies. In addition, we disagree with the Panel insofar as its reference to the aggregated
LA/MSF subsidies in the above findings includes the expired subsidies.1839
5.642. Rather, as we have explained above, t he pertinent question for purposes of these
compliance proceedings is whether the subsidies exist ing in the post-implementation period
(i.e. after 1 December 2011) cause adverse effects. The Panel found, and the European Union
does not disagree, that the French, German, Spanish , and UK A380 LA/MSF subsidies had not
expired by the end of the implementation period. 1840 Furthermore, the Panel found that,

1839 Having said that, we recall that the expired subsidies remain relevant as part of a matrix of analysis
that seeks to identify the effects of the subsidies existing in the post-implementation period, in respect of
which the European Union continues to have a compliance obligation. Findings from the original proceedings
concerning the design, structure, and operation of the expired subsidies, as well as how those subsidies
affected Airbus' operations until the end of 2006, can help in understanding the extent to which the existing
subsidies may cause adverse effects in the post-implementation period.
1840 Panel Report, para. 6.14.

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subsequent to the original reference period (2001-2006), the European Union granted new LA/MSF
subsidies to Airbus for developing its A350XWB family of LCA, and that these subsidies were
"closely connected" with the adopted recommendations and rulings of the DSB and the
European Union's alleged compliance "actions". 1841 Given the scope of these compliance
proceedings, we have therefore focused our review on the Panel's analysis and findings regarding
the effects of subsidies existing in the post-implementation period – namely, the A380 LA/MSF and
the A350XWB LA/MSF subsidies – and the European Union's appeal thereof, to determine whether
those findings support the Panel's ultimate conclusion regarding serious prejudice.
5.643. As part of our analysis above, we have disagreed with the European Union's claim under
Article 11 of the DSU that the Panel's understanding of the "direct effects" of A380 LA/MSF on
Airbus' ability to launch, bring to market, and continue developing the A380 as and when it did
lacks sufficient evidentiary basis. Furthermore, we have f ound that the European Union has failed
to establish that the Panel acted inconsistently with Article 11 of the DSU in reaching its conclusion
that, "without A350XWB LA/MSF, the Airbus company that actually existed {in 2006-2010} could
have pursued such a programme only by a narrow margin, with a high likelihood that it would, to
some degree, have had to make certain compromises with respect to the pace of the programme
and/or the features of the aircraft." 1842 We have also rejected the European Union's claim that the
Panel erred in finding that the A380 LA/MSF subsidies had "indirect effects" on the A350XWB.
5.644. In these compliance proceedings, the Panel's findings with respect to the A380 and
A350XWB programmes indicate that Airbus' competitivene ss gained throug h earlier LA/MSF
subsidies was renewed and sus tained beyond the original reference period and into the
post-implementation period due in significant part to the subsidies that it continued to receive
after the original reference period and that still exist ed in the post-implementation period.
The Panel's findings reveal that the years following the original reference period were a period of
considerable uncertainty for Airbus. As the Panel noted, Airbus witnessed "particularly serious"
problems with the A38 0 programme subsequent to the original reference period, including three
"extensive" delays during 2005 and 2006. 1843 These delays resulted in cancellation of orders for
the A380, Airbus having to pay contractual penalties, and a delayed realization of revenues from
A380 deliveries. 1844 For the Panel, these problems had "severe" implications for Airbus. 1845
As noted above, Airbus ultimately delivered its first A380 in October 2007.1846
5.645. The Panel's findings establish that, around the same time as Airbus grappled with delays in
the A380 programme, the Original A350, launched in December 2004 , "had fallen into the
market's disfavour". 1847 The Boeing 787 was outcompeting Airbus aircraft in the twin -aisle LCA
market and had a "developmental head start" of roughly two years on any Airbus LCA programme
that might replace the Original A350.1848 The Panel further found that Airbus' decision to terminate
the Original A350 programme in favour of th e A350XWB – which could effectively co mpete with
Boeing's 7 87 and 777 – was "too expensive to be taken lightly". 1849 The Panel's findings also
establish that Airbus publicly unveiled the A350XWB concept in July 2006 without having yet

1841 Panel Report, para. 6.150. We also note that neither participant disputes the Panel's finding that
"the A350XWB LA/MSF contracts share the same core features as the LA/MSF measures considered in the
original proceeding". (Ibid., para. 6.286)
1843 Panel Report, para. 6.1551.
1844 See para. 5.608 above.
1845 Panel Report, para. 6.1551 (referring to Aude Lagorce, "Airbus refuses to rule out state loans on the
A350XWB", MarketWatch, 4 December 2006 (Panel Exhibit USA-359)).
1846 Ascend database, Deliveries made, data request as of 7 April 2014 (Panel Exhibit EU-512). See also
supra fn 1694.
1847 Panel Report, para. 6.1543.
1848 Panel Report, para. 6.1544. We also note the Panel's finding that sales of the A330 and A340 were
suffering "significant setbacks" at this time due to competition from Boeing. (Ibid.) The European Union
explained to the Panel that Boeing's launch of the 787 in 2004 caused the market share of the A330 to drop at
a time when A340 sales were already falling because the aircraft could not effectively compete with the more
fuel-efficient 777. (Ibid. (referring to European Union's first written submission to the Panel, para. 1108))
The Panel found that such developments had "significant implications" for Airbus' overall sales performance.
(Ibid. (referring to "Time for a new, improved model: Airbus gets to work on its medium-sized aircraft, but
deeper problems remain", The Economist, 20 July 2006 (Panel Exhibit USA-28)))
1849 Panel Report, para. 6.1545.

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achieved "sufficient certainty" that it had the technical expertise to build the A3 50XWB1850,
given that it was a "major" and "dramatic" redesign of the Original A350, and envisioned extensive
use of composite materials. 1851 Thus, Airbus was face d not only with the financial strain of
replacing the Original A350 with an expensive new aircraft as soon as possible , but also with the
technological challenges in launching an aircraft as innovative as the A350XWB. Ultimately, Airbus
launched the A350XWB on 1 December 2006.1852
5.646. The above findings by the Panel on the issues surrounding the Original A350 and the
launch of the A350XWB, together with its findings on the severe implications of the extensive
delays with the A380 programme, establish that Airbus was faced with considerable overall
uncertainty in the years following the original reference perio d. As discussed above, the original
panel's findings, together with the Panel's analysis, indicate that A380 LA/MSF had "direct effects"
on Airbus' ability to launch, bring to market, and continue developing the A380 as and when it did,
given that the A380 LA/MSF subsidies had not expired, as well as the fact that Airbus continued to
receive disbursements under the French, German, and Spanish LA/MSF contracts at a time when it
was experiencing severe financial difficulties resulting from the extensive produ ction delays in the
A380 programme. The Panel's findings regarding the "direct effects" of the A350XWB LA/MSF, read
together with its findings concerning the "indirect effects" of the A380 LA/MSF, also indicate that,
without the aggregated "product effects " of the existing LA/MSF subsidies for the A380 and
A350XWB programmes, Airbus would not have been able to launch the A350XWB as and when it
did. In other words, the existing LA/MSF subsidies that Airbus continued to receive made it
possible to proceed wit h the timely launch of the A350XWB – a high -risk and expensive
programme of considerable strategic importance to Airbus – and to bring to market the A380,
which had suffered extensive delays.
5.647. In sum, our discussion of the Panel's findings reveals that the LA/MSF subsidies existing in
the post-implementation period – i.e. the A380 and A350XWB LA/MSF subsidies – enabled Airbus
to proceed with the timely launch and development of the A350XWB, and to bring to market and
to continue developing the A380. Both the se events, as the above analysis shows, were crucial to
renew and sustain Airbus' competitiveness in the post-implementation period.
5.6.4 Lost sales, displacement, and impedance
5.6.4.1 Introduction
5.648. Having examined the "product effects" of the LA/MSF subsidies, the Pa nel turned to
consider "the extent to which the LA/MSF subsidies, through their continued 'product' effects, are a
'genuine and substantial' cause of the lost sales, and market impedance and displacement" alleged
by the United States.1853 In respect of lost sales, the Panel concluded that:
all of the orders identified in Table 19 {of the Panel Report} represent "significant"
"lost sales" to the United States LCA industry and, therefore, that the challenged
LA/MSF subsidies continue to be a "genuine and substantial" cause of serious
prejudice to the United States within the meaning of Article 6.3(c) of the
SCM Agreement.1854

1850 Panel Report, para. 6.1507 (referring to A350XWB Chief Engineering Statement (Panel Exhibit
EU-18 (BCI/HSBI)), paras. 14-15 and 43).
1851 Panel Report, para. 6.1546 (quoting Goldman Sachs Investment Analysis, A350: Not an option but
essential for Airbus' future, in our view, 21 November 2006 (Panel exhibit USA-30), pp. 20-22; G. Norris,
"Airline criticism of Airbus A350 forces airframer to make radical changes to fuselage, wing and engines",
Flight International, 8 May 2006 (Panel Exhibit USA-26)).
1852 Panel Report, para. 6.1568.
1853 Panel Report, para. 6.1779.
1854 Panel Report, para. 6.1798. As further described below, Table 19 of the Panel Report lists orders for
Airbus' A320, A380, and A350XWB families of LCA in 2012 and 2013, which were 150 and 225, respectively.
(Ibid., para. 6.1781, Table 19: United States' "Lost Sales" Claims in the Post-Implementation Period)

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5.649. With respect to displacement and impedance in the relevant markets, the Panel concluded
that:
the United States has established that th e "product" effects of the challenged LA/MSF
subsidies are a "genuine and substantial" cause of displacement and/or impedance of
United States LCA in the markets for single-aisle LCA in the European Union, Australia,
China and India; twin -aisle LCA in the European Union, China, Korea and Singapore;
and very large LCA in the European Union, Australia, China, Korea, Singapore and the
United Arab Emirates.1855
5.650. The European Union contends that the Panel erred in its interpretation and application of
Articles 5(c), 6.3, and 7.8 of the SCM Agreement in finding causation for lost sales and
"displacement and/or impedance" in the relevant markets , and raises two main grounds of appeal
in respect of the Panel's above conclusions. The first concerns the c ausal link betwee n the
"product effects" of LA/MSF subsidies and these market phenomena . Specifically, the
European Union contends that the Panel failed to account for: (i) the differences in the degree of
competition between the relevant LCA at issue in the par ticular instances of lost sales,
displacement, and impedance alleged by the United States; and (ii) the market -specific and
sale-specific non-attribution factors referred to by the European Union.1856 The second ground of
appeal relates to alleged errors arising from the Panel's treatment of displacement and impedance
as "interchangeable and indistinguishable" concepts 1857, and from the Panel's failure to examine a
sufficiently large dat a set and to engage with the sales volume and market share data that were
before it for purposes of analysing the United States' claims of displacement and/or impedance.1858
5.651. As noted in Section 5.6.3.3 above, the Appellate Body has indicated that generally the
"more appropriate approach" to assess the effect of a subsidy under Article 6.3 of the
SCM Agreement is through a unitary counterfactual analysis , whereby a panel conducts a single,
integrated analysis of both the existence of the relevant market phenomena and whether these
phenomena have been caused by the subsidies at issue.1859 Indeed, as the Appellate Body noted in
the original proceedings, "it is difficult to understand the market phenomena described in the
various subparagraphs of Article 6.3 in isolation from the challenged subsidies." 1860 Although the
Panel explained that it would adopt a "unitary" approach to causation 1861, we note that its analysis
progressed in two stages: (i) first, t he Panel concluded that the "product effects " of LA/MSF
subsidies were such that the market presence of the A320, A330, A380, and A350XWB would not
have been possible without the challenged LA/MSF subsidies1862; and (ii) the Panel then found that
such "product effects" led to the serious prejudice allegedly suffered by the US LCA industry in the
form of lost sales and "displacement and/or impedance".1863
5.652. In the preceding section, we have reviewed the European Union's appeal of the Panel's
conclusion on "product effects" insofar as they relate to the LA/MSF subsidies existing in the
post-implementation period. We have found that the Panel's findings with respect to the A380 and
A350XWB programmes indicate that Airbus' competitiveness, gained through the pre-A380 LA/MSF
subsidies, was renewed and sustained beyond the original reference period and into the
post-implementation period due to the subsidies that it continued to receive after the original
reference period and that still existed during the post -implementation period. In that context, we
have emphasized that the European Union does not have a compliance obligation with regard to
those subsidies that expired before 1 June 2011 . At the same time, findings from the original
proceedings regarding the design, structure, and operation of the expired subsidies, as well as how

1855 Panel Report, para. 6.1817.
1856 European Union's appellant's submission, paras. 914-916.
1857 European Union's appellant's submission, para. 977.
1858 European Union's appellant's submission, paras. 968, 1024, and 1026.
1859 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1109. See also
Appellate Body Reports, US – Upland Cotton, para. 431; US – Upland Cotton (Article 21.5 – Brazil), para. 354.
In contrast, under a two-step approach, the analysis first seeks to identify the market phenomena and then,
as a second step, examines whether there is a causal relationship. (Appellate Body Report, EC and certain
member States – Large Civil Aircraft, para. 1107)
1860 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1109.
1861 Panel Report, para. 6.1453.
1862 Panel Report, paras. 6.1534 and 6.1778.
1863 Panel Report, paras. 6.1779-6.1818.

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those subsidies affected Airbus' operations until the end of 2006, together with the Panel's findings
in relation to the subsidies provided since then and into the post -implementation period, inform
our understanding of whether the existing subsidies may cause adverse effects in the
post-implementation period. In keeping with the "unitary" approach to causation, and in light of
the fact that t he Panel's findings on "product effects" formed the basis for its subsequent findings
on serious prejudice, our an alysis in the preceding section remains pertinent to our review of
the European Union's appeal of the Panel's findings on lost sales and
"displacement and/or impedance".
5.653. We begin with a brief overview of the Panel's findings on lost sales and "displacement
and/or impedance", as well as the claims and arguments raised on a ppeal. We then consider the
European Union's appeal of the Panel's interpretation of the concepts of "displacement" and
"impedance" under Articles 6.3(a) and 6.3(b) of the SCM Agreement. Subsequently, we address
the European Union's claim that the Panel fa iled to take into account the "closeness of
competition" among relevant LCA in reaching its serious prejudice findings 1864, and its allegation
that the Panel failed to examine a sufficiently large data set in reaching its findings of
displacement and impedanc e. Thereafter, we examine the Panel's findings of lost sales and
"displacement and/or impedance" in each of the three market segments identified by th e Panel –
single-aisle LCA; twin -aisle LCA ; and VLA markets – in light of specific errors alleged by the
European Union, namely, its argument that the Panel failed to analyse properly market-specific
and sale-specific non-attribution factors referred to by the European Union as well as its argument
that the Panel failed to engage with the sales volume and market share data that were before it in
reaching its findings of "displacement and/or impedance". Finally, we consider the United States'
request to complete the legal analysis of "displacement and/or impedance" , to the extent that we
reverse the relevant findings by the Panel.1865
5.6.4.2 Summary of Panel findings
5.654. The Panel recalled its finding that the "product effects" of the challenged LA/MSF subsidies
continued to be a genuine and substantial cause of the current market presence of the A320,
A330, A380, and A350XWB families of Airbus LCA. The Panel also recalled its conclusion that
"in the absence of the challenged LA/MSF subsidies", Airbus "would not be selling and/or delivering
any of its existing models of aircraft today".1866 The Panel considered that its task was therefore to
determine whether the LA/MSF subsidies, through their continued "product effects ", were a
genuine and substantial cause of the lost sales, and market impedance and displacement alleged
by the United States. The Panel added that it would limit its assessment to evaluating the merits of
the United States' claims in light of the findings it had made with respect to the "product effects"
of LA/MSF under the "plausible" counterfactual scenarios because, according to the Panel, findings
under such scenarios provided a sufficient basis for conducting an "objective assessment of the
matter" as required under Article 11 of the DSU.1867
5.6.4.2.1 Findings on significant lost sales
5.655. Before the Panel, the United States argued that in light of the continued "product effects"
of the challenged LA/MSF subsidies and the conditions of competition in the LCA industry, orders
made by eight airlines for Airbus LCA " after 1 December 2011 constitute 'lost sales' within the
meaning of Article 6.3(c) of the SCM Agreement".1868 Furthermore, the United States argued that
"because of the allegedly strategic importance of many of these sales t o both Boeing and Airbus

1864 European Union's appellant's submission, fn 1041 to para. 968.
1865 United States' appellee's submission, para. 573.
1867 Panel Report, para. 6.1779.
1868 Panel Report, para. 6.1781 (referring to United States' first written submission to the Panel,
para. 413; second written submission to the Panel, paras. 699-709; response to Panel questions No. 67
and No. 162; Summary Table of US Significant Lost Sales (Panel Exhibit USA-164); Ascend database, Boeing
and Airbus Deliveries in Units 2001-2013 (Q1), Commercial Operators, data request as of 27 April 2013
(Panel Exhibit USA-546)). (emphasis original) Recalling its discussion regarding the reference period for its
adverse effects analysis, the Panel explained that it would "examine only claims of 'lost sales' occurring in the
post-implementation period". (Ibid., fn 3258 thereto (referring to para. 6.1444 of its Report). See also
fns 3260 and 3261 to Table 19 of the Panel Report)

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and their monetary value of billions of USD", the "lost sales" were also "'significant'". 1869 The Panel
identified the United States' lost sales claims occurring in the post -implementation period in
Table 19 of its Report, which recor ded orders of Airbus LCA by eight airlines in 2012 and 2013,
including the sales of 271 single-aisle LCA, 50 twin-aisle LCA, and 54 VLA.1870
5.656. At the outset of its analysis, the Panel briefly recalled the meaning of the terms
"significant" "lost sales" in Arti cle 6.3(c) of the SCM Agreement, noting that they refer to
"important, notable or consequential" sales that suppliers of the complaining Member "failed to
obtain" and that instead were won by supp liers of the respondent Member. 1871 The Panel agreed
with the European Union that, to demonstrate that the "product effects" of the LA/MSF subsidies
are a "genuine and substantial" cause of the "lost sales" occurring in the post -implementation
period, "it must not only be established that Airbus would not have won those sales in the absence
of the subsidies, but also that Boeing or another United States LCA manufacturer (as opposed to a
non-United States LCA producer) would have won those sales". 1872 Having considered the facts
surrounding the nature of competition from potential new entrants in the current duopoly involving
Airbus and Boeing, the Panel found that, in the "plausible" counterfactual scenarios 1873, "it would
have been highly unlikely for a non-United States producer to have entered the LCA market" 1874,
and that, even if there were such a new entrant, such an entity "would have only been able to
enter the single-aisle segment with aircraft that … could only impose weak competitive constraints
on Boeing".1875
5.657. Given the above considerations, the Panel considered that it "necessarily follow{ed} that
the sales won by Airbus in the twin -aisle and {VLA} markets were 'lost sales' to the United States'
industry in both 'plausible' counterfactual scenarios" in the post -implementation period.1876 As for
the "numerous, allegedly 'no n-subsidy'"1877 reasons that the European Union advanced for
explaining why Airbus won sales in the twin -aisle LCA and VLA markets 1878, the Panel found that
Airbus would not have had any of those advantages in the campaigns for twin-aisle LCA and VLA in
the "plausible" counterfactual scenarios, "because it simply would not have existed". 1879 The Panel
also dismissed the non -attribution factor relating to Singapore Airlines' wish to split its order for
twin-aisle LCA between Airbus and Boeing, finding instead that th e airline would have had to
choose from LCA producers in the US LCA industry as Airbus would not have existed in the
"plausible" counterfactual scenarios.1880
5.658. The Panel next turned to the alleged "lost sales" in the single-aisle LCA market. The Panel
noted that the Airbus aircraft actually purchased – namely, the A320 and A321 – offered a seating
capacity that was "in excess of what a new entrant could have reasonably offered" and further that
"200 of the 271 individual aircraft ordered were new generation air craft – A320neos".1881
In the Panel's view, it stood to reason that, in the two "plausible" counterfactual scenarios, US LCA
producers would have had a very strong competitive advantage over any new entrant in all three
sales campaigns, as they could have offered single -aisle LCA with characteristics that closely
matched those demanded and ultimately chosen by the relevant customers.

1869 Panel Report, para. 6.1781 (referring to United States' first written submission to the Panel,
paras. 413-414; second written submission to the Panel, paras. 699-709).
1870 Panel Report, para. 6.1781, Table 19: United States' "Lost Sales" Claims in the Post-Implementation
Period.
1871 Panel Report, para. 6.1780 (quoting Appellate Body Reports, US – Large Civil Aircraft
(2nd complaint), para. 1052; EC and certain member States – Large Civil Aircraft, para. 1220).
1873 We recall that, according to the original panel, in the "plausible" counterfactual scenarios, the LCA
industry would have been characterized by the existence of either a Boeing monopoly, or a duopoly involving
Boeing and another US LCA producer. (Original Panel Report, para. 7.1984. See also Panel Report,
para. 6.1466.)
1874 Panel Report, para. 6.1787.
1875 Panel Report, para. 6.1788.
1876 Panel Report, para. 6.1789.
1877 Panel Report, para. 6.1789.
1878 Panel Report, para. 6.1790.
1879 Panel Report, para. 6.1791.
1880 Panel Report, para. 6.1792. The European Union argued that one of the reasons for splitting orders
was to secure a large number of aircraft over a particular period of time. (Ibid.)
1881 Panel Report, para. 6.1793.

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5.659. As for the "allegedly 'non -subsidy' reasons" 1882, the Pa nel found that, because
"Airbus would not have existed in t he post-implementation period in the absence of the effects of
the LA/MSF subsidies", the European Union's arguments relating to Airbus' product offering or
actual experiences in the sales campaigns were "of no relevance".1883 The Panel also dismissed the
non-attribution factor regarding Norwegian Air Shuttle's wish to split its order between Airbus and
Boeing single-aisle offerings.1884 The Panel considered that t he non-US LCA producer that might
have entered the market would not have been able to compete effect ively with US LCA producers
in the post -implementation period and, therefore, could not have prevented US LCA producers
from winning the relevant sales in the absence of Airbus.1885
5.660. The Panel further considered that the original panel's description of the sig nificance of
losing LC A sales to a rival LCA producer – which was not specifically appealed or otherwise
disturbed by the Appellate Body – remained, on the whole, an accurate depiction of the
significance of losing LCA sales to a rival LCA producer in the post-implementation period, and thus
incorporated it mutatis mutandis.1886 The Panel saw no reason not to characterize the lost sales in
the post-implementation period as "significant". Accordingly, the Panel concluded by stating:
we find that all of the orde rs identified in Table 19 represent "significant" "lost sales"
to the United States LCA industry and, therefore, that the challenged LA/MSF
subsidies continue to be a "genuine and substantial" cause of serious prejudice to the
United States within the meaning of Article 6.3(c) of the SCM Agreement.1887
5.6.4.2.2 Findings on displacement and impedance
5.661. Before the Panel, the United States argued that, in light of the "product effects " of the
challenged LA/MSF subsidies and the conditions of competition in the LCA industry, the US LCA
industry suffered "serious prejudice in the form of displacement and/or impedance of its LCA
products in all three relevant product markets in the European Union, and in 11 third country
product markets, within the meaning of Articles 6.3(a) and 6.3(b) of the SCM Agreement".1888 In
support, the United States adduced evidence of Airbus' and Boeing 's delivery volumes and market
shares in all relevant markets for each year from 2001 to 2013. 1889 The United States argued that,
"in the absence of the 'product' effects of LA/MSF, the United States LCA industry's delivery
volumes and market shares would have been higher than they actually were in each of the
relevant markets."1890
5.662. The European Union responded that the United States had failed to demonstrate
"any clearly discernible trends (in the form of clearly declining delivery volumes and market
shares) to show that sales of United States LCA have been either substituted in the relevant
markets or obstructed from entering those markets."1891

1882 Panel Report, para. 6.1794.
1883 Panel Report, para. 6.1795.
1884 Panel Report, para. 6.1796. The European Union argued that splitting orders would allow the
company to "hedge their bets … with regard to new and different technologies". (Ibid., quoting
European Union's second written submission to the Panel, para. 1301)
1885 Panel Report, paras. 6.1796-6.1797.
1886 Panel Report, para. 6.1798.
1887 Panel Report, para. 6.1798.
1888 Panel Report, para. 6.1801. The Panel also noted that the United States made a conditional request
that, were the Panel to reject its present serious prejudice claims in the European Union single-aisle LCA
market, the Panel should find that "the United States' LCA industry {was} threatened with displacement and/or
impedance in … that market". (Ibid., fn 3288 thereto (referring to United States' first written submission to the
Panel, para. 514; second written submission to the Panel, para. 720; response to Panel question No. 162)
(emphasis original))
1889 Panel Report, para. 6.1801.
1890 Panel Report, para. 6.1801 (referring to United States' first written submission to the Panel,
paras. 520-532).
1891 Panel Report, para. 6.1802 (referring to European Union' first written submission to the Panel,
paras. 845, 851, 854, 855-951, 955, 959, 963, 1061, 1063, 1067, 1073, 1077, and 1079; second written
submission to the Panel, paras. 1562, 1600-1606, 1612, 1619, 1624, 1628, 1638, 1646, 1647, 1655-1656,

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5.663. The Panel began by reviewing the guidance the Appellate Body has provided on how to
determine whether the effect of a subsidy is to impede or displace the imports or exports of a like
product into a relevant market within the meaning of Articles 6.3(a) and 6.3(b) of the
SCM Agreement.1892 Specifically, the Panel recalled the Appellate Body's finding 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 the complaining Member would the n
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
declined less or would have been higher in the absence of the challenged subsidy.1893
5.664. The Panel considered that an analysis of "the trends in the evolution of a complainant's
competitive position in a relevant market over time may reveal", inter alia, that its volume of sales
and market share have generally: ( i) remained stagnant; ( ii) decreased; ( iii) increased;
or (iv) fluctuated.1894 The Panel was not persuaded by the European Union's contention that
"the United States' displacement and impedance claims may succeed only if the relevant data
clearly demonstrated the second of these four possibilities ".1895 The Panel reasoned that to accept
the European Union's contention would imply that there could be no displacement or impedance in
a relevant market in a situation where the effect of a subsidy is to prevent the like product from
achieving a higher volu me of sales and market share than would otherwise be the case in the
absence of the subsidy.1896
5.665. The Panel recalled the Appellate Body's observation that the original panel had
"entertained the United States' claim of displacement on the basis of an assessment of whether
there was an observable decline in the sales of Boeing". 1897 While recognizing that the
Appellate Body had faulted parts of the original panel's displacement analysis for its "failure to
identify trends showing declining market shares" 1898, the Panel noted that the Appellate Body
made these findings only after having: (i) "explained that the identification of declining trends was
a necessary element of the first part of the panel's two-step approach to causation" 1899;
and (ii) "decided to limit its assessment of the panel's displacement analysis for this purpose to the
same question entertained by the panel – namely, 'whether there was an observable decline in the
sales of Boeing'". 1900 The Panel, however, explained that , as it was "undertaking a
'unitary analysis' of the effects of the challenged subsidies for the purpose of claims of both
displacement and impedance", the Appellate Body's statements from the original proceeding s
"{did} not appear to be entirely relevant to the situation at hand".1901
5.666. Turning to the "appropriate{} representative period", the Panel noted that the
United States had submitted data for the period from 2001 to 2013. 1902 The Panel considered that
the extent to which the United States had established its claims of serious prejudi ce would be

1658, 1661, 1667, 1674, 1678, 1681, 1685, 1688, and 1691; comments on the United States' response to
Panel question No. 162). (emphasis original)
1892 Panel Report, para. 6.1799.
1893 Panel Report, para. 6.1800 (quoting Appellate Body Report, EC and certain member States – Large
Civil Aircraft, para. 1163).
1896 Panel Report, para. 6.1803.
1897 Panel Report, fn 3293 to para. 6.1804 (quoting Appellate Body Report, EC and certain member
1898 Panel Report, para. 6.1804 (referring to Appellate Body Report, EC and certain member States –
Large Civil Aircraft, paras. 1188-1190 and 1193-1198). (emphasis original)
1899 Panel Report, para. 6.1804 (referring to Appellate Body Report, EC and certain member States –
Large Civil Aircraft, paras. 1170 and 1188). (emphasis original)
1900 Panel Report, para. 6.1804 (referring to Appellate Body Report, EC and certain member States –
Large Civil Aircraft, para. 1179). (emphasis original)
1901 Panel Report, para. 6.1804. (emphasis original; fn omitted)
1902 Panel Report, para. 6.1805 (referring to United States' response to Panel questions No. 40 and
No. 162; Summary Table of Updated Ascend Aircraft Database (Panel Exhibit USA-578 (BCI))).

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"focused on the most recent market data presented by the parties in this dispute from the
post-implementation period", as it was only with respect to "the effects found to exist in the period
after 1 December 2011" that the European Union and the four member States could "be found to
have failed to comply with {the} obligation to ' take appropriate step s to remove the adverse
effects' by the end of the implementation period".1903
5.667. The Panel next tabulated "the volume of deliveries and market share" data for each of the
different country and product markets at issue .1904 The Panel found that , in light of the
two "plausible" counterfactual scenarios, it was apparent that , in the absence of the effects of the
challenged LA/MSF subsidies, the volume of deliveries and market shares that would have been
achieved by the US LCA industry would have been higher than its actual level. 1905 The Panel
considered that: (i) "in both 'plaus ible' counterfactual scenarios, any new non-US LCA competitor
would have only entered the market with a single-aisle LCA", implyi ng that "the twin -aisle and
VLA markets would have been supplied by the United States' industry alone"; and (ii) while it was
possible that "any new non-US LCA producer entering the market after the end of 2006 " might
well have been able to "win a relatively small number of single -aisle aircraft orders between
1 December 2011 and the end of 2013 ", it had "strong doubts about wheth er such a new entrant
could have also made deliveries over {those} years".1906 The Panel was thus satisfied that no new
non-US LCA producer entering the market after the end of 2006 could have delivered a single-aisle
LCA between 1 December 2011 and the end of 2013.
5.668. Finally, with regard to the non-attribution factors asserted by the European Union,
the Panel was of the view that these factors were "either entirely or partly premised on the
existence of Airbus as a competitive LCA producer offering a full range of LCA in all three LCA
product markets".1907 Having found that, in the "plausible" counterfactual scenarios, Airbus would
not have existed at the relevant times, the Panel considered that the LA/MSF subsidies must
therefore be a "genuine and substantial" cause of the post-implementation period deliveries.1908
5.669. For these reasons, the Panel found that, in the absence of the "product effects " of the
challenged LA/MSF subsidies, "the volume of deliveries and market shares that would have been
achieved by the United States' LCA industry between 1 December 2011 and the end of 2013 would
have been higher than its actual level in all relevant product markets ".1909 Accordingly, the Panel
concluded that:
the United States has established that the "product" effects of the challenged LA/MSF
subsidies are a "genuine and substantial" cause of displacement and/or impedance of
United States LCA in the markets for single-aisle LCA in the European Union, Australia,
China and India; twin -aisle LCA in the European Union, China, Kore a and Singapore;
and very large LCA in the European Union, Australia, China, Korea, Singapore and the
United Arab Emirates.1910
5.6.4.3 Claims and arguments on appeal
5.670. The European Union contends that the Panel erred in its application of Articles 5(c), 6.3,
and 7.8 of the SCM Agreement in finding causation for serious prejudice, because the Panel failed
to account for the differences in the degree of competition between the relevant LCA at issue.
The European Union submits that , given the "extremely broad interpretati on that the Panel
adopted for the term 'market'" and the "consequent identification of product markets within which

1904 Panel Report, para. 6.1805, Tables 20-22.
1905 Panel Report, para. 6.1806.
1906 Panel Report, para. 6.1806. (emphasis original) The Panel recalled that deliveries of new LCA would
lag their order date by "typically at least three years, and usually many more years in respect of newly
launched aircraft". (Ibid. (emphasis original))
1907 Panel Report, para. 6.1814.
1908 Panel Report, paras. 6.1814-6.1816.
1909 Panel Report, para. 6.1817.
1910 Panel Report, para. 6.1817. In light of these findings, the Panel refrained from making any findings
concerning the United States' conditional claim of "threat of displacement and impedance in the market for
single-aisle LCA in the European Union". (Ibid., para. 6.1818 (emphasis original))

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there would be 'weaker and stronger competitive relationships'", it was important for the Panel, in
its causation analysis, "to account for these differences in the degree of competition". 1911
The European Union considers this failure to be "all the more troubling" because the Panel noted
the " absence of close competitive relationships between the products it placed into the same
product market".1912 Therefore, the European Union argues, the Panel should have "assessed 'the
specific circumstances and dynamics of competition occurring in the relevant geographic market
and the demands of customers in that market' to ensure that it arrive {d} at 'meaningful findings
of' displacement, impedance or lost sales" 1913, but it failed to do so. 1914 Instead, the Panel based
its findings of serious prejudice on its theory that "Airbus would not have been able to offer its
current range of aircraft in a counte rfactual absent the subsidies" 1915, and " ignored the 'genuine
and substantial' causation standard" in Articles 5(c) and 6.3 of the SCM Agreement.1916
5.671. The European Union further contends that the Panel failed to take into account the
market-specific and sale -specific non-attribution factors that the European Union demonstrated
caused (or contributed to causing) the observed market phenomena 1917, notwithstanding the
Panel's recognition that "an LCA customer's decision will be influenced by a host of non-price
factors".1918 Rather, the Panel "characterised every Airbus sale as a lost sale to Boeing, and every
delivery of an Airbus LCA to a market at issue as a basis for its findings of 'displacement and/or
impedance'".1919 With regard to lost sales, the European Union submits that the Panel rejected its
arguments concerning several non -attribution factors relating to advantages enjoyed by Airbus
vis-à-vis Boeing, noting instead that "Airbus would not have had any of these advantages … in the
'plausible' counterfactual scenario s because it simply would not have existed ."1920 Similarly, the
European Union argues, the Panel rejected the non -attribution factors raised by the
European Union in relation to displacement and impedance on the ground that Airbus would not
have existed "but for" the LA/MSF subsidies. 1921 Referring to the Panel's rejection of the
European Union's request to seek information under Article 13 of the DSU for purposes of
examining non -attribution factors, the European Union contends that the Panel simply
"pre-judged" the relevance of non-attribution factors.1922
5.672. Finally, the European Union alleges errors of interpretation and application of
Articles 6.3(a) and 6.3(b) of the SCM Agreement in respect of the Panel's findings of displacement
and/or impedance. First, the European Union contends that the Panel erred in its interpretation of
Articles 6.3(a) and 6.3(b) of the SCM Agreement because it made "undifferentiated findings of
'displacement and/or impedance' for the countr y and product markets at issue", thereby
"conflating the two concepts of 'displacement' and 'impedance' ".1923 The European Union also
contends that the Panel erred in interpreting Articles 6.3(a) and 6.3(b) to permit a finding of
displacement "without any engagement with the sales vol ume and market share data",
and "without a finding of clearly discernible and identifiable declining trends in sales volume or
market shares for each of the country and product markets at issue". 1924 Second, t he
European Union alleges that the Panel erred in its application of Articles 5(c), 6.3(a), 6.3(b),
and 7.8 of the SCM Agreement because: (i) the Panel failed to adopt a large enough number of
data points to investigate " trends" in a meaningful manner 1925; and (ii) the Panel erred "by failing
to engage with the data, and by instead making findings of displacement entirely divorced from

1911 European Union's appellant's submission, para. 939.
1912 European Union's appellant's submission, para. 925. (emphasis original)
1913 European Union's appellant's submission, para. 928 (quoting Appellate Body Report,
EC and certain member States – Large Civil Aircraft, para. 1136).
1914 European Union's appellant's submission, para. 929.
1915 European Union's appellant's submission, para. 941.
1916 European Union's appellant's submission, para. 942.
1917 European Union's appellant's submission, para. 916.
1918 European Union's appellant's submission, para. 946 (quoting Panel Report, para. 6.1186).
(emphasis added by the European Union)
1919 European Union's appellant's submission, para. 947.
1920 European Union's appellant's submission, para. 950 (quoting Panel Report, paras. 6.1791
and 6.1795).
1921 European Union's appellant's submission, paras. 951-954.
1922 European Union's appellant's submission, para. 956.
1923 European Union's appellant's submission, para. 967.
1924 European Union's appellant's submission, para. 1014. See also paras. 1017 and 1022.
1925 European Union's appellant's submission, para. 1024.

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the data".1926 With respect to the Panel's findings o f impedance, the European Union submits that
the Panel repeated "essentially the same errors "1927, that is, "in the Panel's view, impedance may
be found without any assessment of sales volume and market share data, and without a finding of
a trend that is clearly discernible and identifiable".1928
5.673. The United States responds that there is no support in the text of the SCM Agreement or
the Appellate Body's guidance for the proposition that "the 'closeness of competition' between
products must, as a general rule, be examined twice: first in the product market inquiry and then
in the evaluation of whether displacem ent, impedance, or lost sales of the like product in the
relevant market was the 'effect of the subsidy' to the subsidized product". 1929 Thus, the
United States argues that, "by properly taking the nature and degree of competition into account
in delineating the product markets, the Panel protected against reaching subsequent adverse
effects findings that were not meaningful". 1930 Moreover, the United States submits that the Panel
recognized the "need to properly take into account whether a competitive relationsh ip is 'at most,
indirect or remote'", and did not, as the European Union alleges, find that "all products that have
some competitive relationship, regardless of the nature or degree of that relationship, must be
placed in the same market for the purposes o f Article 6.3".1931 The United States also contends
that the Panel "did … examine 'the existence, nature and degree of competition between the
relevant a ircraft' … in exhaustive detail in its analysis of the appropriate product markets". 1932
Furthermore, the Uni ted States asserts that the European Union has not identified a specific
product relationship in this dispute that was not properly captured by the Panel's analysis of
product markets and that should have been addressed at the causation stage.1933 According to the
United States, where the parties had argued that particular aspects of competition were relevant
to specific sales campaigns or geographic markets, the Panel examined such issues in the course
of its analyses of "the {United States'} lost sales and displacement/impedance claims".1934 In sum,
the United States contends that " there are no product -related causation issues that the Panel left
unaddressed in its analyses of product markets and causation and, therefore, no errors for the
Appellate Body to correct."1935
5.674. The United States further contends that the Panel's treatment of the European Union's
non-attribution arguments is both a logically sound extension of its counterfactual analysis and
completely consistent with Articles 5(c), 6.3, and 7.8 of the SCM Agreement.1936 The United States
submits that, with respect to lost sales, the Panel explicitly considered each of the
European Union's non-attribution factors and reje cted most of them because they were premised
on the existence and market presen ce of Airbus in the post -implementation period, a scenario the
Panel found to be "unlikely". 1937 In the United States' view, such factors were not "valid"
non-attribution factors because Airbus would not have existed under the "plausible" counterfactual
and, as the Appellate Body stated, it "would be pointless to attempt delineating the features of
something that would not have existed without the subsidies".1938 The United States also maintains
that, contrary to the European Union's arguments, the Panel assessed the non-attribution factors
individually where they were unique to a customer. With regard to "displacement and/or
impedance", the United States contends that the Panel's analysis of the proposed non-attribution
factors follows logically the line of reaso ning that , under the "plausible" counterfactual, Airbus

1926 European Union's appellant's submission, para. 1026.
1927 European Union's appellant's submission, para. 1037.
1928 European Union's appellant's submission, para. 1045 (referring to Panel Report,
paras. 6.1802-6.1804).
1929 United States' appellee's submission, para. 520. (emphasis original)
1930 United States' appellee's submission, para. 511.
1931 United States' appellee's submission, para. 515 (referring to European Union's appellant's
submission, paras. 550, 559, 602, 614, 618, and 922).
1932 United States' appellee's submission, para. 516 (referring to Panel Report, paras. 6.1157-6.1416).
1933 United States' appellee's submission, para. 528.
1934 United States' appellee's submission, para. 516 (referring to sections VIII.E.2.a-b of its submission).
1935 United States' appellee's submission, para. 529.
1936 United States' appellee's submission, para. 532.
1937 United States' appellee's submission, para. 535 (referring to Panel Report, paras. 6.1790 and
1938 United States' appellee's submission, para. 535 (quoting Appellate Body Report, EC and certain
member States – Large Civil Aircraft, para. 1264).

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would not have existed in the reference period, absent the effects of the LA/MSF subsidies. 1939
Furthermore, according to the United States, the Panel did not summarily reject any factor, but
instead ana lysed how each factor would affect the behaviour of market participants in the
counterfactual, and properly dismissed the European Union's arguments on that basis. 1940
The United States submits that the Panel rejected the European Union's request to seek
information pursuant to Article 13 of the DSU, because it correctly concluded that "the requested
information is not necessary for its evaluation of the United States' allegations of lost sales and
displacement."1941
5.675. As for the specific interpretative errors of A rticles 6.3(a) and 6.3(b) alleged by the
European Union, the United States contends that "{e}very aspect of the Panel's unitary analysis
demonstrates that it considered displacement and impedance as separate and distinct
concepts."1942 The United States adds that the fact that the Panel "made findings of displacement
and impedance linked by the term 'and/or' confirms that it considered these product effects to be
discrete concepts." 1943 The United States further recalls that the Appellate Body, in interpret ing
Articles 6.3(a) and 6.3(b), has explained that "panels may discern or identify displacement or
impedance based on evidence of trends in import or export volumes and market shares". 1944
However, the United States also recalls the Appellate Body's finding t hat, "because 'impedance
may not be a visible phenomenon, evidence of trends may not be dispositive, or may hold less
probative value, for a finding of impedance.'" 1945 In the United States' view, a comparison of the
actual and counterfactual situations demon strated that imports (or exports) and market share of
US LCA would have been greater in each of the relevant product markets, because "under the
counterfactual scenarios, Airbus volume of deliveries and market share information would not have
existed in any of the relevant product markets."1946 Thus, the United States submits that the Panel
correctly interpreted the terms " displacement" and "impedance" in Article 6.3 of the
SCM Agreement.1947
5.676. For these reasons, the United States requests us to reject the European Union's challenges
to the Panel's analysis. 1948 However, in the event that we find that the Panel erred in its
assessment of the evidence related to displacement and impedance , or that the Panel should have
more explicitly addressed trends, the United States requests that we complete the legal analysis of
displacement and/or impedance based on relevant data from the period 2001-2013.1949
5.6.4.4 Whether the Panel erred in its interpretation of "displacement" and
"impedance"
5.677. We begin our analysis with the t ext of Article 6.3 of the SCM Agreement, which states, in
relevant part:
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 Member into the market of the subsidizing Member;

1939 United States' appellee's submission, para. 539 (referring to Panel Report, paras. 6.1455-6.1479).
1940 United States' appellee's submission, paras. 540-546.
1941 United States' appellee's submission, para. 549 (quoting Panel Report, Annex E-2, para. 2).
1942 United States' appellee's submission, para. 563.
1943 United States' appellee's submission, para. 565 (quoting Panel Report, paras. 6.1817 and
7.1.d.xiv-xv; referring to Panel Report, US – Cotton Yarn, fn 277 to para. 7.88).
1944 United States' appellee's submission, para. 568 (referring to Appellate Body Reports, US – Upland
Cotton, para. 478; EC and certain member States – Large Civil Aircraft, paras. 1166-1167 and 1170;
US ‒ Large Civil Aircraft (2nd complaint), para. 1086).
1945 United States' appellee's submission, para. 568 (quoting Appellate Body Report,
US – Large Civil Aircraft (2nd complaint), para. 1086).
1946 United States' appellee's submission, para. 571.
1947 United States' appellee's submission, para. 572.
1948 United States' appellee's submission, paras. 551 and 572.
1949 United States' appellee's submission, para. 573 (referring to United States' response to Panel
questions No. 40 and No. 162; Summary Table of Updated Ascend Aircraft Database (Panel Exhibit USA-578
(BCI))).

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(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; …
5.678. We note that Article 6.3(a) and Article 6.3(b) of the SCM Agreement both use the
conjunction "or" to separate the terms "displace" and "impede". The text of Article 6.3 does not
elaborate further on these concepts . In the original proceedings, the Appellate Body explained
that, in order to come to a finding that the effect of a subsidy is "to displace or impede",
"the counterfactual analysis would involve estimating what the sales of the complaining Member
would have been in the absence of the challenged subsidy" , and thereafter comparing "{t}he
counterfactual sales of the complaining Member … to its actual sales". 1950 The Appellate Body
concluded that the effect of a subsidy is "to displace or impede" where "the counterfactual analysis
shows that the sales of the complaining Member would have declined less or would have been
higher in the absence of the challenged subsidy ."1951 That said, regardless of the methodology
used to undertake an analysis of serious prejudice under Article 6.3, the market phenomenon
must be shown to be the effect of the challenged subsidy.
5.679. Specifically, in relation to displacement, t he Appellate Body construed th at concept "as
relating to, and arising out of, competitive engagement between products in a market" .1952
Displacement, as the Appellate Body explained, "is a situation where imports or exports of a like
product are replaced by the sales of the subsidized product"1953 – i.e. "there is a substitution effect
between the subsidized product and the like product of the complaining Member". 1954
A determination of whethe r the effect of a subsidy is to displace involves a fact -specific analysis
that can be made only on a case -by-case basis and in light of the particularities of the market
concerned. To the extent that a complainant can demonstrate through arguments and evi dence
that actual sales or market shares of the like product have declined during the reference period,
this may be indicative of displacement caused by the subsidy within the meaning of Articles 6.3(a)
and 6.3(b).1955 To that extent, while a market trend analysis – e.g. regarding whether there has
been a change in relative shares of the market to the disadvantage of the like product – may carry
relevance, it is not determinative of the existence of serious prejudice.
5.680. The term "impede", as the Appellate Body found, "connotes a broader array of situations
than the term 'displace'" .1956 The Appellate Body explained that impedance "refers to situations
where the exports or imports of the like product of the complaining Member would have expanded
had they not been 'obstructed' or 'hindered' by the subsidized product". 1957 Evidence that sales
would have increased more or declined less than they did in the absence of the subsidy would

1950 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1163.
1951 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1163. The
Appellate Body added that "{t}he identification of displacement under this approach" (i.e. the two-step
approach) should focus on "clearly identifiable" trends in the markets, "looking at both volumes and market
shares". (Ibid., para. 1170 (emphasis added)) We recall that, in the context of the two-step approach to
causation adopted by the original panel, the Appellate Body explained that, "where a complainant puts forward
a case based on the existence of displacement as a directly observable phenomenon", displacement can be
found to exist where the "imports of a like product of the complaining Member are declining in the market of
the subsidizing Member, and are being substituted by the subsidized product". (Ibid. (emphasis added))
In contrast, under a unitary approach, the analysis of the particular market phenomena identified in the
subparagraphs of Article 6.3 is not conducted separately from the analysis of whether there is a causal
relationship between those market phenomena and the challenged subsidies. (Ibid., para. 1107)
1952 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1119.
(fn omitted) The Appellate Body has explained that the following characteristics would "normally be necessary"
before a panel can reach a finding of displacement under Article 6.3(b): "first, that at least a portion of the
market share of the exports of the like product of the complaining Member must have been taken over or
substituted by the subsidized product"; and "second, it must be possible to discern trends in volume and
market share". (Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1082 (emphasis added;
fn omitted))
1953 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1119.
1954 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1160.
(fn omitted)
1955 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1162.
1956 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1161.
(fn omitted)
1957 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1161.

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indicate the existence of impedance within the meaning of Articles 6.3(a) and 6.3(b). 1958
The Appellate Body further explained that "impedance" can also refer to a situation where "the
exports or imports of the like product of the complaining Member did not materialize at all because
production was held back by the subsidized product". 1959 As in t he case of displacement, a
determination of whether the effect of a subsidy is to "impede" involves a fact -specific analysis
that can be made only on a case -by-case basis and in light of th e particularities of the
market concerned.
5.681. We recall , in the origi nal proceedings, that the Appellate Body acknowledged that
"{t}here … could be situations where displacement and impedance overlap"1960 and that "it may be
difficult to draw a clear demarcation" 1961 between these concepts. The Appellate Body indicated,
for examp le, how a particular factual situation could give rise to the phenomena of both
displacement and impedance. Specifically with respect to situations where the imports or exports
of the like product "are declining " and where they "are declining by more than they otherwise
would", the Appellate Body noted that, "{t}o the extent that there is an observable decline in the
imports or exports, it could be considered a situation of displacement ."1962 At the same time, the
Appellate Body stated that "there is an aspect of the decline that is not directly observable – the
decline is sharper than it would otherwise have been", in which case, the "situation could be
considered one of impedance".1963
5.682. With these considerations in mind, we turn to address the issues raised by th e
European Union on appeal, beginning with the European Union's claim that the Panel treated
"displacement" and "impedance" as interchangeable concepts and therefore erred . As noted, the
European Union asserts that "the Panel made undifferentiated findings of 'displacement and/or
impedance' with respect to all of the country and product markets at issue". 1964 The
European Union contends that "a proper reading" of the Appellate Body's guidance reveals that the
Appellate Body "matche{d} (i) the concept of 'displacement' with a situation where, absent the
subsidies, 'the sales of the complaining Member would have declined less' , and (ii) the concept of
'impedance' with a situation where, absent the subsidies, 'the sales of t he complaining Member …
would have been higher'."1965 The European Union further submits that "the Panel failed to specify
whether it had found (i) both displacement and impedance in all country a nd pro duct markets,
or instead (ii) had found one or the other of these two distinct effects in any given market."1966
5.683. The United States responds by recalling that both "displacement and impedance" were
present in most of the product markets and the only product and geographical markets in which
the United States did not allege "displacement and/or impedance, or the threat thereof" 1967, were
the EU twin-aisle LCA market; the China VLA market; and the United Arab Emirates VLA market.
Instead, the United States has claimed only impedance in these markets. 1968 Therefore, according
to the United States, "the Panel's simultaneous analysis of both concepts represents a logical
approach to assessing the { United States'} claims ."1969 The United States submits that
"{t}he Appellate Body has clarified that a single factual scenario (namely e vidence of declining

1958 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1162.
1959 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1161.
(fn omitted) The Appellate Body further noted that impedance "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". (Ibid., fn 2465 to para. 1119)
1960 Appellate Body Report, EC and certain member States – Large Civil Aircraft, fn 2548 to para. 1161.
1961 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1162.
1962 Appellate Body Report, EC and certain member States – Large Civil Aircraft, fn 2550 to para. 1162.
1963 Appellate Body Report, EC and certain member States – Large Civil Aircraft, fn 2550 to para. 1162.
1964 European Union's appellant's submission, para. 979. (emphasis original)
1965 European Union's appellant's submission, para. 998 (quoting Appellate Body Report, EC and certain
member States – Large Civil Aircraft, para. 1163).
1966 European Union's appellant's submission, para. 979.
1967 United States' appellee's submission, fn 1025 to para. 564 (referring to United States' response to
Panel question No. 162, paras. 14-15, 24, and 32).
1968 United States' appellee's submission, paras. 579, 591, and 603 (referring to United States' response
to Panel question No. 162, paras. 16, 24, and 32, respectively; Summary Table of Updated Ascend Aircraft
Database (Panel Exhibit USA-578 (BCI)), pp. 3, 9, and 15, respectively).
1969 United States' appellee's submission, para. 564 (referring to Panel Report, para. 6.1801;
United States' response to Panel question No. 162, paras. 13-31).

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sales) could demonstrate the existence of both effects ."1970 Thus, the United States asserts that it
is "inaccurate to suggest … that the Appellate Body 'matched' the concepts of displacement and
impedance with an exhaustive set of specific, and mutually exclusive, factual scenarios."1971
5.684. The Panel, as we recall, noted the United States' contention that the US LCA industry
"suffer{ed} serious prejudice in the form of displacement and/or impedance … in all three relevant
product markets in the European Union, and in 11 third country product markets". 1972 The Panel
reviewed the guidance provided by the Appellate Body "on how to determine whether the effect of
a subsidy is to impede or displace the imports or exports of a like product". 1973 The Panel quoted,
in particular, the Appellate Body's finding that , "{w}hile there may be some overlap between the
concepts, 'displacement' and 'impedance' are therefore not interchangeable concepts ."1974
The Panel further recalled the "framework" laid down by the Appellate Body in order to "evaluate a
claim of impedance or displacement".1975
5.685. The Panel noted that the United States had "introduced evidence of Airbus and Boeing
delivery volumes and market shares in all relevant product mar kets for each year from 2001
to 2013" to support its claim that, "in the absence of the 'product' effects of LA/MSF,
the United States LCA industry's delivery volumes and market shares would have been higher than
they actually were in each of the relevant markets." 1976 The Panel added that a finding of
displacement or impedance can be made "where the effect of a subsidy is to prevent the like
product from achieving a higher volume of sales and market share than would otherwise be the
case in the absence of the subsidy".1977
5.686. As discussed above, the Appellate Body has indicated that, generally, the "more
appropriate approach" to assess the effect of a subsidy under Article 6.3 is through a "unitary"
counterfactual analysis. 1978 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" , and thereafter its comparison with the "actual sales". 1979
Displacement or impedance would arise where "the counterfactual analysis shows that the sales of
the complaining Member would have declined less or would have been higher in the absence of the
challenged subsidy."1980 We understand the Panel to have sought to apply this framework when it
turned to assess whether the volume of deliver ies and market shares that "would have been
achieved by the United States' LCA industry between 1 December 2011 and the end of 2013 would
have been higher than its actual level in all relevant product markets" 1981 in the absence of the
"product effects" of the LA/MSF subsidies.
5.687. Furthermore, we have noted th at there could be situations of overlap, in the sense that a
given situation may give rise to both displacement and impedance, and that the Appellate Body
has cautioned against drawing a bright line distin ction between these concepts. It is conceivable
that, depending on the facts of a given case, for a particular product and geographic market, a

1970 United States' appellee's submission, para. 566 (referring to Appellate Body Report, EC and certain
member States – Large Civil Aircraft, para. 1162).
1971 United States' appellee's submission, para. 567.
1972 Panel Report, para. 6.1801. The Panel also noted that the United States made a "conditional claim",
in the event that the Panel were to reject its present serious prejudice claims in the single-aisle LCA market in
the European Union, that "the United States' LCA industry {was} threatened with displacement and/or
impedance in … that market". (Ibid., fn 3288 thereto (referring to United States' first written submission to
Panel, para. 514; second written submission to the Panel, para. 720; response to Panel question No. 162)
(emphasis original))
1974 Panel Report, para. 6.1799 (quoting Appellate Body Report, US – Large Civil Aircraft (2nd complaint),
para. 1071, in turn referring to Appellate Body Report, EC and certain member States – Large Civil Aircraft,
paras. 1119, 1160-1161, 1165-1166, and 1170).
1976 Panel Report, para. 6.1801 (referring to United States' first written submission to the Panel,
paras. 520-532).
1977 Panel Report, para. 6.1803.
1978 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1109.
1979 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1163.
1980 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1163.

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panel may find that the effect of a subsidy is: displacement; or impedance; or displacement and
impedance. Although it is not entirely clear what the Panel meant when it used the term
"displacement and/or impedance" , a s we see it, the Panel's finding that "the United States has
established that the 'product' effects of the challenged LA/MSF subsidies are a 'genuine and
substantial' cause of displacement and/or impedance of United States LCA in the
{relevant geographic} markets for single -aisle LCA … ; twin-aisle LCA … ; and {VLA} "1982
is informed by the manner in which the United States framed its claims. 1983 We do not read the
Panel's use of the term "displacement and/or impedance" , when summing up its serious prejudice
findings for the relevant markets at issue, as suggesting that the Panel found the existence of
these serious prejudice phenomena in an undifferentiated mann er with respect to one and the
same product and country market. Therefore, contrary to what the European Union appears to
suggest, it does not necessarily follow from the Panel's use of the term "displacement and/or
impedance" that the Panel treated "displ acement" and "impedance" as interchangeable and
indistinguishable concepts for purposes of its adverse effects analysis.1984
5.6.4.5 Whether the Panel failed to examine the "closeness of competition"
5.688. As noted above, the European Union claims that the Panel erred in its application of
Articles 5(c), 6.3, and 7.8 of the SCM Agreement in finding causation because the Panel failed to
account for the differences in the degree of competition between LCA in the relevant product and
country markets at issue. According to the European Union, given the broad interpretation that the
Panel adopted for the term "market", and the Panel's identification of product markets within
which "there would be 'weaker and stronger competitive relationships ' (or in some instances, no
competitive constraint imposed by one product on another within the same product market)" 1985,
it was important for the Panel, in its causation analysis, to account for these differenc es in the
degree of competition . The European Union further asserts that, "even where there does exist
'some' competition between two products, that fact does not conclusively establish whether
subsidies to one product result in adverse effects for the other".1986
5.689. We recall that, in section 5.6.2 above , we have addres sed the European Union's appeal
concerning the Panel's product market findings, inclu ding its assertion that the Panel erred in
failing to assess the nature and degree of competition between products. We have concluded that
the Panel's assessment of the re levant product markets in these compliance proceedings was
based on a proper analysis of the nature and degree of competition between products that the
Panel found to demonstrate sufficient substitutability. 1987 Accordingly, we have found no error in
the Panel's findings in this regard.

1983 For instance, the United States has claimed that in the single-aisle LCA market in India, the "severe
decline in market share demonstrates the displacement and/or impedance of Boeing LCA exports".
(United States' appellee's submission, para. 593 (referring to United States' response to Panel question
No. 162, para. 25; Summary Table of Updated Ascend Aircraft Database (Panel Exhibit USA-578 (BCI)), p.10))
Similarly, in the single-aisle LCA market in Australia, "Boeing LCA are being displaced and/or impeded". (Ibid.,
para. 583 (referring to Summary Table of Updated Ascend Aircraft Database (Panel Exhibit USA-578 (BCI)),
p.5)) However, in respect of the single-aisle LCA market in China, "the displacement found by the
Appellate Body is continuing, and Boeing's 737 exports are also being impeded". (Ibid., para. 587 (referring to
United States' response to Panel question No. 162, para. 21; Summary Table of Updated Ascend Aircraft
Database (Panel Exhibit USA-578 (BCI)), p.7)) Similarly, in the VLA market in Korea, "the A380 has displaced
and impeded the 747-8I". (Ibid., para. 597 (referring to United States' response to Panel question No. 162,
para. 28; Summary Table of Updated Ascend Aircraft Database (Panel Exhibit USA-578 (BCI)), p. 12))
Finally, in respect of the twin-aisle LCA market in the European Union and the VLA markets in China and the
United Arab Emirates, the Unites States claimed the existence of only impedance. (Ibid., paras. 579, 591, and
603 (referring to United States' response to Panel question No. 162, paras. 16, 24, and 32, respectively;
Summary Table of Updated Ascend Aircraft Database (Panel Exhibit USA-578 (BCI)), pp. 3, 9, and 15,
respectively))
1984 European Union's appellant's submission, para. 977. We review the Panel's findings of serious
prejudice in the relevant markets at issue in section 5.6.4.6 of this Report.
1985 European Union's appellant's submission, para. 939. (emphasis added) See also Panel Report,
para. 6.1416.
1986 European Union's appellant's submission, para. 934.
1987 See section 5.6.2 of this Report. See also Panel Report, paras. 6.1292, 6.1294, and 6.1372;
Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1120.

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5.690. That said, we agree with the European Union to the extent that it argues that a panel's
assessment and identification of relevant product market(s) on the basis of actual or potential
competition between products forms only a p art of a panel's overall analysis of whether a given
subsidy contributes in a genuine and substantial way to producing or bringing about one or more
of the adverse effects enumerated in Article 6.3 of the SCM Agreement . Indeed, as the
Appellate Body has stated, a panel's evaluation of "whether the alleged subsidized and like
products compete in the sa me market or multiple markets … is a prerequisite for assessing
whether displacement {or impedance} within the meaning of Articles 6.3(a) and 6.3(b) could be
found to exist". 1988 However, an assessment of the nature and degree of competition in the
relevant product market(s) does not, in and of itself, answer the question of whether the subsidies
existing in the post -implementation period are a genuine and substantial cause of adverse effects
in the relevant market (s). We will bear these considerations in mind as we continue to review the
Panel's findings.
5.6.4.6 Whether the Panel erred in its findings of significant lost sales and
"displacement and/or impedance"
5.6.4.6.1 The data set examined by the Panel
5.691. Before reviewing the Panel's findings of serious prejudice, we address a preliminary issue
raised by the European Union concerning the size of the data set examined by the Panel in
reaching its finding s o f "displacement and /or impedance". The Eu ropean Union contends that
"the Panel failed to adopt a large enough number of data points to meaningfully investigate
'trends'"1989 and, "{b}y virtue of its choices", the Panel was "effectively left with two data p oints –
annual data for the years 2012 and 2013". 1990 According to the European Union, "{t}he data for
the single month, December 2011, would present the problem of 'sales {being} sporadic and
volumes relatively small, making identification of any trends more difficult'"1991 and that
"there would be no meaningful way to compare data pertaining to a single month to data
pertaining to full years".1992
5.692. The Panel, as we recall, considered that "a panel tasked with reviewing the merits of
claims" made under Articles 6.3(a), 6.3(b), and 6.3(c) of the SCM Agreement must "focus its
efforts on determining the extent to which the challenged subsidies are a 'genuine and substantial'
cause of serious prejudice in the present"1993, or "'under current factual conditions'".1994 The Panel
noted the parties' agree ment that, as far as the findings in these compliance proceedings were
concerned, it may have been possible and even appropriate for the Panel to examine data from a
historical period that predate d the end of the implementation period. The Panel shared this view
and considered that its "duty to conduct an objective assessment of the matter pursuant to
Article 11 of the DSU would be best served" if it were "to examine the entirety of the evidence put
forward by the United States, and the full rebuttal evidence advanced by the European Union,
including the most recent information where relevant and reliable". 1995 However, while the Panel
did not see the "need to make any a priori choice of reference period", it considered that the
United States would only succeed in its non-compliance claims if it could establish "the existence

1988 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1128. (emphasis
added)
1989 European Union's appellant's submission, para. 1024.
1990 European Union's appellant's submission, para. 1025.
1991 European Union's appellant's submission, fn 1114 to para. 1025 (quoting Appellate Body Report,
EC and certain member States – Large Civil Aircraft, para. 1188).
1992 European Union's appellant's submission, fn 1114 to para. 1025.
1993 Panel Report, para. 6.1443 (referring to Panel Reports, US – Upland Cotton (Article 21.5 – Brazil),
para. 10.18; EC and certain member States – Large Civil Aircraft, paras. 7.1694 and 7.1714). (emphasis
original)
1994 Panel Report, para. 6.1443 (quoting Panel Report, US – Upland Cotton (Article 21.5 – Brazil),
paras. 10.104 and 10.248 (emphasis added)).
1995 Panel Report, para. 6.1444.

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of present serious prejudice to its interests … in the post-implementation period, that is, present
serious prejudice in the period after 1 December 2011".1996
5.693. As noted, while evidence pointing to changes in relative market shares may be indicative
of displacement or impedance, it does not, without more, establish that the effect of a particular
subsidy is to displace or impede imports or exports of a like product of another Member within the
meaning of Articles 6.3(a) and 6.3(b). Article 6.4 of the SCM Agreement stipulates, in this regard,
that displacement or impedance "shall include any case in which … it has been demonstrated that
there has been a change in rela tive shares of the market to the disadvantage of the
non-subsidized like product ( over an appropriately representative period sufficient to demonstrate
clear trends in the development of the market for the product concerned, which, in normal
circumstances, shall be at least one year) ".1997 Although a plain reading of Article 6.4 suggests
that, under normal circumstances, trends in the market can be established even on the basis of
data from a one -year reference period, this will depend on the nature of the pro duct and the
particularities of the market at issue and the number of data points available in the chosen
reference period. The Appellate Body has stated that "{t}he identification of a trend will be more
accurate the larger the data set used in the analys is".1998 At the same time, the Appellate Body
has explained that "too strict a requirement concerning the size of the data set could preclude a
Member from timely challenging subsidies that cause adverse effects to its interests". 1999
Moreover, in the context of compliance proceedings, a panel may be called upon to adjudicate a
claim of non-compliance following what may have been a relatively short reasonable period of time
for implementation. We also note the particular nature of the LCA industry where instances of
sales and volumes of deliveries are generally much lower than in the case of consumer goods.
5.694. In our view, these considerations are apt and instructive in the context of these
compliance proceeding s. We do not understand the Panel to have a priori excluded from
consideration relevant evidence and information that had been put before it. In the circumstances
of the present case, given that it recognized that "the United States {would} only succeed in its
non-compliance claims if it {could} establish the existence of present serious prejudice … in the
post-implementation period "2000, we see no error in the Panel's decision to focus on the "most
recent market data presented by the parties in this dispute from the post-implementation
period".2001 While we acknowledge that the data on the volume of deliveries and market shares
from the post-implementation period in this case appear to have been rather limited, we see no
basis to rule out a priori, without further analysis, the possibility that such data could support a
finding as to the existence of adverse effects in the post-implementation period.
5.695. We now turn to examine the Panel's findings of alleged lost sales 2002 and
"displacement and/or impedance " in the post -implementation period, beginning with its
findings for the single-aisle LCA market.

1996 Panel Report, para. 6.1444. (emphasis original) Accordingly, for the purposes of assessing the
United States' claims of lost sales, and "displacement and/or impedance", the Panel took into account market
data for the period December 2011 through December 2013. (Ibid., para. 6.1781, Table 19, and para. 6.1805,
Tables 20-22)
1997 Emphasis added.
1998 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1167.
(fn omitted)
1999 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1167.
2002 Before the Panel, the United States submitted evidence of 115 orders for approximately 1300 Airbus
LCA made between 2001 and 2013, arguing that all such orders represented "lost sales" to the US LCA
industry within the meaning of Article 6.3(c). The United States further argued that all of these orders should
have been considered for the purpose of establishing whether the European Union has complied with the
recommendations and rulings of the DSB. The Panel, however, decided to examine only claims of "lost sales"
occurring in the post-implementation period. (Panel Report, fn 3258 to para. 6.1781) This approach by the
Panel has not been appealed by either of the parties to the dispute.

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5.6.4.6.2 The single-aisle LCA market
5.696. The Panel identified the following "lost sales" alleged by the United States in the
single-aisle LCA market in the post -implementation period, all of which concerned the sales of
Airbus' A320 family of LCA:
Table 8: United States' "Lost Sales" Claims in the Post-Implementation Period
Product Market / Customer LCA model No. of Orders
2012
No. of Orders
2013
Single-Aisle
China Aircraft Leasing Company A320ceo/A321ceo 28/8
easyJet A320ceo/A320neo 35/100
Norwegian Air Shuttle A320neo 100
5.697. As noted above, the Panel considered that, under either "plausible" counterfactual
scenario, competition from potential new non-US entrants would have been limited to the
single-aisle LCA market. 2003 However, the Panel found it difficult to see how any new non-US
entrant could have developed "a credible single-aisle LCA offering" that could compete with Boeing
(or a duopoly of Boeing with another US LCA producer) in the sales campaigns in question.2004
5.698. Furthermore, we recall that the United States has claimed the existence of displacement
and/or impedance in the markets for single -aisle LCA in Australia, China, and India. 2005 For the
EU single-aisle LCA market, the United States has claimed the existence of "impedance"2006, and in
the alternative, threat of displacemen t and impedance. 2007 The Panel identified "the volume of
deliveries and market share" data for each of the different single-aisle LCA markets in Table 20 of
its Report (reproduced in Table 9 below). All of the deliveries by Airbus reflected in Table 9
involved deliveries of the A320 family of LCA.2008

2003 Panel Report, paras. 6.1787-6.1788.
2004 Panel Report, para. 6.1793.
2005 United States' appellee's submission, paras. 583, 587, and 593.
2006 United States' appellee's submission, para. 575.
2007 United States' appellee's submission, para. 577 (referring to United States' response to Panel
question No. 162, para. 14; Summary Table of Updated Ascend Aircraft Database (Panel Exhibit USA-578
(BCI)), p.2). The Panel however made no determination of the United States' claim of threat of displacement
and/or impedance in this market given that "the United States requested the Panel to consider this claim only
if {it} rejected {the United States'} claims of present serious prejudice". (Panel Report, para. 6.1818 (referring
to United States' first written submission to the Panel, para. 514; second written submission to the Panel,
para. 720; response to Panel question No. 162) (emphasis original))
2008 Panel Report, para. 6.1805, Table 20: Market for single-aisle LCA (containing data from Ascend
database, Deliveries made, data request as of 7 April 2014 (Panel Exhibit EU-512)) See also Ascend database,
Boeing and Airbus Deliveries in Units (2001-2013), Commercial Operators, data request as of 30 March 2014
(Panel Exhibit USA-577), referred to in Panel Report, fn 2313 to para. 6.1368.

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Table 9: Market for single-aisle LCA
 European Union Australia China India
Delivery
Data
Dec.
2011
2012 2013 Dec.
2011
2012 2013 Dec.
2011
2012 2013 Dec.
2011
2012 2013
Boeing
Volume
(Units)
10 59 29 4 21 14 4 73 123 1 8 17
Boeing
Market
Share
83.3% 49.6% 29.0% 80% 77.8% 51.9% 33.3% 41.7% 55.9% 33.3% 26.7% 43.6%
Airbus
Volume
(Units)
2 60 71 1 6 13 8 102 97 2 22 22
Airbus
Market
Share
16.7% 50.4% 71.0% 20% 22.2% 48.1% 66.7% 58.3% 44.1% 66.7% 73.3% 56.4%
5.699. Following this table in its Report, the Panel stated that, "{i}n the light of the two 'plausible'
counterfactual scenarios", it was evident that "in the absence of the effects of the challenged
LA/MSF subsidies, the volume of deliveries and market shares that would have been achieved by
the United States' LCA ind ustry would have been higher than its actual level." 2009 The Panel also
expressed "strong doubts" about whether a new non -US LCA producer of single -aisle LCA "could
have … made deliveries over these years". 2010 Accordingly, the Panel found the United States to
have demonstrated the existence of displacement and/or impedance in the single -aisle LCA
markets in the European Union, Australia, China, and India.2011
5.700. Thus, in reaching its findings of adverse effects in the single -aisle LCA market, the Panel
relied on the proposition that Airbus would not have been able to sell or deliver its A320 family of
LCA in the absence of the "product effects" of the challenged LA/MSF subsidies. As explained
above, the Panel's findings regarding the "product effects" of LA/MSF subsid ies on the A320
concerned primarily the effects of those subsidies that had expired prior to the end of the
implementation period.2012 We have found, however, that the European Union has no compliance
obligation in respect of those expired subsidies. Rather, the pertinent question is whether the
subsidies existing in the post -implementation period cause adverse effects, such that the
European Union has failed to comply with its obligation under Article 7.8 of the SCM Agreement to
"take appropriate steps to remove the adverse effects".
5.701. In this respect, we do not find any analysis made by the Panel as to whether , and to what
extent, Airbus' competitiveness in the single -aisle LCA market, gained through the pre -A380
LA/MSF subsidies, was renewed and sustained beyo nd the original reference period as a result of
the subsidies that the European Union maintained or granted afte r the original reference
period (2001-2006) and into the post -implementation period. The Panel did acknowledge that the
A350XWB programme was of "significant strategic importance" to Airbus in order for it "not only to
maintain market share in the twin -aisle segment, but also to avoid losing ground in other markets
with respect to customers interested in fleet commonality".2013 The Panel, however, did not explore
or elaborate upon how the "product effects" of the subsidies existing in the post -implementation
period, particularly those for the A350XWB and A380 that we have reviewed above, may have
contributed to Airbus' competitiveness in respect of its single -aisle LCA offerings in the
post-implementation period, such that the alleged adverse effects in the single -aisle LCA market

2009 Panel Report, para. 6.1806.
2011 Panel Report, para. 6.1817.
2012 We recall that all LA/MSF subsidies granted for LCA up to and including the A320 were found by the
Panel to have expired. (See paras. 5.402 and 5.552 above. See also Panel Report, para. 6.876 and fn 1567
thereto.)

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could be linked in a genuine and substantial way to the LA/MSF subsidies existing in the
post-implementation period.2014
5.702. On the basis of the above considerations, we are not convinced that, insofar as the
single-aisle LCA market is concerned , the Panel's analysis provide s a sufficient basis to sustain its
conclusion that "the orders identified in Table 19 {in the single -aisle LCA market} represent
'significant' 'lost sales' to the United States LCA industry and, therefore, that the challenged
LA/MSF subsidies continue to be a 'genuine and substantial' cause of serious prejudice to the
United States within the meaning of Article 6.3(c) of the SCM Agreement".2015 Similarly, we are not
convinced that, with regard to the various country markets for single -aisle LCA, the Panel's
analysis is sufficient to sustain its conclusion that "the challenged LA/MSF subsidies are a 'genuine
and substantial' cause of displacement and/or impedance of United States LCA in the markets for
single-aisle LCA in the European Union, Australia, China and India" .2016 We therefore reverse the
above findings of the Panel under Articles 6.3(a), 6.3(b), and 6.3(c) of the SCM Agreement insofar
as they relate to the single-aisle LCA market.
5.703. Consequently, we do not consider it necessary to address the European Union's arguments
that: (i) the Panel failed to take into account the market -specific and sale-specific non-attribution
factors that allegedly caused (or contributed to causing) the observed market phenomena 2017;
(ii) "whatever number of data points it chose", the Panel made findings of displa cement and
impedance "entirely divorced from the data" 2018 in th ose markets; ( iii) the Panel failed to
determine whether the data revealed a discernible or clear trend of substitution in the case of
displacement2019; and (i v) the Panel failed t o identify actual trends, construct counterfactual
trends, or undertake a comparison between the two in the case of impedance.2020
5.6.4.6.3 The twin-aisle LCA market
5.6.4.6.3.1 Significant lost sales
5.704. We recall that, at the outset of its analysis o f lost sales, the Panel rec apitulated the
meaning of the terms "significant" and "lost sales" in Article 6.3(c) of the SCM Agreement as
interpreted in past disputes. As the Panel noted, the term "significant" means "important, notable
or consequential", and has both quantitative and qualitati ve dimensions. 2021 The Panel further
noted the Appellate Body's finding that "lost sales" "are sales that suppliers of the complaining
Member 'failed to obtain' and that instead were won by suppliers of the respondent Member",
and that the "the most appropria te approach to assess whether lost sales are the effect of the
challenged subsidy is through a unitary counterfactual an alysis", which would involve
"a comparison of the sales actually made by the competing firm(s) of the complaining Member
with a counterf actual scenario in which the firm(s) of the respondent Member would not have
received the challenged subsidies". 2022 The interpretation of the terms "significant" "lost sale s"
within the meaning of Article 6.3(c) is not disputed on appeal.

2014 We note that the Panel found that the non-subsidized post-launch investments in Airbus' A320 and
A330 families of LCA described by the European Union "were significant and instrumental to Airbus' ability to
upgrade the technologies and production processes associated with the original A320 and A330 programmes in
a way that enabled Airbus to sustain their competitiveness". (Panel Report, para. 6.1524) The Panel, however,
did not consider that such investments had diluted the genuine and substantial link between the pre-A350XWB
LA/MSF subsidies – most of which had expired – and the market presence of the existing A320 and A330
families of Airbus LCA. (Ibid.) The European Union contends on appeal that the Panel erred in reaching this
finding. (See para. 5.551 above) For the reasons stated above, we have not examined these arguments by the
European Union. (See paras. 5.410-5.411, and 5.552-5.553 above.)
2015 Panel Report, para. 6.1798.
2016 Panel Report, para. 6.1817.
2017 European Union's appellant's submission, para. 916.
2018 European Union's appellant's submission, para. 1026.
2019 European Union's appellant's submission, para. 1029.
2020 European Union's appellant's submission, para. 1053.
2021 Panel Report, para. 6.1780 (quoting Appellate Body Report, US – Large Civil Aircraft (2nd complaint),
para. 1052).
2022 Panel report, para. 6.1780 (quoting Appellate Body Report, EC and certain member States – Large

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5.705. In Table 19 of the Panel Report, the Panel identified the following "lost sales" alleged by
the United States in the twin -aisle LCA market, all of which involved sales of Airbus' A350XWB
family of LCA.
Table 10: United States' "Lost Sales" Claims in the Post-Implementation Period
Product Market / Customer LCA model No. of Orders
2012
No. of Orders
2013
Twin-Aisle
Cathay Pacific Airways A350XWB-1000 10
Singapore Airways A350XWB-900 30
United Airlines A350XWB-1000 10
5.706. The Panel recalled its finding that any market presence of a new entrant operating in the
post-implementation period would be, if anything, limited to the market for single-aisle LCA. For
the Panel, "it must ne cessarily follow that the sales {of the A350XWB} won by Airbus in the
twin-aisle … market {} were 'lost sales' to the United States' industry in both 'plausible'
counterfactual scenarios." 2023 The Panel also rejected the "non -subsidy" reasons alleged by the
European Union to explain why Airbus won the sales in the twin-aisle LCA market, because, for the
Panel, it was apparent that "almost all of those reasons" were, in fact, "based on the effects of the
LA/MSF subsidies because they {were} premised on Airbus be ing present in all {three} of the
relevant sales campaigns {in the twin -aisle LCA market} as exactly the same competitor selling
identical aircraft to those it markets today". 2024 In other words, a key basis for the Panel's finding
on lost sales in the twin -aisle LCA market was its finding that, in the absence of the
"product effects" of the challenged LA/MSF subsidies, Airbus would not have been in a position to
launch the A350XWB as and when it did.
5.707. We recall that, at the outset of its analysis of lost sales, displacement, and impedance, the
Panel explained that it would limit its assessment to evaluating the merits of the United States'
claims in light of its findings with respect to the "product eff ects" of LA/MSF subsidies under the
"plausible" counterfactual scenarios , in which a non -subsidized Airbus would not have existed. 2025
Nonetheless, we recall that the Panel's analysis of the "product effects" of LA/MSF subsidies on the
A350XWB was not limited to the "plausible" counterfactual scenarios alone. Rather, as discussed in
section 5.6.3.5.2 above, the Panel carried out its analysis, in large part, on the basis of the parties'
arguments regarding the extent to which the Airbus, as it actually existed during the 2006 -2010
period, could have launched the A350XWB as and when it did, so as to evaluate the "direct effects"
5.708. Specifically, the Panel's analysis regarding the "product effects" of LA/MSF subsidies on the
A350XWB first sought to determine whether Airbus – as it actually existed in December 2006 –
could have launched the A350XWB as and when it did in the absence of the "direct effects" of
A350XWB LA/MSF subsidies. In section 5.6.3. above, we have agreed with the Pan el's findings in
that context, and in particular its conclusion that, without the A350XWB LA/MSF subsidies, there
was a high likelihood that the Airbus company that actually existed in 2006 would , to some
degree, have had to make certain compromises with r espect to the pace of the A350XWB
programme and/or the features of the aircraft. 2027 We have also agreed with the Panel's
assessment as to the "indirect effects" of the A380 LA/MSF subsidies on the A350XWB. 2028
We emphasize that, pursuant to our interpretation of Article 7.8 of the SCM Agreement, we
disagree with the Panel to the extent that it considered the effects of the expired LA/MSF subsidies
as part of its aggregated assessment. Instead, our review in section 5.6.3 above focuses on the
Panel's findings regarding the subsidies existing in the post -implementation period. These Panel

2023 Panel Report, para. 6.1789.
2024 Panel Report, para. 6.1789.
2025 Panel Report, para. 6.1779.
2026 Panel Report, para. 6.1537.
2027 Panel Report, para. 6.1717.
2028 See section 5.6.3.5.2 of this Report.

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findings highlight the fact that , in the twin -aisle LCA market, Airbus' competitiveness , gained
through earlier LA/MSF subsidies, was renewed and sustained beyond the original reference period
as a result of the subsidies that the European Union maintained or granted after the original
reference period and into the post-implementation period.
5.709. Our review of the Panel's finding s on the product effects of LA/MSF subsidies on the
A350XWB thus indicates that, in the absence of the LA/MSF subsidies existing in the
post-implementation period, Airbus would not have been able to offer the A350XWB at the time it
did and with the features that th e A350XWB contained. In other words, in the absence of these
subsidies, Airbus would not have been able to be "present in all {three} of the relevant sales
campaigns as exactly the same competitor selling identical aircraft" in the post -implementation
period.2029
5.710. We next consider whether the Panel's finding that the sales of the A350XWB in the
post-implementation period constituted "lost sales" to the US LCA industry within the meaning of
Article 6.3(c) of the SCM Agreement is supported by relevant Panel findi ngs regarding the
competitive dynamics between Boeing's and Airbus' respective product offerings in the twin -aisle
LCA market. The twin -aisle LCA market, as the Panel found, comprises the Boeing 767, 777,
and 787, on the one hand, and the Airbus A330 and A 350XWB, on the other hand. 2030 The Panel
found that " all five families of Airbus and Boeing twin -aisle LCA exercise differing but overall
sufficient degrees of competitive constraints against each other ", such that "they should all be
considered to fall withi n the same product market ".2031 In reaching this conclusion, the Panel
considered that the fact that Airbus chose to highlight "the alleged performance advantages of the
A350XWB-900 over the 787-9 and the 777-200ER at the time of launch " suggested that "it must
have expected potential customers to be interested in learning about the relative performance
characteristics of all three aircraft".2032 The Panel further noted that, "since it was launched, Airbus
… continued to market the A350XWB family as an alternative to both the 787 and the 777 ".2033
The Panel considered that the fact that the evidence before it "seeks to highlight the
'competitiveness' of the technologically advanc ed A350XWB by focusing on its relative
performance advantages over the 787, 777, and 767 " was consistent with the fact that
"the A350XWB was developed for the specific purpose of winning sales from a range of customers
that would otherwise be potentially i nterested in the performance ch aracteristics of, at least,
all three families of Boeing aircraft".2034
5.711. Evidence examined by the Panel regarding specific sales campaigns involving the
A350XWB further supports its view that Airbus' A350XWB product offering was in direct
competition with Boeing's twin -aisle LCA. With respect to the sales of the A350XWB to
Cathay Pacific Airways, the Panel found that "the HSBI evidence submitted by the United States
very clearly and explicitly demonstrate {d} that Cathay Pacific wa s interested in considering
different combinations of Airbus and Boeing twin -aisle LCA" to meet its delivery preferences. 2035
Furthermore, the Panel stressed, "the fact that one aircraft may have been chosen over one or

2029 See Panel Report, para. 6.1789.
2030 Panel Report, paras. 6.1293-6.1370. We note that findings in the original proceedings established
that the A340-500/600, also an Airbus twin-aisle LCA, was a derivative aircraft of the A340 family of LCA, and
LA/MSF for the A340 granted to Airbus by the French and Spanish governments had been fully disbursed
before the establishment of the original panel. (Original Panel Report, paras. 7.376-7.377 and 7.1622) We
further recall that, in these compliance proceedings, the Panel found that the LA/MSF subsidies for the
A340-500/600 had expired, at the latest, in [BCI]. (Panel Report, fn 1547 to para. 6.879) The Panel also
found that the market presence of the A340 came to an end before the beginning of the post-implementation
period when Airbus terminated the A340 programme in November 2011. (Ibid., fn 2188 to para. 6.1293)
However, there are no specific findings and supporting analysis in the Panel Report regarding how the "product
effects" of the A340-500/600 subsidies contributed to the alleged serious prejudice in the twin-aisle LCA
market in the post-implementation period.
2031 Panel Report, para. 6.1370.
2034 Panel Report, para. 6.1309 (referring to Sophie Pendaries, Head of A350XWB Marketing, Airbus,
"Statement on the Market Significance of Technological Innovations to the A350XWB Programme", 5 July 2012
(Panel exhibit EU-17) (BCI)). (emphasis original)
2035 Panel Report, para. 6.1360.

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more others because of its availability reflect{ed} its competitive advantage".2036 We recall, in this
regard, the Panel's analysis of the "direct effects" of the A350XWB LA/MSF, which suggests that
even a slight delay in the launch of the A350XWB could have had significant implications for
Airbus' competitiveness, particularly in light of the developmental head start that the Boeing 787
had over the A350XWB.
5.712. The Panel reviewed a number of non -attribution factors alleged by the European Union in
respect of lost sales in the twin -aisle LCA market. T he European Union argued that Airbus'
pre-existing commonality advantages and other product-related advantages over Boeing helped to
explain its sales of the A350XWB-1000 in 2012 and 2013. 2037 More specifically, in the competition
that led Cathay Pacific Airways to order ten A350XWB -1000 aircraft in 2012, the European Union
submitted that Airbus had pre -existing commonality advantages and certain other product -related
advantages over Boeing. In the campaign that led Singapore A irlines to order 30 A350XWBs
in 2013, the European Union argued that Airbus had an advantage over Boeing because: (i) there
was uncertainty about the specifications, performance, and availability of the Boeing 787 -10
relative to the A350XWB -900; (ii) the A350XWB had an advantage in terms of "the delivery
positions themselves"; and (iii) the terms of Airbus' offer provided Singapore Airlines with higher
benefits of commonality and lower fleet complexity in the long run in ca se "Singapore Airlines
would opt for the A350XWB -1000".2038 Similarly, the European Union maintained that Airbus was
successful in the sales campaign that led United Airlines to order ten additional A350XWB -1000
aircraft in 2013 because the A350XWB -1000 was, for various reasons, the only aircraft that could
satisfy the airline's requirements at the relevant time.
5.713. The Panel disagreed that these non -attribution factors undermine the causal nexus
between the LA/MSF subsidies and lost sales in the twin -aisle LCA market, noting that
"Airbus would not have had any of these advantages in the above campaigns" had it not been for
the "product effects" of LA/MSF subsidies. 2039 The Panel noted that one non -attribution factor
alleged by the European Union did not appear to b e directly-linked with Airbus' competitiveness
gained through its launches of subsidized aircraft , namely, Singapore Airlines' wish to split orders
between Airbus and Boeing. 2040 The Panel reasoned, however, that , due to Airbus' ability to offer
the A350XWB, the airline was presented with the option to split its orders in this manner – an
option that would not have been available in the absence of LA/MSF.2041
5.714. As noted, the Panel's relevant findings on "product effects" concerning the A350XWB
indicate that, in th e absence of the LA/MSF subsidies existing in the post -implementation period,
Airbus would have been unable to launch the A350XWB or an A350XWB-type aircraft by the end of
2006. Thus, we share the Panel's view that most of the alleged non-attribution factors with regard
to lost sales in the twin -aisle LCA market described above, including Airbus' pre -existing
commonality advantages and other product -related advantages over Boeing, are not factors
"unrelated" to the LA/MSF subsidies existing in the post-implementation period. Like the Panel, we
have doubts as to whether Airbus' pre-existing commonality advantages and other product-related
advantages over Boeing (to the extent that they resulted from the provision of LA/MSF subsidies)
could be characterized as non-attribution factors that could be said to "dilute" the causal link
between the LA/MSF subsidies existing in the post -implementation period and the relevant market
effects. Similarly, we agree with the Panel's assessment of the non -attribution factor c oncerning
Singapore Airlines' wish to split orders between Boeing and Airbus. Indeed, the fact that Airbus
was in a position to offer the A350XWB in a timely manner was, in itself, largely due to LA/MSF
subsidies a nd their effect on the pace of the program me and the features of the A350XWB.
Therefore, insofar as lost sales in the twin -aisle LCA market are concerned, we are not convinced
by the European Union's argument that the Panel's failure to take into account market-specific and
sale-specific non -attribution factors is contrary to the Appellate Body's guidance that panels

2037 Panel Report, para. 6.1790.
2039 Panel Report, para. 6.1791.
2040 According to the European Union, Singapore Airlines chose the A350XWB in 2013 because it wanted
to split its order for twin-aisle LCA between Airbus and Boeing so as "to secure the delivery of a larger number
of aircraft over a particular period of time". (Panel Report, para. 6.1792)
2041 Panel Report, para. 6.1792.

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"must ensure that the effects of other factors are not improper ly attributed to the
challenged subsidies".2042
5.715. The Panel's findings reviewed above support the conclusion that the sales of the A350XWB
identified in Table 19 of the Panel Report represent "significant lost sales" to the US LCA industry
within the meaning of Article 6.3(c) of the SCM Agreement and that such lost sales were the effect
of the LA/MSF subsidies existin g in the post -implementation period. This conclusion also finds
support in the analytical framework adopted by the panel and the Appellate Body in the original
proceedings, as well as in a number of the Panel's findings, including its finding concerning th e
"product effects" of the LA/MSF subsidies existing in the post -implementation period on Airbus'
timely launch of the A350XWB, and the existence of sufficient substitutability between Boeing' s
and Airbus' twin-aisle product offerings.
5.716. In light of our interpretation of Article 7.8 of the SCM Agreement2043, however, we disagree
with the Panel's conclusion on "significant lost sales" in the twin -aisle LCA market to the extent
that its conclusion was based on the effects of the challenged LA/MSF subsidies that t he Panel
found to have expired. We therefore modify the Panel's conclusion in paragraph 6.1798 of the
Panel Report, and find instead that the orders identified in Table 19 in the twin -aisle LCA market
represent significant lost sales to the US LCA industry and, therefore, that the LA/MSF subsidies
existing in the post -implementation period are a genuine and substantial cause of serious
prejudice to the United States within the meaning of Article 6.3(c) of the SCM Agreement.
5.6.4.6.3.2 "Displacement and/or impedance"
5.717. We recall that the United States has claimed the existence of displacement and/or
impedance in the twin -aisle LCA markets in China, Korea, and Singapore. 2044 For the
European Union twin-aisle LCA market, the United States has claimed the existence only of
impedance.2045 The Panel identified the volume of deliveries and ma rket share data for each of
these twin-aisle LCA markets in Table 21 of its Report (reproduced in Table 11 below). All of the
deliveries by Airbus reflected in Table 11 involved deliveries of the A330 family of LCA.2046
Table 11: Market for twin-aisle LCA
 European Union China Korea Singapore
Delivery
Data
Dec.
2011 2012 2013 Dec.
2011 2012 2013 Dec.
2011 2012 2013 Dec.
2011 2012 2013
Boeing
Volume
(Units)
1 8 15 1 7 19 0 2 3 0 0 2
Boeing
Market
Share
100% 30.8% 65.2% 50% 30.4% 47.5% - 50.0% 50.0% - - 25.0%
Airbus
Volume
(Units)
0 18 8 1 16 21 0 2 3 0 0 6
Airbus
Market
Share
0.0% 69.2% 34.8% 50% 69.6% 52.5% - 50.0% 50.0% - - 75.0%

2042 European Union's appellant's submission, para. 944 (quoting Appellate Body Report, US – Upland
Cotton, para. 437).
2043 See section 5.4.2.2 of this Report.
2044 United States' appellee's submission, paras. 589, 595, and 599.
2045 United States' appellee's submission, para. 579.
2046 Panel Report, para. 6.1805, Table 21: Market for twin-aisle LCA (containing data from Ascend
database, Deliveries made, data request as of 7 April 2014 (Panel Exhibit EU-512)). See also Ascend database,
Boeing and Airbus Deliveries in Units (2001-2013), Commercial Operators, data request as of 30 March 2014
(Panel exhibit USA-577), referred to in Panel Report, fn 2313 to para. 6.1368.

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5.718. The Panel found that "in the absence of the effects of the challenged LA/MSF subsidies, the
volume of deliveries and market shares that would have been achieved by the United States' LCA
industry would have been higher than its actual level." 2047 The Panel also recalled tha t "any new
non-US LCA competitor would have only entered the market with a single-aisle LCA, implying that
the twin-aisle … market{} would have been supplied by the United States' industry alone".2048
5.719. As noted, the Panel's task was to assess how the LA/MSF s ubsidies existing in the
post-implementation period, in the aggregate, contributed to Airbus' competitiveness in respect of
its twin-aisle LCA offerings in the post -implementation period, such that these subsidies had the
effect of substituting and/or hind ering like Boeing LCA in the markets at issue. We note that,
according to the Panel, the LA/MSF subsid ies for the A330 -200 expired no later than [BCI]2049,
i.e. in the post -implementation period. We recall, however, that findings from the original
proceedings established that the A330-200 – a derivative of the A330 – was launched in 1995, and
that the LA/MSF for this programme granted by the French Government had been fully disbursed
as of the date of the establishment of the original panel. 2050 We also note the original panel 's
finding that it was likely that "the A330 -200 could have been launched even in the absence of the
specific LA/MSF granted in respect of that programme" because it was a derivative of the A330
and, therefore, required a comparatively s mall amount of funding to develop. 2051 Moreover, unlike
for the A380 and A350XWB LA/MSF subsidies, there are no specific findings by the Panel relating
to the issue of whether and how the "product effects" of the A330-200 LA/MSF subsidies continued
beyond 2006 and into the post-implementation period.
5.720. As we have explained above, our review of the Panel's finding s on the "product effects" of
LA/MSF subsidies on the A350XWB indicates that, in the absence of the LA/MSF subsidies for the
A380 and A350XWB existing in the post-implementation period, Airbus would not have been able
to offer the A350XWB at the time it did and with the features that the A350XWB contained. As also
discussed above, the Panel's analysis concerning the relevant product markets establishe d that
Airbus' A350XWB product offering was in direct competition with Boeing's twin -aisle LCA.
The Panel's analysis in that section of its Report focuses, however, on the degree of substitutability
of various Airbus and Boeing models in the twin -aisle LCA mar ket; it does not, and is not meant
to, address the role of the LA/MSF subsidies existing in the post-implementation period in causing
displacement or impedance to the Boeing LCA models at issue. Nevertheless, given Airbus'
competitiveness in the twin-aisle LCA market brought about by the existing subsidies, and in light
of the competitive dynamics between Boeing and Airbus models or variants in the twin -aisle LCA
market, we do not exclude the possibility that sales of Boeing's twin -aisle LCA may have been
substituted or hindered by sales of the subsidized A350XWB, i.e. a newer model of twin -aisle LCA
by Airbus.2052
5.721. We note, however, that the United States framed its claim of displacement and /or
impedance in the twin -aisle LCA market on the basis of data concern ing market shares and
deliveries of the A330 and relevant Boeing LCA during the period 2001-2013.2053 There were no

2047 Panel Report, para. 6.1806.
2049 Panel Report, fn 1547 to para. 6.879. As noted in paras. 5.389-5.390 and fn 978 of this Report, the
European Union submitted two methodologies for estimating the ex ante lives of the LA/MSF subsidies – the
Loan Life approach and the Marketing Life approach. The Panel expressed doubt as to whether the Loan Life
approach would be the most appropriate methodology for determining the "ex ante" lives, and noted that
"it would be at least equally appropriate" to utilize the Marketing Life approach. (Ibid., para. 6.878) Ultimately,
the Panel found that the ex ante life of the A330-200 expired in [BCI] on the basis of the Loan Life approach,
even though, under the Marketing Life approach, the ex ante life of the A330-200 LA/MSF would have expired
by [BCI], that is, before the end of the implementation period. (Ibid., para. 6.872, Table 11: PwC ex ante
2050 Original Panel Report, paras. 7.371 and 7.376-7.377; Appellate Body Report, EC and certain
member States – Large Civil Aircraft, paras. 829, 925, and 929. The original panel found that the amount of
financial contribution was 330 million French francs. (Original Panel Report, para. 7.380, Table 1: Approximate
amount of funding provided for under the challenged LA/MSF measures (fn omitted))
2051 Original Panel Report, para. 7.1940.
2052 For references to order data, including for the A350XWB described in various sections of the
Panel Report, see Panel Report para. 6.1781 and fn 3258 thereto. See also paras. 6.561 and 6.681.
2053 Panel Report, para. 6.1805. The Panel noted that the United States had submitted data over the
period 2001-2013. However, the Panel considered that its examination of serious prejudice should focus on the

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deliveries of the A350XWB during that period. 2054 Thus, for purposes of the claim of displacement
and/or impedance in the twin -aisle LCA market , the Panel relied on market shares and delivery
data relating to the A330, rather than on orders of the A350XWB, in its analysis . The Panel made
no specific findings based on order data in this connection. We recall, in this regard, that the
Panel's finding s regarding the "product effects" of LA/MSF subsidies on the A330 concerned
primarily the effects of subsidies that had expired. 2055 We have fo und, however, that the
European Union has no compliance obligation in respect of those expired subsidies. Rather,
the pertinent question is whether the subsidies existing in the post -implementation period cause
adverse effects, such that the European Union has failed to comply with its obligation under
Article 7.8 of the SCM Agreement to "take appropriate steps to remov e the adverse effects".
However, given the way the claims of displacement and/or impedance were raised before the
Panel and the Panel's approach to assessing tho se claims, the Panel did not explore, and made no
findings on, the issue of whether and, if so, how the A380 and A350XWB LA/MSF subsidies existing
in the post -implementation period may have contributed to the deliveries of the A330 occurring
during that period.
5.722. In these circumstances, we are not convinced that the Panel's analysis provides a sufficient
basis to sustain the conclusion that the effect of the LA/MSF subsidies existing in the
post-implementation period was to displace or impede US LCA in the twin-aisle LCA market in the
European Union and relevant third country markets. We ther efore reverse the Panel's conclusion,
in paragraph 6.1817 of the Panel Report , that "the United States ha{d} established that the
'product' effects of the challenged LA/MSF subsidies are a 'genuine and substantial' cause of
displacement and/or impedance of United States LCA in the markets for … twin -aisle LCA in the
European Union, China, Korea and Singapore". Having done so, we see no reason to further
address the European Union's additional arguments regarding the Panel's conclusion, as set out in
paragraph 5.703 above.
5.6.4.6.4 The VLA market
5.6.4.6.4.1 Significant lost sales
5.723. In Table 19 of its Report, the Panel identified the following "lost sales" alleged by the
United States in the VLA market, all of which involved sales of the Airbus A380.
Table 12: United States' "Lost Sales" Claims in the Post-Implementation Period
Product Market / Customer LCA model No. of Orders
2012
No. of Orders
2013
Very Large Aircraft
Emirates A380 50
Transaero Airlines A380 4

alleged market phenomena occurring in the post-implementation period, i.e. from December 2011. (Ibid.,
2054 Before the Panel, the United States argued that an examination of order data is "appropriate for
assessing claims of significant lost sales and threat of displacement or impedance, while the texts of
Articles 6.3(a) and 6.3(b) on displacement or impedance require a focus on market shares and volumes
derived from delivery data." (United States' first written submission to the Panel, para. 299 (referring to
Original Panel Report, paras. 7.1748-7.1750); see also para. 514) However, the United States did not claim
threat of impedance or displacement with respect to the twin-aisle LCA market. We further note that, with
respect to the single-aisle LCA market in the European Union, the United States requests that we "conduct a
threat analysis of displacement and impedance based on order data" to the extent that we find that "there is
no impedance of Boeing single-aisle LCA based on the delivery data". (United States' appellee's submission,
para. 577 (referring to Panel Report, para. 6.1818)) We address the United States' claim concerning the threat
of displacement and impedance in the single-aisle LCA market in the European Union in section 5.6.4.7 of this
Report.
2055 We recall that all LA/MSF subsidies granted for LCA up to and including the A330 were found by the
Panel to have expired. (See paras. 5.402 and 5.552 above). With respect to the A330-200 LA/MSF subsidies,
see para. 5.719 above and fns thereto.

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5.724. Like its finding with regard to lost sales in the twin -aisle LCA market, the Panel first
recalled its finding that any market presence of a new entrant operating in the "plausible"
counterfactual scenarios would be, if anything, limited to the ma rket for single-aisle LCA in the
post-implementation period. For the Panel, "it must necessarily follow " that the sales of the A380
won by Airbus in the VLA market "were 'lost sales' to the United States' industry".2056 As with its
finding regarding lost sales in the twin -aisle LCA market, the Panel rejected the "non -subsidy"
reasons alleged by the European Union to explain why Airbus won the sales in the VLA market,
because, for the Panel it was apparent that "almost all of those reasons " were, in fact, "based on
the effects of the LA/MSF subsidies because they {were} premised on Airbus being present in
{both} of the relevant sales campaigns {in the VLA market} as exactly the same competitor
selling identical aircraft to those it markets today". 2057 In other words, a key basis for the Panel's
finding on lost sales in the VLA market was its finding that, in the absence of the "product effects "
of LA/MSF subsidies, Airbus would not have been in a position t o offer the A380 as and
when it did.
5.725. As discussed in section 5.6.3 above, findings from the original proceedings indicate that, in
launching the A380 – which was financed in part by LA/MSF for the A380 – Airbus was able to
utilize technical experience and financial advantage gained through past subsidies, and t o acquire
competitiveness in the VLA market. Moreover, we have found that the Panel's findings with respect
to the A380 and A350XWB programmes indicate that Airbus' competitiveness in the VLA market,
gained through earlier LA/MSF subsidies, was renewed and sustained beyond the original reference
period and into the post -implementation period due to the subsidies it continued to receive after
the original reference period and into the post -implementation period. We reiterate that, pursuant
to our interpretation of Article 7.8 of the SCM Agreement, we disagree with the Panel to the extent
that it considered the effects of the expired LA/MSF subsidies to be a part of its aggregated
assessment. Instead, our review in section 5.6.3 above focuses on findings from the original
proceedings and by the Panel in relation to subsidies exist ing in the p ost-implementation period.
As noted, such subsidies enabled Airbus to bring the A380 to market and continue its development
in the face of extensive production delays. We a lso recall, in particular, that the disbursements of
the A380 LA/MSF subsidies were anticipated to continue until [BCI] in the case of French LA/MSF
subsidy and until [BCI] in the case of German and Spanish LA/MSF subsidies.2058
5.726. Our review of the Panel's findings, as well as the relevant findings from the original
proceedings, indicates that, in the absence of the LA/MSF subsidies existing in the
post-implementation period, Airbus would not have been able to offer the A380 at the time it did.
In other words, in the absence of these subsidies, Airbus would no t have been able to be
"present in {both} of the relevant sales campaigns as exactly the sa me competitor selling
identical aircraft" in the post-implementation period.2059
5.727. We now turn to examine whether the Panel's finding that the sales of the A380 in the
post-implementation period constituted "lost sales" to the US LCA industry within the meaning of
Article 6.3(c) of the SCM Agreement is supported by relevant Panel findings regar ding the
competitive dynamics between Boeing's and Airbus' respective product offerings in the VLA
market. The VLA market, as the Panel found, comprises the Boeing 747 -8 and the Airbus A380.
The Panel noted in particular that, as the only two aircraft capa ble of flying well over 400
passengers on long-haul routes, "it {was} difficult to believe that airlines interested in purchasing
LCA with capabilities such as those of the A380 and the 747 -8I would not try to negotiate and
obtain price discounts from Airb us and Boeing on the basis of the strength of each company's
respective sales offer, even when the superiority of one aircraft over the other may be relatively
apparent".2060 Indeed, as noted by the Panel, "Airbus ha{d} consistently maintained the view that
the potential customers of the A380 {would} also be likel y to seriously consider the 747 -8I in a

2056 Panel Report, para. 6.1789.
2057 Panel Report, para. 6.1789.
2058 Original Panel Report, para. 7.378 (referring to French A380 contract (Original Panel Exhibit US-116
(BCI)), Annexe 3; German A380 LA/MSF contract (Original Panel Exhibit US-72 (BCI) (English translation)),
clause 4.2; BT-Drs. 14/10002 (Original Panel Exhibit US-124 (English translation)), p. 3; Spanish A380 LA/MSF
contract (Original Panel Exhibit US-73 (BCI)), 3rd clause).
2059 Panel Report, para. 6.1789.
2060 Panel Report, para. 6.1408.

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segment of the LCA market that {was} covered by no other aircraft ."2061 Moreover, "given that
there {would} be a range of customer demands for LCA with a passeng er capacity exceeding 400
seats, one would expect to find differing degrees of reciprocal pricing constraints between the
A380 and the 747-8I, depending upon how close a particular customer's needs reflect the relative
advantage of one aircraft over the other."2062
5.728. Turning to specific sales campaigns , the Panel considered that the United States'
"HSBI evidence of Boeing's analysis of the competitive interaction between the two aircraft in the
2007 Emirates and 2006 British Airways sales campaigns " suggested that "[BCI]".2063 The Panel
found this to be consistent with "not only the evidence showing that Airbus considered competition
for the British Airways' sales to be 'intense'", but also the evidence it had reviewed from four other
sales campaigns (Asiana Airlines , Hong Kong Airlines, Skymark , and Qantas), in which it was
"apparent that Boeing presented the 747 -8I as an alternative to the A380 with a view to winning
sales from the relevant customers". 2064 Moreover, in its analysis of the 2011 sales campaigns to
Transaero Airlines, the Panel considered that, notwithstanding the evidence suggesting that the
airline purchased the A380 and the 747-8I to fill different capacity segments of its operations, this
alone did not imply the absence of effective competition .2065 The Panel's analysis regarding the
conditions of competition in the VLA market thus confirms that Airbus' and Boeing's respective VLA
products – the A380 and the 747 – are sufficiently substitutable. Such competitive dynamics, in
our view, provide furthe r support to the proposition that the sales won by Airbus in the VLA
market were at the expense of the US LCA producer.
5.729. As with the Panel's finding of lost sales in the other market segments, the European Union
alleges that the Panel failed to take into ac count several non-attribution factors.
The European Union argued before the Panel that Transaero Airlines and Emirates Airlines chose
the A380 over the 747 -8 in the orders they placed in 2012 and 2013 because of , inter alia ,
the A380's more advanced technologies and greater size compared with the 747 -8, which enabled
it to satisfy both customers' very specific requirements. 2066 However, similar to our analysis in the
context of lost sales in the twin-aisle LCA market, we do not view these factors as unrelated to the
effects of the subsidies. Rather, our review of findings from the original proceedings and the
Panel's findings shows that, absent the LA/MSF subsidies existing in the post -implementation
period, Airbus would not have been able to launch and bring t o market the A380 at the time it did.
Therefore, like the Panel, we have doubts as to whether Airbus' pre -existing commonality
advantages and other product -related advantages over Boeing could be characterized as
non-attribution factors that could be said to "dilute" the causal link between the LA/MSF subsidies
existing in the post-implementation period and the relevant market phenomena.
5.730. Thus, the Panel's findings reviewed above support the conclusion that the sales of the
A380 identified in Table 19 of the Panel Report represent "significant" "lost sales" to the US LCA
industry within the meaning of Article 6.3(c) of the SCM Agreement, and that such lost sales were
the effect of the LA/MSF subsidies existing in the post -implementation period. This conclusion also
finds support in the analytical framework adopted by the panel and the Appellate Body in the
original proceedings, as well as in a number of the Panel's findings, including its finding concerning
the "product effects" of the LA/MSF subsidies existing in the post-implementation period on Airbus'
continued offering of the A380 , and the existence of sufficient substitutability between Boeing' s
and Airbus' VLA product offerings.
5.731. In light of our interpretation of Article 7.8 of the SCM Agreement2067, however, we disagree
with the Pan el's conclusion on "significant lost sales" in the VLA market to the extent that its
conclusion was based on the effects of the challenged LA/MSF subsidies that the Panel found to
have expired. We therefore modify the Panel's conclusion in paragraph 6.1798 of the Panel Report,

2061 Panel Report, para. 6.1383.
2062 Panel Report, para. 6.1408.
2063 Panel Report, para. 6.1409.
2064 Panel Report, para. 6.1409.
2065 Panel Report, paras. 6.1404 (referring to European Union's response to Panel question No. 55,
fn 440 and para. 263) and 6.1405. See also European Union's second written submission to the Panel,
paras. 1551-1552.
2066 Panel Report, para. 6.1790.
2067 See section 5.4.2.2 of this Report.

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and find instead that t he orders identified in Table 19 of the Panel Report in the VLA market
represent "significant lost sales" to the US LCA industry and, therefore, th at the LA/MSF subsidies
existing in the pos t-implementation period are a genuine and substantial cause of serious
prejudice to the United States within the meaning of Article 6.3(c) of the SCM Agreement.
5.6.4.6.4.2 Displacement and/or impedance
5.732. We recall that the Un ited States has claimed the existence of displacement and/or
impedance in the VLA markets in the European Union, Australia, Korea, and Singapore.2068 For the
VLA markets in China and the United Arab Emirates, the United States has claimed the existence
only of impedance. 2069 The Panel identified the volume of deliveries and market share data for
each of these VLA markets in Table 22 of its Report (reproduced in Table 13 below). All of the
deliveries by Airbus reflected in Table 13 involved deliveries of the A380 family of LCA.2070
Table 13: Market for very large LCA
 European Union Australia China
Delivery Data Dec.
2011 2012 2013 Dec.
2011 2012 2013 Dec.
2011 2012 2013
Boeing Volume (Units) 0 5 5 0 0 0 0 0 0
Boeing Market Share - 55.6% 55.6% 0.0% - - 0.0% 0.0% 0.0%
Airbus Volume (Units) 0 4 4 1 0 0 1 2 1
Airbus Market Share - 44.4% 44.4% 100% - - 100% 100% 100%

 Korea Singapore United Arab Emirates
Delivery Data Dec.
2011 2012 2013 Dec.
2011 2012 2013 Dec.
2011 2012 2013
Boeing Volume (Units) 0 0 0 0 0 0 0 0 0
Boeing Market Share - 0.0% 0.0% - 0.0% - 0.0% 0.0% 0.0%
Airbus Volume (Units) 0 1 2 0 5 0 2 11 13
Airbus Market Share - 100% 100% - 100% - 100% 100% 100%
5.733. Having tabulated the volume of deliveries and market share data for each of the se VLA
markets, the Panel considered it evident that , "in the absence of the effects of the challenged
LA/MSF subsidies, the volume of deliveries and market shares that would ha ve been achieved by
the United States' LCA industry would have been higher than its actual level." 2071 The Panel also
recalled that "any new non -US LCA competitor would have only entered the market with a
single-aisle LCA, implying that the … VLA market{} wou ld have been supplied by the
United States' industry alone."2072
5.734. As discussed above2073, our review of the Panel's findings, as well as relevant findings from
the original proceedings, indicates that, in the absence of the LA/MSF subsidies existing in the
post-implementation period, Airbus would not have been able to offer the A380 at the time it did.
We also recall that, as the Panel's analysis of the competitive dynamics in the VLA market shows,

2068 United States' appellee's submission, paras. 581, 585, 597, and 601.
2069 United States' appellee's submission, paras. 591 and 603.
2070 Panel Report, para. 6.1805, Table 22: Market for very large LCA (containing data from Ascend
database, Deliveries made, data request as of 7 April 2014 (Panel Exhibit EU-512)). See also Ascend database,
Boeing and Airbus Deliveries in Units (2001-2013), commercial operators, data request as of 30 March 2014
(Panel Exhibit USA-577), referred to in Panel Report, fn 2313 to para. 6.1368.
2071 Panel Report, para. 6.1806.
2073 See paras. 5.725-5.726 above.

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Boeing's and Airbus' respec tive product offerings – the 747 and th e A380 – are sufficiently
substitutable.2074
5.735. The European Union submits that the Panel wrongly rejected its contention that the
United States had failed to "account for the effect of the development and production delays
affecting … the 747 -8 on the limited n umber of sales achieved by Boeing". 2075 We recall that the
Panel did not see these delays "to mean that, in the absence of the 'product' effects of the LA/MSF
subsidies, Boeing or the United States' LCA industry would not have won the orders corresponding
to the deliveries made in the different markets " for VLA.2076 We also note the Panel's observation
that "there is evidence that the larger versions of the 777 may also at times challenge for sales in
the market for {VLA}".2077 Thus, the Panel's reasoning that, in the absence of Airbus ' VLA
offerings, customers would have turned to other Boeing LCA products – for instance, the larger
versions of the 777 – appears to us to be reasonable. 2078 Consequently, we see no reason to
disturb the Panel's finding that this non -attribution factor would not be capable of diluting the
genuine and substantial relationship of cause and effect between LA/MSF subsidies and the alleged
market phenomena.
5.736. We now turn to examine the Panel's analysis of the volume of deliveries and market sha re
data for the post -implementation period for each of the VLA markets at issue to determine
whether its analysis supports its ultimate finding of serious preju dice in this market segment.
As noted, the European Union contends that in reaching its findings of "displacement and/or
impedance", the Panel failed to engage properly with the sales volume and market share data that
was before it. 2079 We observe that, i n the EU VLA market, while Boeing made five deliveries in
each of 2012 and 2013, Airbus made four deliveries for each said year. Thus, for both 2012
and 2013, Boeing maintained a market share of 55.6%. The evidence indicates that there was no
actual decline in Boeing's volume of deliveries and market share. In finding displacement in this
market segment, the Panel's assessment lacks an explanation as to whether there was a
demonstrated substitution of the 747 -8 by the A380. In respect of the VLA markets in Australia,
Korea, and Singapore, Boeing did not make any deliveries and consequently had no market s hare
in the post-implementation period in these markets.
5.737. We recall that a trend analysis may be relevant and indicative, although not necessarily
determinative, for purposes of a finding of displacement. In our view, however, the Panel did not
examine whether there existed any discernible trends in volumes and market shares in the VLA
markets at issue, including whether or not there existed declining trends that could have
supported the Panel's findings. In these circumstances, we consider that the Panel s hould have
engaged with the evidence before it in order to explain sufficiently the basis for its finding that the
LA/MSF subsidies had the effect of displacing US LCA in these VLA markets in the
post-implementation period. We therefore disagree to the ext ent that the Panel found that
"the United States ha{d} established that the 'product' effects of the challenged LA/MSF subsidies
are a 'genuine and substantial' cause of displacement … of United States LCA in the markets for …
{VLA} in the European Union, Australia, … Korea, {and} Singapore".2080
5.738. Turning to impedance, we recall that the phenomenon of impedance "refers to situations
where the exports or imports of the like product of the complaining Member would have expanded
had they not been 'obstructed' or 'hindered' by the subsidized product".2081 In the EU VLA market,
we note from Table 13 above that, while Boeing made five deliveries in each of 2012 and 2013,
Airbus made four deliveries for each said year. Thus, for both 2012 and 2013, Boeing had a
constant market share of 55.6%. In China and Korea, we observe that Boeing made no deliveries

2074 See paras. 5.727-5.728 above. See also Panel Report, paras. 6.1371-6.1410.
2075 Panel Report, para. 6.1813. (fn omitted) See also European Union's appellant's submission,
paras. 951 and 953-956.
2076 Panel Report, para. 6.1816.
2078 Panel Report, para. 6.1816.
2079 European Union's appellant's submission, para. 968.
2080 Panel Report, para. 6.1817. We recall that, for the VLA markets in China and the United Arab
Emirates, the United States claims only impedance. (See supra fn 1984) We therefore understand that the
Panel's finding on displacement does not cover these two markets.
2081 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1161.

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and consequently held no market share during the post -implementation period. Airbus, however,
made deliveries in both 2012 and 2013 for each of these markets. In the Australian VLA market,
neither Boeing nor Airbus made any deliveries in the years 2012 and 2013, although the Panel
noted that Airbus made a single delivery in December 2011. With respect to the VLA market in
Singapore, while Boeing did not make any deliveries in the post -implementation period, Airbus
made five deliveries in 2012, retaining 100% of the market share that year. Finally, in the
United Arab Emirates, we observe that Airbus made 11 d eliveries in December 2012
and 13 deliveries in 2013. As for Boeing, we note that , while the United States claimed before the
Panel that Boeing made no deliveries in the post-implementation period, the European Union
claimed that Boeing made one delivery in 2012.2082
5.739. The European Union asserts that, for the VLA markets in Australia, China, Korea,
and Singapore, sales were sporadic and volumes relatively small, which in turn made the
identification of trends more difficult and thus precluded a finding of imped ance.2083 We are not
persuaded by the European Union's argument. As explained, given the particular nature of the LCA
industry – especially for VLA like the 747-8 and the A380, where instances of sales and volumes of
deliveries are generally much lower than in the case of consumer goods – we do not consider that
the volumes of deliveries that the Panel considered could not have supported a finding of
impedance. In any event, to find impedance, evidence of trends may not always be dispositive.
5.740. As explained above, our review of the Panel's findings with respect to the A380 and
A350XWB programmes, as well as relevant findings from the original proceedings, indicates that,
in the absence of the LA/MSF subsidies existing in the post -implementation period, Airbus would
not have been able to offer the A380 at the time it did. Furthermore, we recall that, as the Panel's
analysis of the competitive dynamics in the VLA market shows, Boeing's and Airbus' respective
product offerings – the 747-8 and the A380 – are sufficiently substitutable. Therefore, the Panel's
conclusion regarding impedance, insofar as the VLA market is concerned, is supported by its
findings on the "product effects" – including those of the A380 LA/MSF subsidies existing in the
post-implementation period – and by the data concerning the deliveries of the subsidized Airbus
LCA – the A380 – that hindered the sales of competing US LCA in the VLA markets concerned.
Thus, contrary to the situation regarding alleged impedance in the twin -aisle LCA market,
the "product effects" of the LA/MSF subsidies existing in the post-implementation period, including
the A380 LA/MSF subsidies 2084, and the VLA delivery data underlying the United States' claim,
concern the same aircraft model , and, as explained above, the Pan el made necessary findings on
both "product effects" and delivery data. 2085 On the basis of these considerations, we see no error
in the Panel's conclusion that , absent the LA/MSF subsidies, the US LCA industry would have
achieved a higher volume of deliverie s and market share in the VLA markets at issue than its
actual level in the post-implementation period.2086
5.741. The Panel's findings reviewed above thus support the conclusion that the effect of the
LA/MSF subsidies existing in the post -implementation period is i mpedance of US VLA in the
markets in the European Union, Australia, China, Korea, Singapore, and the United Arab Emirates.
This conclusion also finds support in the analytical framework adopted by the panel and the
Appellate Body in the original proceedings, as well as in a number of the Panel's findings, including
its finding concerning the "product effects" of the LA/MSF subsidies existing in the
post-implementation period on Airbus' continued offering of the A380 , and the existence of
sufficient substitutability between Boeing's and Airbus' VLA product offerings.

2082 Panel Report, para. 6.1805, fn 3312 to Table 22: Market for very large LCA (referring to
European Union's comments on the United States' response to Panel questions No. 162, para. 145, and No. 40,
fn 321).
2083 European Union's appellant's submission, para. 1055.
2084 We recall that, unlike the pre-A380 subsidies, which were disbursed decades ago, the disbursements
of the A380 LA/MSF subsidies continued well beyond the original reference period. (See para. 5.607 above)
2085 We recall that, in claiming displacement and/or impedance in the twin-aisle LCA market, the
United States did not rely on orders of the A350XWB, whereas the subsidies existing in the
post-implementation period are essentially those under the A380 and A350XWB programmes. Regarding the
2086 Panel Report, para. 6.1806.

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5.742. In light of our interpretation of Article 7.8 of the SCM Agreement2087, however, we disagree
with the Panel's conclusion on impedance in the VLA market to the extent that its conclusion was
based on the effects of the challenged LA/MSF subsidies that the Panel found to have expired. We
therefore modify the Panel's conclusion, in paragraph 6.1817 of the Panel Report, and find instead
that the United States has established that the "product e ffects" of the LA/MSF subsidies existing
in the post-implementation period are a genuine and substantial cause of impedance of US LCA in
the VLA markets in the European Union, Australia, China, Korea, Singapore, and the
United Arab Emirates.2088
5.6.4.7 United States' request for completing the legal analysis regarding "displacement
and/or impedance"
5.743. The United States requests, in the event that we find that the Panel erred in its
assessment of the evidence, or that the Panel should have "more explicitly" addressed market
trends in its analysis , that we complete the legal analysis regarding "displacement and/or
impedance" based on the "relevant data from the period of 2001 through 2013". 2089
The United States contends that "{t}he volume and market share data sets relied o n by the
United States and the { European Union} are almost identical and sourced from the same Ascend
database service." 2090 According to the United States, "{i}n each geographical market in either
data set", the evidence shows clear trends in Airbus LCA deli veries that, "according to the Panel's
causation findings, would not have occurred absent the effects of LA/MSF and other unwithdrawn
subsidies and would have been replaced by U.S. LCA".2091
5.744. The European Union, on the other hand , contends that, even if we were able to complete
the legal analysis with respect to the causal link between the subsidies and the market presence of
certain of Airbus' aircraft, we would not be able to complete the analysis with respect to the
United States' claims of "displacement and/or impedance" .2092 According to the European Union,
"the Panel failed to identify, or even look for, clear and discernible trends that are capable of
evidencing displacement or impedance."2093 With respect to market data preceding the year 2011,
the European Union asserts that "the Panel made no findings with respect to such data or any
trends that could be identified from such data ", and there are no "undisputed facts of record with
respect to the existence of any trends identifiable in such data."2094
5.745. We recall that the Appellate Body has, on occasion, completed the legal analysis with a
view to facilitating the prompt settlement of the dispute, pursuant to Article 3.3 of the DSU.
However, the Appellate Body has "insisted that {it} can do so only if the factual findings of the
panel and the undisputed facts in the panel record provide {it} with a sufficient basis for {its} own
analysis".2095 We note that both the United States and the European Union have relied on the
same Ascend database service wit h respect to the volume of deliveries and market share data for
the period 2001-2013.2096 We further recall that we have found no error in the Panel's approach of

2087 See section 5.4.2.2 of this Report.
2088 Panel Report, para. 6.1817.
2089 United States' appellee's submission, para. 573 (referring to United States' response to Panel
questions No. 40 and No. 162; Summary Table of Updated Ascend Aircraft Database (Panel Exhibit USA-578
(BCI))).
2090 United States' appellee's submission, para. 574 (referring to United States' response to Panel
question No. 162, paras. 10-32; Summary Table of Updated Ascend Aircraft Database (Panel Exhibit USA-578
(BCI)); European Union's comments on the United States' response to Panel question No. 162, paras. 57-146).
We note that, for the Appellate Body's reference, the United States has reproduced these data in the Data
Appendix attached to its appellee's submission.
2091 United States' appellee's submission, para. 574 (referring to Panel Report, paras. 6.1806, 6.1774,
6.1778, 6.1797, and 7.1.d.xii-xiii).
2092 European Union's appellant's submission, para. 1098.
2093 European Union's appellant's submission, para. 1098.
2094 European Union's appellant's submission, para. 1098.
2095 Appellate Body Report, EC – Asbestos, para. 78.
2096 See Ascend database, Deliveries made, data request as of 7 April 2014 (Panel Exhibit EU-512);
Ascend database, Boeing and Airbus Deliveries in Units (2001-2013), Commercial Operators, data request as
of 30 March 2014 (Panel Exhibit USA-577).

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having " focused on the most recent market data presented by the parties … from the
post-implementation period"2097 in order to make findings of displacement and/or impedance.
5.746. In light of the reversal of the relevant Panel findings in the preceding section, our task in
this section is to consider whether we can complete the legal analysis in respect of the
United States' request to find: (i) displacement and/or impedance in the single -aisle LCA markets
in Australia, China, and India; (ii) impedance in the single-aisle LCA market in the European Union,
or, in the alternative, threat of displacement and impedance in that market; (iii) displacement in
the twin-aisle LCA markets in China, Korea, and Singapore; (iv) impedance in the twin -aisle LCA
markets in the European Union, China, Korea, and Singapore; and (v) displacement in the VLA
markets in the European Union, Australia, Korea, and Singapore.
5.747. In respect of the United States' claims of displacement and/or impedance in the
single-aisle LCA markets in Australia, China, and India and its claim of impedance in the
single-aisle LCA market in the European Union, we recall that we have reversed the Panel's finding
due to its reliance on the "product effects" of the expired LA/MSF subsidies on the market
presence of the A320 family of Airbus LCA.2098 We do not, however, detect undisputed facts on the
Panel record that would allow us to draw our own conclusions regarding the effect of the existing
LA/MSF subsidies – those provided for the A380 and the A350XWB – on Airbus' competiveness in
respect of its single -aisle L CA offerings. In the absence thereof, we do not see how we could
determine whether the LA/MSF subsidies existing in the post -implementation period are a genuine
and substantial cause of the alleged "displacement and/or impedance" in the single -aisle LCA
markets at issue.2099
5.748. In our view, similar considerations apply with regard to the United States' request that we
"conduct a threat analysis of displacement and impedance based on order data "2100 for the
EU single-aisle LCA market. We recall that the Panel made n o determination with regard to the
United States' claim of threat of displacement and impedance in the single -aisle LCA market in the
European Union, given that "the United States requested the Panel to consider this claim only if
{it} rejected {the United States'} claims of present serious prejudice". 2101 We therefore do not
consider it appropriate to engage with the United States' request in respect of its claim of threat of
displacement and impedance claim, as it would require us to review and consider evid ence and
arguments that were not addressed by the Panel or sufficiently ex plored and developed before
the Panel.
5.749. We now turn to the United States' request that we complete the analysis in respect of its
claims of displacement in the twin -aisle LCA markets in China, Korea, and Singapore, and
impedance in the twin -aisle LCA markets in the European Union, China, Korea, and Singapore.
We have found in paragraphs 5.719-5.722 above that the Panel's analysis and findings do not
provide a sufficient basis to sustain the conclusion that the effect of the LA/MSF subsidies existing
in the post -implementation period was "to displace or impede" US LCA in the twin -aisle LCA
market in the European Union and relevant third country markets. Nor do we detect undisputed
facts on the Panel record that would allow us to draw our own conclusions regarding this issue. In
these circumstances, engaging with the United States' request for completion where these markets
are concerned, would require us to review and consider evidence and arguments that we find were
not sufficiently addressed by the Panel or sufficiently explored and developed before the Panel.

2098 See paras. 5.700-5.702 above.
2099 We further recall that in respect of the United States' claims of displacement, we engaged the
participants at the oral hearing with questions regarding the existence or not of discernible trends in the
relevant geographical and product markets on the basis of the market data for the post-implementation period.
However, the participants could not come to an agreement in this regard. It is therefore our view that we
cannot ourselves step into the shoes of the Panel to examine these issues in light of the insufficient analysis by
the Panel, coupled with the participants' disagreement on this issue.
2100 United States' appellee's submission, para. 577. (fn omitted)
2101 Panel Report, para. 6.1818 (referring to United States' first written submission to the Panel,
para. 514; second written submission to the Panel, para. 720; response to Panel question No. 162). (emphasis
original)

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5.750. Finally, regarding the United States' claims of displacement in the VLA markets in the
European Union, Australia, Korea, and Singapore, we recall the market data that was tabulated by
the Panel for these markets:
Table 14: Market for very large LCA
 European Union Australia Korea Singapore
Delivery Data Dec.
2011 2012 2013 Dec.
2011 2012 2013 Dec.
2011 2012 2013 Dec.
2011 2012 2013
Boeing Volume
(Units)
0 5 5 0 0 0 0 0 0 0 0 0
Boeing Market
Share
- 55.6% 55.6% 0.0% - - - 0.0% - - 0.0% 0.0%
Airbus Volume
(Units)
0 4 4 1 0 0 0 1 2 0 5 0
Airbus Market
Share
- 44.4% 44.4% 100% - - - 100% 100% - 100% -
5.751. We recall that we have reversed the Panel's findings of displacement in these markets on
the ground that the Panel failed to explain the basis for its finding that the LA/MSF subsidies
existing in the post -implementation period had the effect of displacing the US LCA. That said, w e
recall that the United States' market trend analyses for th e EU2102 and Australian2103 VLA markets
span the years 2001 -2013. For the Korean VLA market, while the United States relies on market
data for the years 2001 -20132104, it does not present a market trend analysis. As for the
VLA market in Singapore, while the United States relies on market data for the years 2001 -2013,
its market trend analysis spans the years 2006 -2013.2105 It is our view that, in these
circumstances, engaging with the United States' request for completion where these markets are
concerned would require us to review and consider evidence and arguments in respect of the
aforesaid concerns that we find were not sufficiently addressed by the Panel or sufficiently
explored and developed before the Panel.2106
5.752. In light of all of the above considerations, we find that we are unable to complete the legal
analysis of the United States' claims of displacement and/or impedance in the single -aisle LCA
markets in Australia, China, and India, impedance in the single -aisle LCA market in th e
European Union, or , in the alternative, threat of displacement and impedance in that market,
displacement in the twin -aisle LCA markets in China, Korea, and Singapore, impedance in the
twin-aisle LCA markets in the European Union, China, Korea, and Singa pore, and displacement in
the VLA markets in the European Union, Australia, Korea, and Singapore.
5.6.4.8 Overall conclusion
5.753. We recall that "displacement or impedance" would arise wher e the counterfactual analysis
shows that the sales of the complaining Member wo uld have declined less or would have been

2102 United States' appellee's submission, para. 581, Figure 5: EU VLA – Volume Trendline Analysis
(referring to United States' response to Panel question No. 162, para. 18; Summary Table of Updated Ascend
Aircraft Database (Panel Exhibit USA-578 (BCI)), p. 4).
2103 United States' appellee's submission, para. 585, Figure 7: Australia VLA – Volume Trendline Analysis
(referring to United States' response to Panel question No. 162, para. 20; Summary Table of Updated Ascend
Aircraft Database (Panel Exhibit USA-578 (BCI)), p. 6).
2104 United States' appellee's submission, para. 597, Table 2: U.S. Data – Korea VLA Market (referring to
United States' response to Panel question No. 162, para. 28; Summary Table of Updated Ascend Aircraft
Database (Panel Exhibit USA-578 (BCI)), p. 12).
2105 United States' appellee's submission, para. 601, Figure 16: Singapore VLA – Volume Trendline
Analysis (referring to United States' response to Panel question No. 162, para. 31; Summary Table of Updated
Ascend Aircraft Database (Panel Exhibit USA-578 (BCI)), p. 14).
2106 We also recall that we engaged the participants at the oral hearing with questions regarding the
existence or not of discernible trends in the relevant VLA markets on the basis of the market data for the
post-implementation period. However, the participants could not come to an agreement in this regard.

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higher in the absence of the challenged subsidy. We understand the Panel to have sought to apply
this framework when it turned to assess whether the volume of deliveries and market shares that
"would have been achieved by the United States' LCA industry between 1 December 2011 and the
end of 2013 would have been higher than its actual level in all relevant product markets"2107 in the
absence of the "product effects" of the LA/MSF subsidies. We further consider that the Panel's
finding that "the United States has established that the 'product' effects of the challenged LA/MSF
subsidies are a 'genuine and substantial' cause of displacement and/or impedance of United States
LCA"2108 in the relevant geographic markets for sing le-aisle LCA, twin -aisle LCA, and VLA is
informed by the manner in which the United States framed its claims. We do not read the Panel's
use of the term "displacement and/or impedance" when summing up its serious prejudice findings
regarding the relevant markets at issue as suggesting that the Panel found the existence of these
serious prejudice phenomena in an undifferentiated manner with respect to one and the same
product and country market. Therefore, contrary to what the European Union appears to sugge st,
it does not necessarily follow from the Panel's use of the term "displacement and/or impedance"
that the Panel treated "displacement" and "impedance" as interchangeable and indistinguishable
concepts for purposes of its adverse effects analysis.
5.754. We recall our finding that the Panel's assessment of the relevant product markets in these
compliance proceedings was based on a proper analysis of the nature and degree of competition
between products that the Panel found to demonstrate sufficient substitutabil ity. However, an
assessment of the nature and degree of competition in the relevant product market(s) does not, in
and of itself, answer the question of whether the subsidies existing in the post -implementation
period are a genuine and substantial cause of adverse effects in the relevant market(s).
5.6.4.8.1 The single-aisle LCA market
5.755. With regard to the single -aisle LCA market, the Panel's findings regarding the "product
effects" of LA/MSF subsidies on the market presence of the A320 concerned primarily the effects of
those subsidies that had expired prior to the end of the implementation period. We have found,
however, that the European Union has no compliance obligation in respect of those expired
subsidies. Rather, the pertinent question is whether the s ubsidies e xisting in the
post-implementation period (i.e. after 1 December 2011) cause adverse effects, such that the
European Union has failed to comply with its obligation under Article 7.8 of the SCM Agreement to
"take appropriate steps to remove the adverse effects". We do not find any analysis by the Panel
as to whether, and to what extent, Airbus' competitiveness in the single -aisle LCA market, gained
through the pre-A380 LA/MSF subsidies, was renewed and sustained beyond the original reference
period as a result of the subsidies that the European Union maintained or granted in the
post-implementation period.
5.756. Thus, we are not convinced that, insofar as the single-aisle LCA market is concerned , the
Panel's analysis provide s a sufficient basis to sustain its c onclusion, in paragraph 6.1798 of the
Panel Report, that "the orders identified in Table 19 {in the single -aisle LCA market} represent
'significant' 'lost sales' to the United States LCA industry and, therefore, that the challenged
LA/MSF subsidies continu e to be a 'genuine and substantial' cause of serious prejudice to the
United States within the meaning of Article 6.3(c) of the SCM Agreement" . Similarly, we are not
convinced that, with regard to the various country markets for single -aisle LCA, the Panel 's
analysis is sufficient to sustain its conclusion , in paragraph 6.1817 of the Panel Report, that
"the challenged LA/MSF subsidies are a 'genuine and substantial ' cause of displacement and/or
impedance of United States LCA in the markets for single -aisle LCA in the European Union,
Australia, China and India".
5.757. We therefore reverse the above conclusions of the Panel und er Articles 6.3(a), 6.3(b),
and 6.3(c) of the SCM Agreement insofar as they relate to the single -aisle LCA market.
Consequently, we do not consider it necessary for us to address the European Union's additional
arguments described in paragraph 5.703 above.

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5.758. We further find that we are unable to complete t he legal analysis of the United States'
claims of "displacement and/or impedance" in the single-aisle LCA markets in Australia, China, and
India, and impedance in the single -aisle LCA market in the European Union, or, in the alternative,
threat of displacement and impedance in that market.
5.6.4.8.2 The twin-aisle LCA market
5.759. With regard to lost sales in the twin-aisle LCA market, our review of the Panel's finding on
the product effects of LA/MSF subsidies on the A350XWB indicates that, in the absence of the
LA/MSF subsidies existing in the post -implementation period (i.e. after 1 December 2011) , Airbus
would not have been able to offer the A350XWB at the time it did and with the features it had. The
Panel's finding that the sales of the A350XWB in the post -implementation period constituted
"lost sales" to the US LCA industry within the meaning of Article 6.3(c) of the SCM Agreement is
also supported by relevant Panel findings regarding the competitive dynamics between Boeing's
and Airbus' respective product offerings in the twin -aisle LCA market. Furthermore, we are not
convinced by the European Union's arg ument that the Panel failed to take into account
market-specific and sale-specific non-attribution factors.
5.760. Therefore, the Panel's findings support the conclusion that the sales of the A350XWB
identified in Table 19 of the Panel Report represent "significa nt lost sales" to the US LCA industry
within the meaning of Article 6.3(c) of the SCM Agreement, and that such lost sales were the
effect of the LA/MSF subsidies existing in the post -implementation period. This conclusion also
finds support in the analytic al framework adopted by the panel and the Appellate Body in the
original proceedings, as well as in a number of the Panel's findings, including its finding concerning
the "product effects" of the LA/MSF subsidies existing in the post-implementation period on Airbus'
timely launch of the A350XWB, and the existence of sufficient substitutability between Boeing' s
and Airbus' twin -aisle product offerings. In light of our interpretation of Article 7.8 of the
SCM Agreement, however, we disagree with the Panel's conclusion on "significant lost sales" in the
twin-aisle LCA market to the extent that its conclusion was based on the effects of the challenged
LA/MSF subsidies that the Panel found to have expired.
5.761. Accordingly, we modify the Panel's conclusion in paragrap h 6.1798 of the Panel Report,
and find instead that the orders identified in Table 19 of the Panel Report in the twin -aisle LCA
market represent " significant lost sales " to the US LCA industry and, therefore, that the LA/MSF
subsidies existing in the post-implementation period are a genuine and substantial cause of serious
prejudice to the United States within the meaning of Article 6.3(c) of the SCM Agreement.
5.762. With regard to displacement and impedance in the twin -aisle LCA market, we note that,
according t o the Panel, the LA/MSF subsidy for the A330-200 expired no later than [BCI],
i.e. in the post-implementation period. We note, however, that the original panel found that it was
likely that the A330-200 could have been launched even in the absence of the specific LA/MSF
granted in respect of that programme because it was a derivative of the A330 and, therefore,
required a comparatively small amount of funding to develop. Moreover, unlike for the A380 and
A350XWB LA/MSF subsidies, there are no specific findings by the Panel relating to the issue of
whether and how the "product effects" of the A330 -200 LA/MSF subsidy continued beyond 2006
and into the post-implementation period. Our review of the Panel's finding on the "product effects"
of LA/MSF subsidies on the A350XWB indicates that, in the absence of the LA/MSF subsidies for
the A380 and A350XWB existing in the post -implementation period, Airbus would not have been
able to offer the A350XWB at the time it did and with the features it had. We further recall the
Panel's finding that Airbus' A350XWB product offering was in direct competiti on with Boeing's
twin-aisle LCA.
5.763. We note, however, that the United States framed its claim of displacement and /or
impedance in the twin -aisle LCA market on the basis of data concerning market shares and
deliveries of Airbus and Boeing LCA during the period 2001-2013. There were no deliveries of the
A350XWB during that period. Thus, for purposes of the claim of displacement and/or impedance in
the twin -aisle LCA market , the Pa nel relied on market shares and delivery data relating to the
A330, rather than orders of the A350XWB, in making its finding. We recall, in this regard, that the
Panel's findings regarding the "product effects" of LA/MSF subsidies on the A330 concerned
primarily the effects of those subsidies that had expired. We have found, however, that the
European Union has no compliance obligation in respect of those expired subsidies . Rather, the

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pertinent question is whether the subsidies existing in the post -implementation period cause
adverse effects, such that the European Union has failed to comply with its obligations under
Article 7.8 of the SCM Agreement to "take appropriate steps to remove the adverse effects".
However, given the way the claims of displacement and/or impedance were raised before the
Panel and its approach to assessing these claims, the Panel did not explore, and made no findings
on, the issue of whether and , if so, how the A380 and A350XWB subsidies existing in the
post-implementation period ma y have contributed to the deliveries of the A330 occurring during
that period. In these circumstances, we are not convinced that the Panel's analysis and findings
provide a sufficient basis to sustain the conclusion that the effect of the LA/MSF subsidies existing
in the post-implementation period was to displace or impede US LCA in the twin-aisle LCA market
in the European Union and relevant third country markets.
5.764. Accordingly, we reverse the Panel's con clusion, in paragraph 6.1817 of the Panel Report,
that "the United States ha{d} established that the 'product' effects of the challenged LA/MSF
subsidies are a 'genuine and substantial' cause of displacement and/or impedance of United States
LCA in the markets for … twin -aisle LCA in the European Union, China, Korea and Singapore".
Having done so, we see no further reason to address the European Union's additional arguments
regarding the Panel's conclusion, as set out in paragraph 5.703 above.
5.765. We further find that we are unable to complete the legal analysis of the United States'
claims of displacement in the twin -aisle LCA markets in C hina, Korea, and Singa pore,
and impedance in the twin-aisle LCA markets in the European Union, China, Korea, and Singapore.
5.6.4.8.3 The VLA market
5.766. With regard to lost sales in the VLA market, our review of the Panel's findings, as well as
the relevant findings from the original procee dings, indicates that, in the absence of the LA/MSF
subsidies existing in the post -implementation period (i.e. after 1 December 2011) , Airbus would
not have been able to offer the A380 at the time it did. Moreover, the Panel's analysis regarding
the condit ions of competition in the VLA market confirms that Airbus' and Boeing' s respective
VLA products – the A380 and 747 – are sufficiently substitutable. Such competitive dynamics, in
our view, provide further support to the proposition that the sales won by A irbus in the VLA
market were at the expense of the US LCA producer. Finally, like the Panel, we have doubts as to
whether Airbus' pre -existing commonality advantages and other product -related advantages over
Boeing could be characterized as non -attribution factors that could be said to "dilute" the causal
link between the LA/MSF subsidies existing in the post -implementation period and the relevant
market phenomena.
5.767. Therefore, the Panel's findings support the conclusion that the sales of the A380 identified
in Table 19 of the Panel Report represent "significant" "lost sales" to the US LCA industry within
the meaning of Article 6.3(c) of the SCM Agreement, and that such lost sales were the effect of the
LA/MSF subsidies existing in the post -implementation period. This conclusion also finds support in
the analytical framework adopted by the panel and the Appellate Body in the original proceedings,
as well as in a number of the Panel's findings, including its finding concerning the "product effects"
of the LA/MSF subsidies existing in the post-implementation period on Airbus' continued offering of
the A380, and the existence of sufficient substitutability between Boeing' s and Airbus' VLA product
offerings. In light of our interpretation of Artic le 7.8 of the SCM Agreement, however, we disagree
with the Pan el's conclusion on "significant lost sales" in the VLA market to the extent that its
conclusion was based on the effects of the challenged LA/MSF subsidies that the Panel found to
have expired.
5.768. Accordingly, we modify the Panel's conclusion in paragraph 6.1798 of the Panel Report,
and find instead that the orders identified in Table 19 of the Panel Report in the VLA market
represent "significant lost sales" to the US LCA industry and, therefore, t hat the LA/MSF subsidies
existing in the post -implementation period continue to be a genuine and substantial cause of
serious prejudice to the United States within the meaning of Article 6.3(c) of the SCM Agreement.
5.769. With regard to displacement and impedanc e in the VLA market, our review of the Panel's
findings, as well as the relevant findings from the original proceedings, indicates that, in the
absence of the LA/MSF subsidies existing in the post -implementation period, Airbus would not
have been able to o ffer the A380 at the time it did. We also recall that, as the Panel's analysis of

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the competitive dynamics in the VLA market shows, Boeing's and Airbus' respective product
offerings – the 747 and the A380 – are sufficiently substitutable . With respect to t he
non-attribution factor alleged by the European Union concerning the development and production
delays affecting the 747 -8, we note the Panel's observation that the larger versions of the 777
may also at times challenge for sales in the VLA market. Therefore, we see no reason to disturb
the Panel's finding that this non-attribution factor would not be capable of diluting the genuine and
substantial relationship of cause and effect between the LA/MSF subsidies and the alleged market
phenomena.
5.770. We recall that a trend analysis may be relevant and indicative, although not necessarily
determinative, for purposes of a finding of displacement. In reaching its finding of displacement,
however, the Panel did not examine whether there existed any discernible tr ends in volumes and
market shares in the VLA markets at issue, including whether or not there existed declining trends
that could have supported the Panel's findings. In these circumstances, we consider that the Panel
should have engaged with the evidence before it in order to explain sufficiently the basis for its
finding that the LA/MSF subsidies had the effect of displacing US LCA in these VLA markets in the
post-implementation period.
5.771. Accordingly, insofar as displacement in the VLA market is concerned, we disagree with the
Panel, to the extent that it found, in paragraph 6.1817 of the Panel Report, that "the United States
ha{d} established that the 'product' effects of the challenged LA/MSF subsidies are a 'genuine and
substantial' cause of displacement … of United States LCA in the markets for … {VLA} in the
European Union, Australia, … Korea, {and} Singapore".
5.772. We further find that we are unable to complete the legal analysis of the United States'
claim of displacement in the VLA markets in the European Union, Australia, Korea, and Singapore.
5.773. As for the finding of impedance, we recall that the phenomenon of impedance refers to
situations where the exports or imports of the like product of the complaining Member would have
expanded had they not been "obstructed" or "hindered" by the subsidized product . Given the
particular nature of the LCA industry, especially for VLA like the Boeing 747-8 and the
Airbus A380, where instances of sales and volumes of deliveries are generally much lower than in
the case of consumer goods, we do not consider that the volumes of deliveries that the Panel
considered could not have supported a finding of impedance. We further recall that our review of
the Panel's findings with respect to the A380 and A350XWB programmes, as well as relevant
findings from the original proceedings, indicates that, in the absence of the LA/MSF subsidies
existing in the post -implementation period, Airbus would not have been able to offer the A380 at
the time it did. Moreover, as the Panel's analysis of the competitive dynamics in the VLA market
shows, Boeing's and Airbus' respectiv e product offerings – the 747 -8 and the A380 – are
sufficiently substitutable. Thus, contrary to the situation regarding alleged impedance in the
twin-aisle LCA market, the "product effects" of the LA/MSF subsidies existing in the
post-implementation period, including the A380 LA/MSF subsidies, and the VLA delivery data
underlying the United States' claim, concern the same aircraft model, and, as explained above, the
Panel made necessary findings on both "product effects" and delivery data. On the basis of these
considerations, and in light of the deliveries of the A380 in the post-implementation period, we see
no error in the Panel's conclusion that , absent the LA/MSF subsidies, the US LCA industry would
have achieved a higher volume of deliveries and market share than its actual level in the
post-implementation period.
5.774. Therefore, the Panel's findings reviewed above support the conclusion that the effect of the
LA/MSF subsidies existing in the post -implementation period is impedance of US VLA in the VLA
markets in the European Union, Australia, China, Korea, Singapore, and the United Arab Emirates.
This conclusion also finds support in the analy tical framework adopted by the panel and the
Appellate Body in the original proceedings, as well as in a number of the Panel's findings, including
its finding concerning the "product effects" of the LA/MSF subsidies existing in the
post-implementation peri od on Airbus' continued offering of the A380 , and the existence of
sufficient substitutability between Boeing' s and Airbus' VLA product offerings. In light of our
interpretation of Article 7.8 of the SCM Agreement, however, we disagree with the Panel's
conclusion on impedance in the VLA market to the extent that its conclusion wa s based on the
effects of the challenged LA/MSF subsidies that the Panel found to have expired.

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5.775. Accordingly, we modify the Panel's conclusion in paragraph 6.1817 of the Panel Report,
and find instead that the United States has established that the "product effects" of the LA/MSF
subsidies existing in the post -implementation period are a ge nuine and substantial cause of
impedance of US LCA in the markets for VLA in the European Union, Australia, China, Korea,
Singapore, and the United Arab Emirates.
6 FINDINGS AND CONCLUSIONS
6.1. For the reasons set out in this Report, the Appellate Body makes the following findings and
conclusions.
6.1 Article 21.5 of the DSU – the Mühlenberger Loch and Bremen Airport measures
6.2. In its Compliance Communication, the European Union took the view that the Mühlenberger
Loch aircraft assembly site measure and the Bremen A irport runway extension measure are
consistent with the WTO agreements and i n full compliance with the relevant recommendations
and rulings of the DSB. Based on our review of the Panel Report and the Panel record, we do not
understand the United States to have contested this view. The Panel, therefore, did not err in its
interpretation and application of Article 21.5 of the DSU in finding, in paragraph 5.77 of the Panel
Report, that there was no "disagreement" for it to resolve within the meaning of that provision.
Based on our review of the Panel's analysis, we further disagree wi th the European Union to the
extent that it argues that the Panel acted inconsistently with its duties under Article 11 of the DSU
in reaching this conclusion. For these reasons, we find that the Panel did not err by declining to
make a finding as to wheth er the European Union had achieved compliance with respect to the
Mühlenberger Loch aircraft assembly site measure and the Bremen Airport runway extension
measure, and see no need to make further findings in respect of those measures.
6.2 Article 3.1(b) of the SCM Agreement
6.3. With respect to the admissibility of the United States' appeal under Article 3.1(b) of the
SCM Agreement, we find that the United States' appeal falls within the scope of appellate review.
As we see it, the United States' appeal adequately identifies "issues of law covered in the panel
report and legal interpretations developed by the panel " pursuant to Article 17.6 of the DSU, as
well as "specific allegations of errors" within the meaning of the Working Procedures for
Appellate Review, with regard to the Panel's interpretation and appli cation of Article 3.1(b) of
the SCM Agreement.
a. Regarding the merits of the United States' appeal, we uphold the Panel's interpretation
of Article 3.1(b) of the SCM Agreement and agree with the Panel that the fact that a
subsidy results in the use of domestic over imported goods cannot by itself demonstrate
that that subsidy is contingent on the use of domestic over imported goods, whether in
law or in fact . While we have expressed concerns with certain aspects of the Panel's
reasoning, the focus of the Panel's legal standard on the need to establish a condition
requiring the use of domestic over imported goods comports with our reading of this
provision.
6.4. Having upheld the Panel's interpretation of Article 3.1(b) of the SCM Agreement, we are not
required to make findings regarding the application of this provision to the facts of the present
case, or to address the United States' arguments concerning comple tion of the legal analysis.
The Panel's finding under Articles 3.1(b) and 3.2 of the SCM Agreement therefore stands.
6.3 Benefit
6.3.1 The calculation of general corporate borrowing rate
6.5. We agree with the European Union that, in conducting the benefit analysis, the comparison
focuses on the moment in time when the lender and borrower commit to the tran saction.
We disagree, however, with the European Union to the extent that it suggests that the Panel was
required to limit its analysis to data from "the day of conclusion" of each A350XWB LA/MSF
contract regardless of the t ime period over which the parties may have committed to the terms

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and conditions of that financing instrument. Rather, the Panel was required to take into account
the specific financing instrument at issue, including the relevant circumstances surrounding the
conclusion of that instrument, to determine the period over which the terms and conditions of the
relevant contract were agreed. The Panel provided two reasons in support of its decision to
determine the corporate borrowing rate using the average yield s one month prior and six months
prior to the conclusion of the A350XWB LA/MSF contracts, in the form of a range. First, the Panel
considered that "the yield on the day of the signature of contract may reflect atypical
fluctuations."2109 The Panel's second re ason was that "{p}arties agreeing to a complex loan
contract may rather set the rates in the lead -up to the conclusion of the contract, and prior to the
actual day on which the contract is signed." 2110 We have found this understanding to be in line
with our observation that, in some cases, parties may have committed to a transaction – or to key
aspects thereof – during a finalization period of the negotiations preceding the moment of formal
conclusion of all aspects of that transaction. In the present case, th e financial contribution at issue
consists of complex financing, the terms and conditions of which have been negotiated and agreed
over a certain contracting period. In these circumstances, we find that the Panel did not err in its
application of Article 1.1(b) of the SCM Agreement in finding that the corporate borrowing rate
component of the market benchmark could be based on the average yields of the EADS bond
"one-month prior and six -months prior to the conclusion " of the French, German, Spanish,
and UK A350XWB LA/MSF contracts, "in the form of a range", attributing more weight to the
former average yields than it did to the latter.2111
6.6. Moreover, we reject the European Union's claim that the Panel acted inconsistently with
Article 11 of the DSU because it lacked a sufficient evidentiary basis for rejecting the EADS bond
yield on the day of conclusion of each A350XWB LA/MSF contract. In addition, the European Union
has not established that the Panel's decision to set the corporate borrowing rate in the form of a
range of average yields, or the fact that such decision was done against the background of a
downward trend in the yield of the EADS bond, reflects a lack of objectivity and even -handedness
contrary to the requirements of Article 11 of the DSU. Consequently, we find that the
European Union has failed to establish that the Panel acted inconsistently with its obligations under
Article 11 of the DSU.
6.7. We also reject the European Union's alternative claims that the Panel erred in its application
of Article 1.1(b) of the SCM Agreement and acted inconsistently with Article 11 of the DSU by
accepting the average yield of the EADS bond over the six months prior to the conclusion of the
French, German, Spanish, and UK A350XWB LA/MSF contracts as part of the range of average
yields that was used to determine the corporate borrowing rate. Although the corporate borrowing
rate was determined in the form of a range of average yields, the Panel rightly gave more
prominence to the one -month average yield of the EADS bond than to the six -month average
yield, which was considered only to be a "helpful indication of market expectations". 2112 In these
circumstances, we find that the European Union has failed to establish that the Panel erred in its
application of Article 1.1(b) of the SCM Agreement or acted inconsistently with Article 11 of the
DSU by deciding to observe the EADS bond yield on the basis of the average yields one month
prior and six months prior to the conclusion of each of the four A350XWB LA/MSF contracts, in the
form of a range, attributing more weight to the former average yields than it did to the latter.
a. For these reasons, we uphold the Panel's finding, in paragraph 6.389 of the
Panel Report, that the corporate borrowing rate component of the market benchmark be
based on "the average yields one -month prior and six-months prior to the conclusion of
the {French, German, Spanish, and UK A350XWB LA/MSF contracts}, in the form of a
range". We also uphold the Panel's findings related to the corporate borrowing rate i n
Table 7 at paragraph 6.430 and in Table 10 at paragraph 6.632 of the Panel Report.2113

2109 Panel Report, para. 6.389.
2110 Panel Report, para. 6.389.
2111 Panel Report, para. 6.389.
2112 Panel Report, para. 6.389.
2113 See supra fns 330 and 514.

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6.3.2 The calculation of project-specific risk premium
6.8. We disagree with the European Union's claim that " the Panel failed to adopt the most
appropriate benchmark, tailored to t he risks associated with the A350XWB, based on a
'progressive search' for the benchmark that shared 'as many elements as possible in common with'
the A350XWB LA/MSF loans."2114 We also disagree that the Panel erred under Article 1.1(b) of the
SCM Agreement merely because it applied a single, undifferentiated project risk premium derived
from the A380 project to the A350XWB project . Moreover, given that we addressed and rejected
the European Union's claim that the Panel erred under Article 1.1(b) by failing t o undertake a
"progressive search" for a market benchmark 2115, we consider it unnecessary to address further
the European Union's claim that the Panel acted inconsistently with Article 11 of the DSU by failing
to consider alternative, and more appropriate, be nchmarks than those proposed by the
United States. In addition, we disagree with the European Union's claim that the Panel acted
inconsistently with Article 11 of the DSU because it allegedly deviated from the original panel's
findings by adopting a "constant, undifferentiated project risk premium " for the A350XWB. 2116
Consequently, we find that the European Union has not established that the Panel erred in its
application of Article 1.1(b) of the SCM Agreement . We also find that the European Union has
failed to establish that the Panel acted inconsistently with Article 11 of the DSU.
6.9. We also disagree with the European Union's claim that the Panel acted inconsistently with
Article 11 of the DSU in its examination of the risk profiles of the A380 and A350XWB pro jects,
including in its assessment of: (i) programme risk; (ii) contract risk; and (iii) the price of risk.
Contrary to the European Union's view, the Panel did not simply assume that the WRP would serve
as an appropriate project-specific risk premium for the A350XWB. Instead, the Panel assessed the
relative project-specific risks associated with the A380 and A350XWB projects. The purpose of this
comparative analysis was, in the Panel's view, to determine "whether the United States ha{d}
demonstrated that t he project -specific risks of the A350XWB programme {were} sufficiently
similar to those of the A380 programme such that it would be reasonable to conclude that the WRP
could be used as the project -specific risk premium for the A350XWB". 2117 Thus, the Panel so ught
to engage carefully with the arguments and evidence presented by the parties regarding the
possible risk premia that should be used in constructing the market benchmark. Regarding the
Panel's analysis of programme risk, we find that the European Union has failed to establish that
the Panel acted inconsistently with its obligations under Article 11 of the DSU in its analysis of
development risk, market risk, or in its comparison of the dev elopment and market risks.
With regard to contract risk, we find that the European Union has failed to establish that the
Panel's comparison of the A350XWB and A380 LA/MSF contracts lacks a sufficient evidentiary basis
in a manner inconsistent with the requirements of Article 11 of the DSU. We also find that the
European Union has failed to establish that the Panel acted inconsistently with Article 11 of the
DSU by failing to compare the terms of the A350XWB LA/MSF contracts to the terms of the A380
risk-sharing supplier contracts. Finally, we find that the European Union has failed to establish that
the Panel acted inconsistently with Article 11 of the DSU in its analysis of the price of risk.
6.10. We also reject the European Union's claims that, in adopting a single , undifferentiated
project-specific risk premium for each of the four A350XWB LA/MSF contracts, the Panel erred in
its application of Article 1.1(b) of the SCM Agreement, and also failed to make an objective
assessment of the matter as required by Article 11 of the DSU.2118 The Panel recognized that there
were some differences among the risk profiles of the four A350XWB LA/MSF contracts. 2119
However, based on its analysis, the Panel was not persuaded that the terms of those contracts
rendered them significantly different so as to require the application of two or more different
project-specific risk premia in th ese proceedings. Given the Panel's analysis and the arguments
that were put before it, we find that the European Union has not established that the Panel erred
under Article 1.1(b) of the SCM Agreement by ap plying a "single, undifferentiated project risk

2114 European Union's appellant's submission, para. 405 (quoting Appellate Body Report,
US ‒ Anti-Dumping and Countervailing Duties (China), paras. 476 and 486; referring to Appellate Body Report,
2115 See section 5.3.2.2.1 of this Report.
2116 European Union's appellant's submission, para. 423.
2117 Panel Report, para. 6.459.
2118 European Union's appellant's submission, paras. 517-518.
2119 Panel Report, para. 6.604.

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premium" without making adjustments for differences among the risk profiles of the A350XWB
LA/MSF contracts. 2120 Moreover, contrary to the European Union's claim under Article 11 of
the DSU, we see no error in t he Panel's decision to adopt, on the one hand, an undifferentiated
project-specific risk premium for the four A350XWB LA/MSF contracts and, on the other hand, a
contract-specific approach to the corporate borrowing rate. Thus, we find that the European Union
has failed to establish that, by applying a single, undifferentiated project risk premium to all four
of the A350XWB LA/MSF contracts, the Panel acted inconsistently with Article 11 of the DSU.
a. For these reasons, we uphold the Panel's finding, in paragr aphs 6.487 and 6.542 of the
Panel Report, that the development risks associated with the A350XWB were at least as
high as, or sufficiently similar to, those associated with the A380; the Panel's findings, in
paragraphs 6.579 and 6.608 of the Panel Report, that the market risks experienced by
the A380 and A350XWB were overall comparable in importance and that the A350XWB
market risks would not have been much lower than the A380 market risks; the Panel's
finding, in paragraphs 6.595 and 6.609 of the Panel Rep ort, that the A350XWB LA/MSF
contracts containing such "risk-reducing" terms are no less risky than at least [BCI] for
A380 LA/MSF that also contained similar terms in the original proceedings; the Panel's
findings, in paragraphs 6.607 and 6.609 of the Pan el Report, that it was not persuaded
that the differences in certain terms affecting the risk profiles of the individual A350XWB
LA/MSF contracts would require the application of two or more different project -specific
risk premia; and, conseq uently, the Pa nel's finding, in paragraphs 6.608 and 6.610 of
the Panel Report, that the overall project -specific risks of the A380 and A350XWB
projects were sufficiently similar to allow the risk premium applied to the A380 LA/MSF
in the original proceedings to be applied to the A350XWB LA/MSF.
b. Accordingly, we uphold the Panel's findings, in paragraphs 6.632 (including Table 10)2121
and 6.633 of the Panel Report, that Airbus paid a lower interest rate for the A350XWB
LA/MSF than would have been available to it on the marke t and, consequently, a benefit
has thereby been conferred within the meaning of Article 1.1(b) of the SCM Agreement.
Consequently, we also uphold the Panel's findings, in paragraphs 6.656 and 7.1.c.i of the
Panel Report, that the French, German, Spanish, a nd UK A350XWB LA/MSF contracts
each constitute a subsidy within the meaning of Article 1.1 of the SCM Agreement and,
thus, that the United States has demonstrated that the French, German, Spanish, and
UK A350XWB LA/MSF contracts are specific subsidies with in the meaning of Articles 1
and 2 of the SCM Agreement.
6.4 Article 7.8 of the SCM Agreement
6.11. We find that the obligation to "take appropriate steps to remove the adverse effects or …
withdraw the subsidy" concerns the subsidies that are "grant{ed} or maintain{ed}" by the
implementing Member at the end of the implementation period. An implementin g Member cannot
be required to withdraw a subsidy that has ceased to exist. Nor do we see a basis, under
Article 7.8 of the SCM Agreement, to require that an implementing Member "take appropriate
steps to remove the adverse effects" of subsidies that no longer exist.
a. Accordingly, we reverse the Panel's interpretation of Article 7.8 of the SCM Agreement,
in paragraph 6.822 of the Panel Report , whereby an implementing Member would be
required to "withdraw" or "take appropriate steps to remove the adverse effects" of past
subsidies irrespective of whether such subsidies have expired prior to the end of the
relevant implementation period. It follows from our finding that, in the present dispute,
the European Union has no compliance obligation with respect to subsidies t hat had
expired before 1 December 2011.
6.5 Conditional appeals under Article 7.8 of the SCM Agreement
6.12. We find that an ex ante analysis regarding the benefit of a subsidy serves as the starting
point of the analysis to determine whether a subsidy continues to exist at the end of the

2120 European Union's appellant's submission, para. 522.

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implementation period. For such a determination, it is also necessary to conduct an analysis
regarding "whether there are 'intervening events' that occurred after the grant of the subsidy that
may affect the projected value of the subsidy as determined under the ex ante analysis."2122
We further find that the Panel's ultimate conclusion regarding the actual duration of relevant
pre-A380 LA/MSF subsidies was based on a proper analysis of both the expiry of the ex ante
"lives" of the subsidies and the alleged intervening events after the granting of the subsidies.
We consider this to be consistent with the Appellate Body's approach in the original proceedings,
whereby the assessment of the "life " of a subsidy should encompass both an ex ante analysis and
an evaluation of intervening events.
a. For these reasons, we uphold the Panel's finding, in paragraphs 6.879 , 6.1076,
and 7.1.d.ii of the Panel Report, that the European Union had demonstrated tha t the
ex ante "lives" of the French, German, and Spanish LA/MSF subsidies for the
A300B/B2/B4, A300-600, A310, A320, and A330/A340, and the UK LA/MSF subsidies for
the A320 and A330/A340, "expired" before 1 June 2011.
6.13. We see no reason to make additional findings on whether the French LA/MSF for
the A310-300, the French and Spanish LA/MSF for the A300B/B2/B4 and A300 -600, and the
French, Spanish, and UK LA/MSF for the A320 and A330/A340 also came to an end due to the
actual repayment of the loans with inte rests. We do not consider such findings to be necessary to
resolve this dispute.
6.6 European Union's consequential appeal under Article 7.8 of the SCM Agreement
6.14. We disagree with the European Union that it necessarily follows from the manner in which
the Panel characterized the scope of the compliance obligation under Article 7.8 of the
SCM Agreement that the Panel's findings of adverse effects must be reversed for each of the
specific country and product markets with respect to which the United States brought its claims.
We note that the Panel's adverse effects analysis led to its final conc lusion, in paragraph 7.2 of
the Panel Report, that "the European Union and certain member States have failed to comply with
the DSB recommendations and rulings and, in parti cular, the obli gation under Article 7.8 of
the SCM Agreement 'to take appropriate steps to remove the adverse effects or … withdraw the
subsidy'." In our view, whether the Panel had a sufficient basis for this ultimate conclusion is a
question that can onl y be answered following a careful review of the Panel's reasoning and
analysis, in particular its analysis relating to the adverse effects of the existing LA/MSF subsidies
that are maintained or granted in the post-implementation period.
6.15. Thus, we do not d ismiss the totality of the Panel's adverse effects analysis solely on the
basis of its interpretation of Article 7.8 of the SCM Agreement. Rather, we do not preclude that the
pertinent question in these compliance proceedings – i.e. whether the subsidies e xisting in the
post-implementation period cause adverse effects – may still be answered on the basis of the
Panel's analysis of the existing subsidies. A consideration of expired subsidies is relevant for this
purpose insofar as it sheds light on whether L A/MSF subsidies granted or maintained by the
European Union in the post-implementation period cause adverse effects.
6.7 Articles 5, 6, and 7.8 of the SCM Agreement – adverse effects
6.7.1 Non-subsidized like product
6.16. Regarding the European Union's arguments concern ing the relevance of Article 6.4 of the
SCM Agreement to the United States' claims under Article 6.3(b) of the SCM Agreement, the Panel
was required to examine the meaning of Article 6.3(b), including the relationship between this
provision and Article 6.4, as clarified by the Appellate Body in the original proceedings in this
dispute and in US ‒ Large Civil Aircraft (2 nd complaint). It was also appropriate for the Panel to
take into account the findings and reasoning by the original panel regarding the mea ning of
Article 6.4. The Panel could not simply refuse to address the arguments and evidence before it in
dealing with the United States' claims under Article 6.3(b). Rather, the Panel was required to

2122 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 709.

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adjudicate the United States' claims under Article 6.3(b) in light of the arguments raised and
evidence submitted by both parties to the dispute, and it erred by declining to do so.
a. Accordingly, we declare moot and of no legal effect the Panel's finding ,
in paragraph 6.1154 of the Panel Report , concerning the European Union's reliance on
Article 6.4 to reject the United States' claims under Article 6.3(b) of the SCM Agreement.
Based on our interpretation of Article 6.3(b), read together with Article 6.4, we disagree,
however, with the European Union that a com plainant is required to demonstrate,
in each case, that its like product is non -subsidized in order to show that the effect of
the subsidy is displacement and/or impedance of its like product in a
third country market.
6.7.2 The relevant product markets
6.17. Regarding the term "market" in Article 6.3 of the SCM Agreement, for the purposes of
conducting an adverse effects analysis, two products are in the same market if they are sufficiently
substitutable and they exercise "meaningful" competiti ve constraints o n each other.
A consideration of quantitative tools and evidence may assist a panel in defining the relevant
product markets and in answering the question of whether products exercise meaningful
competitive constraints on each other and are sufficiently su bstitutable to fall in the same product
market. However, like the Panel, we do not see a reason to preclude that a careful scrutiny of
qualitative evidence may also be sufficient provided that it permits an informative and meaningful
analysis of the releva nt product markets. Depending on the particul arities of a given case,
it may be sufficient for a panel to examine qualitative evidence r egarding demand -side and
supply-side substitutability, product characteristics, end -uses, and customer preferences in or der
to reach a conclusion as to the nature and degree of competition between two products.
6.18. Having reviewed the Panel's analysis of competition in the single -aisle LCA, twin-aisle LCA,
and VLA product markets, we are satisfied that the Panel's identificati on of the product markets in
the present dispute was based on a proper analysis of the competition among the relevant
products, which the Panel found to demonstrate sufficient substitutability, in accordance with the
standard articulated by the Appellate B ody in the original proceedings. We are also satisfied that
the Panel's analyses identifying the single -aisle LCA, twin -aisle LCA, and VLA product markets
reflect a proper reading of the term "market" and we do not agree with the European Union to the
extent that it argues that the Panel erred in its interpretation of the term "market" in Article 6.3 of
the SCM Agreement.
a. Accordingly, we uphold the Panel's finding, in paragraph 6.1416 of the Panel Report, that
the United States had brought its adverse effec ts claims with respect to appropriately
defined product markets for LCA, namely, the global mar kets for single -aisle LCA,
twin-aisle LCA, and VLA.
6.7.3 "Product effects" of LA/MSF subsidies on Airbus LCA
6.19. The errors alleged by the European Union regarding the P anel's findings on the
"product effects" of the pre -A350XWB LA/MSF subsidies on the market presence of the A320 and
A330 families of Airbus LCA concern primarily the LA/MSF subsidies that were found by the Panel
to have expired before the end of the implementation period – namely, the subsidies for the A300,
A310, A320, A330, and A340. We recall that, under our interpret ation of Article 7.8 of
the SCM Agreement, the European Union does not bear a compliance obligation with respect to the
subsidies that were found by the Panel to have expired by the end of the implementation period.
Thus, to the extent that some subsidies have expired, a further examination of the removal of the
effects of those subsidies would not be necessary. In other words, it is not perti nent to examine
whether the Panel's findings on the "product effects" of the expired subsidies can support its
ultimate conclusion of non -compliance under Article 7.8 of the SCM Agreement. In line with this
view, we do not consider it necessary to make sep arate findings on the European Union's claims
on appeal insofar as they concern the Panel's alleged failure to assess properly the passage of time
and the events during that time in reaching its findings on the "product effects" of the expired

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subsidies. In addition, we disagree with the Panel insofar as its reference to the aggregated
LA/MSF subsidies in the above findings includes the expired subsidies.2123
6.20. Rather, as we have explained above, the pertinent question for purposes of these
compliance proceeding s is whether the subsidies exist ing in the post -implementation period
(i.e. after 1 December 2011) cause adverse effects. The Panel found, and the European Union
does not disagree, that the French, German, Spanish , and UK A380 LA/MSF subsidies had not
expired by the end of the implementation period. Furthermore, the Panel found that, subsequent
to the original reference period (2001 -2006), the European Union granted new LA/MSF subsidies
to Airbus for developing its A350XWB family of LCA, and tha t these subsidies were
"closely connected" with the adopted recommendations and rulings of the DSB and the
European Union's alleged compliance "actions". Given the scope of these compliance proceedings,
we have therefore focused our review on the Panel's analysis and findings regarding the effects of
subsidies existing in the post -implementation period – namely, the A380 LA/MSF and the
A350XWB LA/MSF subsidies – and the European Union's appeal thereof, to determine whether
those findings support the Panel's ultimate conclusion regarding serious prejudice.
6.21. As part of our analysis above, we have disagreed with the European Union's claim under
Article 11 of the DSU that the Panel's understanding of the "direct effects" of A380 LA/MSF on
Airbus' ability to launch, brin g to market, and continue developing the A380 as and when it did
lacks sufficient evidentiary basis. Furthermore, we have found that the European Union has failed
to establish that the Panel acted inconsistently with Article 11 of the DSU in reaching its conclusion
that, "without A350XWB LA/MSF, the Airbus company that actually existed {in 2006-2010} could
have pursued such a programme only by a narrow margin, with a hi gh likelihood that it would,
to some degree, have had to make certain compromises with re spect to the pace of the
programme and/or the features of the aircraft." 2124 We have also rejected the European Union's
claim that the Panel erred in finding that the A380 LA/MSF subsidies had "indirect effects" on
the A350XWB.
6.22. The findings by the Panel on the issues surrounding the Original A350 and the launch of the
A350XWB, together with its findings on the severe implications of the extensive delays with the
A380 programme, establish that Airbus was faced with considerable overall uncertainty in the
years following the original reference period. Moreover, the original panel's findings, together with
the Panel's analysis, indicate that A380 LA/MSF had "direct effects" on Airbus' ability to launch,
bring to market, and continue developing the A380 as and whe n it did, given that the
A380 LA/MSF subsidies had not expired, as well as the fact that Airbus continued to receive
disbursements under the French, German, and Spanish LA/MSF contracts at a time when it was
experiencing severe financial difficulties resul ting from the extensiv e production delays in the
A380 programme. The Panel's findings regarding the "direct effects" of the A350XWB LA/MSF, read
together with its findings concerning the "indirect effects" of the A380 LA/MSF, also indicate that,
without th e aggregated "product effects" of the existing LA/MSF subsidies for the A380 and
A350XWB programmes, Airbus would not have been able to launch the A350XWB as and when it
did. In other words , the existing LA/MSF subsidies that Airbus continued to receive ma de it
possible to proceed with the timely launch of the A350XWB – a high -risk and expensive
programme of considerable strategic importance to Airbus – and to bring to market the A380,
which had suffered extensive delays.
6.23. In sum, our discussion of the Panel's findings reveals that the LA/MSF subsidies existing in
the post -implementation period – i.e. the A380 and the A350XWB LA/MSF subsidies – enabled
Airbus to proceed with the timely launch and development of the A350XWB, and to bring to
market and to continue developing the A380. Both these events were crucial to renew and sustain
Airbus' competitiveness in the post-implementation period.

2123 Having said that, we recall that the expired subsidies remain relevant as part of a matrix of analysis
that seeks to identify the effects of the subsidies existing in the post-implementation period, in respect of
which the European Union continues to have a compliance obligation. Findings from the original proceedings
concerning the design, structure, and operation of the expired subsidies, as well as how those subsidies
affected Airbus' operations until the end of 2006, can help in understanding the extent to which the existing
subsidies may cause adverse effects in the post-implementation period.

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6.7.4 Lost sales, displacement, and impedance
6.24. We recall that "displacement or impedance" would arise where the counterfactual analysis
shows that the sales of the complaining Member would have declined less or would have been
higher in the absence of the challenged subsidy. We understand the Panel to have sought to apply
this framework when it turned to assess whether the volume of deliveries and market shares that
"would have been achieved by the United States' LCA industry between 1 December 2011 and the
end of 2013 would have been higher than its actual level in all relevant product markets"2125 in the
absence of the "product effe cts" of the LA/MSF subsidies. We further consider that the Panel's
finding that "the United States has established that the 'product' effects of the challenged LA/MSF
subsidies are a 'genuine and substantial' cause of displacement and/or impedance of United States
LCA"2126 in the relevant geographic markets for single -aisle LCA, twin -aisle LCA, and VLA is
informed by the manner in which the United States framed its claims. We do not read the Panel's
use of the term "displacement and/or impedance" when summing up its serious prejudice findings
regarding the relevant markets at issue as suggesting that the Panel found the existence of these
serious prejudice phenomena in an undifferentiated manner with respect to one and the same
product and country market. There fore, contrary to what the European Union appears to suggest,
it does not necessarily follow from the Panel's use of the term "displacement and/or impedance"
that the Panel treated "displacement" and "impedance" as interchangeable and indistinguishable
concepts for purposes of its adverse effects analysis.
6.25. We recall our finding that the Panel's assessment of the relevant product markets in these
compliance proceedings was based on a proper analysis of the nature and degree of competition
between products t hat the Panel found to demonstrate sufficien t substitutability. However,
an assessment of the nature and degree of competition in the relevant product market(s) does
not, in and of itself, answer the question of whether the subsidies existing in the
post-implementation period are a genuine and substantial cause of adverse effects in the
relevant market(s).
6.7.4.1 The single-aisle LCA market
6.26. With regard to the single -aisle LCA market, the Panel's findings regarding the
"product effects" of LA/MSF subsidies on the market presence of the A320 concerned primarily the
effects of those subsidies that had expired prior to the end of the implementation period. We have
found, however, that the European Union has no compliance obligation in respect of those expired
subsidies. Rather, the pertinent question is whether the subsidies existing in the
post-implementation period (i.e. after 1 December 2011) cause adverse effects, such that the
European Union has failed to comply with its obligat ion under Article 7.8 of the SCM Agreement to
"take appropriate steps to remove the adverse effects". We do not find any analysis by the Panel
as to whether, and to what extent, Airbus' competitiveness in the single -aisle LCA market, gained
through the pre-A380 LA/MSF subsidies, was renewed and sustained beyond the original reference
period as a result of the subsidies that the European Union maintained or granted in the
post-implementation period.
6.27. Thus, we are not convinced that, insofar as the single-aisle LCA market is concerned, the
Panel's analysis provides a sufficient basis to sustain its conclusion, in paragraph 6.1798 of the
Panel Report, that "the orders identified in Table 19 {in the single -aisle LCA market} represent
'significant' 'los t sales' to the United States LCA industry and, therefore, that the challenged
LA/MSF subsidies continue to be a 'genuine and substantial' cause of serious prejudice to the
United States within the meaning of Article 6.3(c) of the SCM Agreement". Similarly , we are not
convinced that, with regard to the various country markets for single -aisle LCA, the Panel's
analysis is sufficient to sustain its conclusion, in paragraph 6.1817 of the Panel Report, that "the
challenged LA/MSF subsidies are a 'genuine and su bstantial' cause of displacement and/or
impedance of United States LCA in the markets for single -aisle LCA in the European Union,
Australia, China and India".

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a. We therefore reverse the above conclusions of the Panel under Articles 6.3(a), 6.3(b),
and 6.3(c) of the SCM Agreement insofar as they relate to the single-aisle LCA market.
6.28. Having so found, we do not consider it necessary for us to address the European Union's
additional arguments described in paragraph 5.703 of this Report.
6.29. We further find that we are unable to complete the legal analysis of the United States'
claims of "displacement and/or impedance" in the single -aisle LCA markets in Australia, China,
and India, and impedance in the single -aisle LCA market in the European Union , or , in the
alternative, threat of displacement and impedance in that market.
6.7.4.2 The twin-aisle LCA market
6.30. With regard to lost sales in the twin -aisle LCA market, our review of the Panel's finding on
the product effects of LA/MSF subsidies on the A350XWB indicates that, in the absence of the
LA/MSF subsidies existing in the post -implementation period (i.e. after 1 December 2011) , Airbus
would not have been able to offer the A350XWB at the time it did and with the features it had.
The Panel's finding that the sales of the A350XW B in the post -implementation period constituted
"lost sales" to the US LCA industry within the meaning of Article 6.3(c) of the SCM Agreement is
also supported by relevant Panel findings regarding the competitive dynamics between Boeing's
and Airbus' respe ctive product offerings in the twin -aisle LCA market. Furthermore, we are not
convinced by the European Union's argument that the Panel failed to take into account
market-specific and sale-specific non-attribution factors.
6.31. Therefore, the Panel's findings s upport the conclusion that the sales of the A350XWB
identified in Table 19 of the Panel Report represent "significant lost sales" to the US LCA industry
within the meaning of Article 6.3(c) of the SCM Agreement, and that such lost sales were the
effect of the LA/MSF subsidies existing in the post -implementation period. This conclusion also
finds support in the analytical framework adopted by the panel and the Appellate Body in the
original proceedings, as well as in a number of the Panel's findings, including its finding concerning
the "product effects" of the LA/MSF subsidies existing in the post-implementation period on Airbus'
timely launch of the A350XWB, and the existence of sufficient substitutability between Boeing' s
and Airbus' twin -aisle product off erings. In light of our interpretation of Article 7.8 of the
SCM Agreement, however, we disagree with the Panel's conclusion on "significant lost sales" in the
twin-aisle LCA market to the extent that its conclusion was based on the effects of the challenged
LA/MSF subsidies that the Panel found to have expired.
a. Accordingly, we modify the Panel's conclusion in paragraph 6.1798 of the Panel Report,
and find instead that the orders identified in Table 19 of the Panel Report in the
twin-aisle LCA market represent " significant lost sales " to the US LCA industry and,
therefore, that the LA/MSF subsidies existing in the post -implementation period are a
genuine and substantial cause of serious prejudice to the United States within the
meaning of Article 6.3(c) of the SCM Agreement.
6.32. With regard to displacement and impedance in the twin -aisle LCA market, we note that,
according to the Panel, the LA/MSF subsidy for the A330 -200 expired no later than [BCI],
i.e. in the post-implementation period. We note, however, that the original panel found that it was
likely that the A330 -200 could have been launched even in the absence of the specific LA/MSF
granted in respect of that programme because it was a derivative of the A330 and, therefore,
required a comparatively small am ount of funding to develop. Moreover, unlike for the A380 and
A350XWB LA/MSF subsidies, there are no specific findings by the Panel relating to the issue of
whether and how the "product effects" of the A330 -200 LA/MSF subsidy continued beyond 2006
and into the post-implementation period. Our review of the Panel's finding on the "product effects"
of LA/MSF subsidies on the A350XWB indicates that, in the absence of the LA/MSF subsidies for
the A380 and A350XWB existing in the post -implementation period, Airbu s would not have been
able to offer the A350XWB at the time it did and with the features it had. We further recall the
Panel's finding that Airbus' A350XWB product offering was in direct competiti on with Boeing's
twin-aisle LCA.
6.33. We note, however, that the United States framed its claim of displacement and/or
impedance in the twin -aisle LCA market on the basis of data concerning market shares and

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deliveries of Airbus and Boeing LCA during the period 2001-2013. There were no deliveries of the
A350XWB during that period. Thus, for purposes of the claim of displacement and/or impedance in
the twin -aisle LCA market, the Panel relied on market shares and delivery data relating to the
A330, rather than orders of the A350XWB, in making its finding. We recall, in this regard, that the
Panel's findings regarding the "product effects" of LA/MSF subsidies on the A330 concerned
primarily the effects of those subsidies that had expired. We have found, however, that the
European Union has no compliance obligation in respect of those expired subsidies. Rather,
the pertinent question is whether the subsidies existing in the post -implementation period cause
adverse effects, such that the European Union has failed to comply with its obligations under
Article 7.8 of the SCM Agreement to "take appropriate steps to remove the adverse effects".
However, given the way the claims of displacement and/or impedance were raised before the
Panel and its approach to assessing these claims, th e Panel did not explore, and made no findings
on, the issue of whether and , if so, how the A380 and A350XWB subsidies existing in the post -
implementation period may have contributed to the deliveries of the A330 occurring during that
period. In these circumstances, we are not convinced that the Panel's analysis and findings provide
a sufficient basis to sustain the conclusion that the effect of the LA/MSF subsidies existing in the
post-implementation period was to displace or impede US LCA in the twin -aisle LCA market in the
European Union and relevant third country markets.
a. Accordingly, we reverse the Panel's conclusion, in paragraph 6.1817 of the Panel Report,
that "the United States ha{d} established that the 'product' effects of the challenged
LA/MSF sub sidies are a 'genuine and substantial' cause of displacement and/or
impedance of United States LCA in the markets for … twin -aisle LCA in the
European Union, China, Korea and Singapore".
6.34. Having done so, we see no further reason to address the European Union's additional
arguments regarding the Panel's conclusion, as set out in paragraph 5.703 of this Report.
6.35. We further find that we are unable to complete the legal analysis of the United States'
claims of displacement in the twin -aisle LCA markets in C hina, Korea, and Singapore,
and impedance in the twin-aisle LCA markets in the European Union, China, Korea, and Singapore.
6.7.4.3 The VLA market
6.36. With regard to lost sales in the VLA market, our review of the Panel's findings, as well as the
relevant findings from th e original proceedings , indicates that, in the absence of the LA/MSF
subsidies existing in the post -implementation period (i.e. after 1 December 2011) , Airbus would
not have been able to offer the A380 at the time it did. Moreover, the Panel's analysis reg arding
the conditions of competition in the VLA market confirms that Airbus' and Boeing' s respective VLA
products – the A380 and 747 – are sufficiently substitutable with each other. Such competitive
dynamics, in our view, provide further support to the pr oposition that the sales won by Airbus in
the VLA market were at the expense of the US LCA producer. Finally, like the Panel, we have
doubts as to whether Airbus' pre -existing commonality advantages and other product -related
advantages over Boeing could be characterized as non -attribution factors that could be said to
"dilute" the causal link between the LA/MSF subsidies existing in the post -implementation period
and the relevant market phenomena.
6.37. Therefore, the Panel's findings support the conclusion that the sales of the A380 identified in
Table 19 of the Panel Report represent "significant lost sales" to the US LCA industry within the
meaning of Article 6.3(c) of the SCM Agreement, and that such lost sales were the effect of the
LA/MSF subsidies existing in the post-implementation period. This conclusion also finds support in
the analytical framework adopted by the panel and the Appellate Body in the original proceedings,
as well as in a number of the Panel's findings, including its finding concerning the "product effects"
of the LA/MSF subsidies existing in the post-implementation period on Airbus' continued offering of
the A380, and the existence of sufficient substitutability between Boeing' s and Airbus' VLA product
offerings. In light of our interpretat ion of Article 7.8 of the SCM Agreement, however, we disagree
with the Panel's conclusion on "significant lost sales" in the VLA market to the extent that its
conclusion was based on effects of challenged LA/MSF subsidi es that the Panel found to
have expired.

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a. Accordingly, we modify the Panel's conclusion in paragraph 6.1798 of the Panel Report,
and find instead that the orders identified in Table 19 of the Panel Report in the VLA
market represent "significant lost sales" to the US LCA industry and, therefor e, that the
LA/MSF subsidies existing in the post -implementation period continue to be a genuine
and substantial cause of serious prejudice to the United States within the meaning of
Article 6.3(c) of the SCM Agreement.
6.38. With regard to displacement and impe dance in the VLA market, our review of the Panel's
findings, as well as the relevant findings from the original proceedings, indicates that, in the
absence of the LA/MSF subsidies existing in the post -implementation period, Airbus would not
have been able to offer the A380 at the time it did. We also recall that, as the Panel's analysis of
the competitive dynamics in the VLA market shows, Boeing's and Airbus' respective product
offerings – the 747 and the A380 – are sufficiently substit utable. With respect to the
non-attribution factor alleged by the European Union concerning the development and production
delays affecting the 747 -8, we note the Panel's observation that the larger versions of
the 777 may also at times challenge for sales in the VLA market. T herefore, we see no reason to
disturb the Panel's finding that this non -attribution factor would not be capable of diluting the
genuine and substantial relationship of cause and effect between the LA/MSF subsidies and the
alleged market phenomena.
6.39. We recal l that a trend analysis may be relevant and indicative, although not necessarily
determinative, for purposes of a finding of displacement. In reaching its finding of displacement,
however, the Panel did not examine whether there existed any discernible tre nds in volumes and
market shares in the VLA markets at issue, including whether or not there existed declining trends
that could have supported the Panel's findings. In these circumstances, we consider that the Panel
should have engaged with the evidence b efore it in order to explain sufficiently the basis for its
finding that the LA/MSF subsidies had the effect of displacing US LCA in these VLA markets in the
post-implementation period.
a. Accordingly, insofar as displacement in the VLA market is concerned, we disagree with
the Panel to the extent that it found, in paragraph 6.1817 of the Panel Report, that
"the United States ha{d} established that the 'product' effects of the challenged LA/MSF
subsidies are a 'genuine and substantial' cause of displacement … of United States LCA in
the markets for … {VLA} in the European Union, Australia, … Korea, {and} Singapore".
6.40. We further find that we are unable to complete the legal analysis of the United States' claim
of displacement in the VLA markets in the European Union, Australia, Korea, and Singapore.
6.41. As for the finding of impedance, we recall that the phenomenon of impedance refers to
situations where the exports or imports of the like product of the complaining Member would have
expanded had they not been "obstructed" or "hindered" by the subsidized product. Given the
particular nature of the LCA industry, especially for VLA like the Boeing 747-8 and the
Airbus A380, where instances of sales and volumes of deliveries are generally much lower than in
the case of c onsumer goods, we do not consider that the volumes of deliveries that the Panel
considered could not have supported a finding of impedance. We further recall that our review of
the Panel's findings with respect to the A380 and A350XWB programmes, as well a s relevant
findings from the original proceedings, indicates that, in the absence of the LA/MSF subsidies
existing in the post -implementation period, Airbus would not have been able to offer the A380 at
the time it did. Moreover, as the Panel's analysis of the competitive dynamics in the VLA market
shows, Boeing's and Airbus' respective product offerings – the 747 -8 and the A380 – are
sufficiently substitutable. Thus, contrary to the situation regardin g alleged impedance in the
twin-aisle LCA market, the "p roduct effects" of the LA/MSF subsidies e xisting in the
post-implementation period, including the A380 LA/MSF subsidies, and the VLA delivery data
underlying the United States' claim, concern the same aircraft model, and, as explained above, the
Panel made necessary findings on both "product effects" and delivery data. On the basis of these
considerations, and in light of the deliveries of the A380 in the post-implementation period, we see
no error in the Panel's conclusion that , absent the LA/MSF subsidies , the US LCA industry would
have achieved a higher volume of deliveries and market share than its actual level in the
post-implementation period.

- 267 –

6.42. Therefore, the Panel's findings reviewed above support the conclusion that the effect of the
LA/MSF subsidies existing in the post-implementation period is impedance of US VLA in
the VLA markets in the European Union, Australia, China, Korea, Singapore, and the
United Arab Emirates. This conclusion also finds support in the analytical framework adopted by
the panel and the Appellate Body in the original proceedings, as well as in a number of the Panel's
findings, including its finding concerning the "product effects" of the LA/MSF subsidies existing in the
post-implementation period on Airbus' continued offering of the A380, and the existence of
sufficient substitutability between Boeing's and Airbus' VLA product offerings. In light of our
interpretation of Article 7.8 of the SCM Agreement, however, we disagree
 with the Panel's
conclusion on impedance in the VLA market to the extent that its conclusion was based on the
effects of the challenged LA/MSF subsidies that the Panel found to have expired.
a. Accordingly, we modify t he Panel's conclusion in paragraph 6.1817 of the Panel Report,
and find instead that the United States has es tablished that the "product effects" of the
LA/MSF subsidies existing in the
post-implementation period are a genuine and
substantial cause of impedance of US LCA in the VLA markets in the European Union,
Australia, China, Korea, Singapore, and the United Arab Emirates.
6.43. On the basis of the above, in respect of subsidies existing in the post-implementation
period, we uphold, alb
eit for different reasons, the Panel's conclusions:
a. in paragraph 7.2 of the Panel Report, that "{b}y continuing to be in violation of
Articles 5(c) and 6.3(a), (b) and (c) of the SCM Agreement" insofar as the twin-aisle LCA
and VLA markets are concerned, "the European Union and certain member S tates have
failed to comply with the DSB recommendations and rulings and, in particular, the
obligation under Article 7.8 of the SCM Agreement 'to take appropriate steps to remove
the adverse effects or … withdraw the subsidy'"; and
b. in paragraph 7.4 of the Panel Report, that "the European Union and certain member
States have failed to implement the recommendations and rulings of the DSB to bring its
measures into conformity with its obligations under the SCM Agreement" and that,
"{t}o the extent that the European Union and certain member States ha ve failed to
comply with the recommendations and rulings of the DSB in the original dispute, those
recommendations and rulings remain operative."
6.44. The Appellate Body recommends that the DSB request the European Union to bring
its measures found in this Report, and in the Panel Report as modified by this Report, to
be
inconsistent with the SCM Agreement into conformity with its obligations under that Agreement.
Signed in the
original in Geneva this 8th day of May 2018 by:
Ricardo Ramírez-Hernández
Presiding Member
 _________________________ _________________________
 Ujal Singh Bhatia
Member
 Peter Van den Bossche
Member