UNITED STATES – MEASURES AFFECTING TRADE IN LARGE CIVIL AIRCRAFT (SECOND COMPLAINT) RECOURSE TO ARTICLE 21.5 OF THE DSU BY THE EUROPEAN UNION REPORT OF THE PANEL
Document: REPORT OF THE PANEL
Date: 9 June 2017
Document codes: WT/DS353/RW
Complainant: EU
Respondent: U.S.
Third parties: Australia, Brazil, Canada, China, Japan, South Korea
Dispute stage: Implementation & Compliance
Agreements cited: Art. 3.1, 3.2, 5, 6.3, 1.1, 2  Subsidies and Countervailing Measures (SCM)Art. III:4  GATT 1994

UNITED STATES – MEASURES AFFECTING TRADE IN LARGE CIVIL
AIRCRAFT (SECOND COMPLAINT)
RECOURSE TO ARTICLE 21.5 OF THE DSU BY THE EUROPEAN UNION
REPORT OF THE PANEL

BCI deleted, as indicated [***]
HSBI omitted, as indicated [[HSBI]]

LIST OF ANNEXES
ANNEX A
WORKING PROCEDURES OF THE PANEL
Contents Page
Annex A-1 Working Procedures of the Panel A-2
Annex A-2 Additional Working Procedures for the Protection of Business Confidential
Information and Highly Sensitive Business Information (BCI/HSBI Procedures)
A-5
Annex A-3 Procedures for the Partial Opening to the Public of the Meeting of the Panel A-17
ANNEX B
ARGUMENTS OF THE EUROPEAN UNION
Contents Page
Annex B-1 Executive Summary of the first written submission of the European Union B-2
Annex B-2 Executive Summary of the second written submission of the European Union B-11
Annex B-3 Executive Summary of the opening statement of the European Union at the
Panel meeting
B-19
Annex B-4 Executive Summary of the closing statement of the European Union at the
Panel meeting
B-24
ANNEX C
ARGUMENTS OF THE UNITED STATES
Contents Page
Annex C-1 Executive Summary of the first written submission of the United States C-2
Annex C-2 Executive Summary of the second written submission of the United States C-10
Annex C-3 Executive Summary of the statement of the United States at the Panel meeting C-18
ANNEX D
ARGUMENTS OF THE THIRD PARTIES
Contents Page
Annex D-1 Executive Summary of the written submission of Brazil D-2
Annex D-2 Executive Summary of the statement of Brazil at the Panel meeting D-7
Annex D-3 Executive Summary of the written submission of Canada D-9
Annex D-4 Executive Summary of the statement of Canada at the Panel meeting D-13
Annex D-5 Executive Summary of the written submission of Japan D-17
Annex D-6 Executive Summary of the statement of Japan at the Panel meeting D-20
Annex D-7 Executive Summary of the written submission of the Republic of Korea D-23
Annex D-8 Executive Summary of the statement of the Republic of Korea at the Panel
meeting
D-27

ANNEX E
RULINGS OF THE PANEL REGARDING ARTICLE 13 OF THE DSU
Contents Page
Annex E-1 Preliminary Rulings and decision regarding information -gathering under Article
13 of the DSU, dated 26 November 2012
E-2
Annex E-2 Communication of the Panel, dated 5 December 2012 E-14
Annex E-3 Communication of the Panel, dated 18 December 2012 E-15
Annex E-4 Communication regarding third-party rights, dated 25 January 2013 E-17
ANNEX F
OTHER PROCEDURAL RULINGS OF THE PANEL
Contents Page
Annex F-1 Decision regarding requests for certain information, dated 23 October 2013 F-2

CASES CITED IN THIS REPORT
Short Title Full Case Title and Citation
Argentina – Footwear (EC) Appellate Body Report, Argentina – Safeguard Measures on Imports of
Footwear, WT/DS121/AB/R, adopted 12 January 2000, DSR 2000:I, p. 515
Argentina – Footwear (EC) Panel Report, Argentina – Safeguard Measures on Imports of Footwear,
WT/DS121/R, adopted 12 January 2000, as modified by Appellate Body Report
WT/DS121/AB/R, DSR 2000:II, p. 575
Argentina – Textiles and
Apparel
Panel Report, Argentina – Measures Affecting Imports o f Footwear, Textiles,
Apparel and Other Items , WT/DS56/R, adopted 22 April 1998, as modified by
Appellate Body Report WT/DS56/AB/R, DSR 1998:III, p. 1033
Australia – Automotive
Leather II (Article 21.5 –
US)
Panel Report, Australia – Subsidies Provided to Producers and Exporters of
Automotive Leather – Recourse to Article 21.5 of the DSU by the United States ,
WT/DS126/RW and Corr.1, adopted 11 February 2000, DSR 2000:III, p. 1189
Australia – Salmon Panel Report, Australia – Measures Affecting Importation of Salmon ,
WT/DS18/R and Corr.1, adopted 6 November 1998, as modified by Appellate
Body Report WT/DS18/AB/R, DSR 1998:VIII, p. 3407
Australia – Salmon
(Article 21.5 – Canada)
Panel Report, Australia – Measures Affecting Importation of Salmon – Recourse
to Article 21.5 of the DSU by Canada , WT/DS18/RW, adopted 20 March 2000,
DSR 2000:IV, p. 2031
Brazil – Aircraft
(Article 21.5 – Canada)
Appellate Body Report, Brazil – Export Financing Programme for Aircraft –
Recourse by Canada to Article 21.5 of the DSU , WT/DS46/AB/RW, adopted
4 August 2000, DSR 2000:VIII, p. 4067
Brazil – Desiccated Coconut Appellate Body Report, Brazil – Measures Affecting Desiccated Coconut,
WT/DS22/AB/R, adopted 20 March 1997, DSR 1997:I, p. 167
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 – 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 / W T/DS426/AB/R, adopted 24 May 2013,
DSR 2013:I, p. 7
Chile – Price Band System Appellate Body Report, Chile – Price Band System and Safeguard Measures
Relating to Certain Agricultural Products, WT/DS207/AB/R, adopted
23 October 2002, DSR 2002:VIII, p. 3045 (Corr.1, DSR 2006:XII, p. 5473)
Chile – Price Band System Panel Report, Chile – Price Band System and Safeguard Measures Relating to
Certain Agricultural Products, WT/DS207/R, adopted 23 October 2002, as
modified by Appellate Body Report WT/DS207AB/R, DSR 2002:VIII, p. 3127
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 – Broiler Products Panel Report, China  Anti-Dumping and Countervailing Duty Measures on
Broiler Products from the United States , WT/DS427/R and Add.1, adopted
25 September 2013, DSR 2013:IV, p. 1041
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
Panel Report, Dominican Republic – Measures Affecting the Importation and
Internal Sale of Cigarettes, WT/DS302/R, adopted 19 May 2005, as modified by
Appellate Body Report WT/DS302/AB/R, DSR 2005:XV, p. 7425
EC – Bananas III Appellate Body Report, European Communities – Regime for the Importation,
Sale and Distribution of Bananas, WT/DS27/AB/R, adopted 25 September 1997,
DSR 1997:II, p. 591
EC – Bananas III Panel Reports, European Communities – Regime for the Importation, Sale and
Distribution of Banan as, WT/DS27/R/ECU (Ecuador) / WT/DS27/R/GTM,
WT/DS27/R/HND (Guatemala and Honduras) / WT/DS27/R/MEX (Mexico) /
WT/DS27/R/USA (US), adopted 25 September 1997, as modified by Appellate
Body Report WT/DS27/AB/R, DSR 1997:II, p. 695 to DSR 1997:III, p. 1085

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 – Bed Linen (Article 21.5
– India)
Panel Report, European Communities – Anti-Dumping Duties on Imports of
Cotton-Type Bed Linen from India – Recourse to Article 21.5 of the DSU by
India, WT/DS141/RW, adopted 24 April 2003, as modified by Appellate Bo dy
Report WT/DS141/AB/RW, DSR 2003:IV, p. 1269
EC – Chicken Cuts Appellate Body Report, European Communities – Customs Classification of
Frozen Boneless Chicken Cuts , WT/DS269/AB/R, WT/DS286/AB/R, adopted
27 September 2005, and Corr.1, DSR 2005:XIX, p. 9157
EC – Chicken Cuts Panel Reports, European Communities – Customs Classification of Frozen
Boneless Chicken Cuts , WT/DS269/R (Brazil) / WT/DS286/R (Thailand),
adopted 27 September 2005, as modified by Appellate Body Report
WT/DS269/AB/R, WT/DS286/AB/R, D SR 2005:XIX, p. 9295 / DSR 2005:XX,
p. 9721
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 – Fasteners (China) Panel Report, European Communities – Definitive Anti -Dumping Measures on
Certain Iron or Steel Fasteners from China , WT/DS397/R and Corr.1, adopted
28 July 2011, as modified by Appellate Body Report WT/DS397/AB/R,
DSR 2011:VIII, p. 4289
EC – IT Products Panel Reports, European Communities and its member States – Tariff
Treatment of Certain Information Technology Products , WT/DS375/R /
WT/DS376/R / WT/DS377/R, adopted 21 September 2010, DSR 2010:III,
p. 933
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 and certain member
States – Large Civil Aircraft
Appellate Body Report, European Communities and Certain Member Stat es –
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 Larg e 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 State s – 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 {appealed by European Union 13 October 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
Japan – DRAMs (Korea) Appellate Body Report, Japan – Countervailing Duties on Dynamic Random
Access Me mories from Korea , WT/DS336/AB/R and Corr.1, adopted
17 December 2007, DSR 2007:VII, p. 2703
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
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 Novem ber 2001,
DSR 2001:XIII, p. 6675
Mexico – Olive Oil Panel Report, Mexico – Definitive Countervailing Measures on Olive Oil from the
European Communities, WT/DS341/R, adopted 21 October 2008, DSR 2008:IX,
p. 3179
Thailand – Cigarettes
(Philippines)
Panel Report, Thailand – Customs and Fiscal Measures on Cigarettes from the
Philippines, WT/DS371/R, adopted 15 July 2011, as modified by Appellate Body
Report WT/DS371/AB/R, DSR 2011:IV, p. 2299
US – 1916 Act Appellate Body Report, United States – Anti-Dumping Act of 1916 ,
WT/DS136/AB/R, WT/DS162/AB/R, adopted 26 September 2000, DSR 2000:X,
p. 4793
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 – Anti-Dumping and
Countervailing Duties
(China)
Panel Report, United States – Definitive Anti-Dumping and Countervailing
Duties on Certain Products from China, WT/DS379/R, adopted 25 March 2011,
as modified by Appellate Body Report WT/DS379/AB/R, DSR 2011:VI, p. 3143

Short Title Full Case Title and Citation
US – Anti-Dumping
Measures on Oil Country
Tubular Goods
Panel Report, United States – Anti-Dumping Measures on Oil Country Tubular
Goods (OCTG) from Mexico , WT/DS282/R, ad opted 28 November 2005, as
modified by Appellate Body Report WT/DS282/AB/R, DSR 2005:XXI, p. 10225
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 – Carbon Steel (India) Panel Report, United States – Countervailing Measures on Certain Hot -Rolled
Carbon Steel Flat Products from India , WT/DS436/R and Add.1, adopted 19
December 2014, as modified by Appellate Body Report WT/DS 436/AB/R,
DSR 2014:VI, p. 2189
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 – 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
Measures (China)
Appellate Body Report, United States – Countervailing Duty Measures on
Certain Products from China, WT/DS437/AB/R, adopted 16 January 2015
US – Countervailing
Measures (China)
Panel Report, United States – Countervailing Duty Measures on Certain
Products from China, WT/DS437/R and Add.1, adopted 16 January 2015, as
modified by Appellate Body Report WT/DS437/AB/R
US – Customs Bond
Directive
Panel Report, United States – Customs Bond Directive for Merchandise Subject
to Anti-Dumping/Countervailing Duties, WT/DS345/R, adopted 1 August 2008,
as modified by Appellate Body Report WT/DS343/AB/R / WT/DS345/AB/R,
DSR 2008:VIII, p. 2925
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 Panel Report, United States – Tax Treatment for "Foreign Sales Corporations" ,
WT/DS108/R, adopted 20 March 2000, as modified by Appellate Body Report
WT/DS108/AB/R, DSR 2000:IV, p. 1675
US – FSC (Article 21.5 –
EC II)
Appellate Body Repor t, United States – Tax Treatment for "Foreign Sales
Corporations" – Second Recourse to Article 21.5 of the DSU by the European
Communities, WT/DS108/AB/RW2, adopted 14 March 2006, DSR 2006:XI,
p. 4721
US – FSC (Article 21.5 –
EC II)
Panel Report, United States – Tax Treatment for "Foreign Sales Corporations" –
Second Recourse to Article 21.5 of the DSU by the European Communities ,
WT/DS108/RW2, adopted 14 March 2006, upheld by Appellate Body Report
WT/DS108/AB/RW2, DSR 2006:XI, p. 4761
US – FSC (Article 21.5 –
EC)
Appellate Body Report, United States – Tax Treatment for "Foreign Sales
Corporations" – Recourse to Article 21.5 of the DSU by the European
Communities, WT/DS108/AB/RW, adopted 29 January 2002, DSR 2002:I, p. 55
US – FSC (Article 21.5 –
EC)
Panel Report, United States – Tax Treatment for "Foreign Sales Corporations" –
Recourse to Article 21.5 of the DSU by the European Communities ,
WT/DS108/RW, adopted 29 January 2002, as modified by Appellate Body
Report WT/DS108/AB/RW, DSR 2002:I, p. 119
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
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)
Panel Report, United States – Measures Affecting Trade in Large Civil Aircraf t
(Second Complaint) , WT/DS353/R, adopted 23 March 2012, as modified by
Appellate Body Report WT/DS353/AB/R, DSR 2012:II, p. 649
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 – Shrimp (Thailand) Panel Report, United States – Measures Relating to S hrimp from Thailand ,
WT/DS343/R, adopted 1 August 2008, as modified by Appellate Body Report
WT/DS343/AB/R / WT/DS345/AB/R, DSR 2008:VII, p. 2539
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

Short Title Full Case Title and Citation
US – Softwood Lumber IV
(Article 21.5 – Canada)
Appellate Body Report, United States – Final Countervailing Duty Determination
with Respect to Cer tain Softwood Lumber from Canada – Recourse by Canada
to Article 21.5 of the DSU , WT/DS257/AB/RW, adopted 20 December 2005,
DSR 2005:XXIII, p. 11357
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 – Upland Cotton
(Article 21.5 – Brazil)
Panel Report, United States – Subsidies on Upland Cotton – Recourse to
Article 21.5 of the DSU by Brazil , WT/DS267/RW and Corr.1, adopted
20 June 2008, as modified by Appellate Body Report WT/DS267/AB/RW,
DSR 2008:III, p. 997
US – Upland Cotton
(Article 22.6 – US II)
Decision by the Arbitrator, United States – Subsidies on Upland Cotton –
Recourse to Arbitration by the United States under Article 22.6 of the DSU and
Article 7.10 of the SCM Agreement, WT/DS267/ARB/2 and Corr.1,
31 August 2009, DSR 2009:IX, p. 4083
US – Washing Machines Appellate Body Report, United States – Anti-Dumping and Countervailing
Measures on Large Residential Washers from Korea, WT/DS464/AB/R and
Add.1, adopted 26 September 2016
US – Washing Machines Panel Report, United States – Anti-Dumping and Countervailing Measures on
Large Residential Washers from Korea, WT/DS464/R and Add.1, adopted
26 September 2016, as modified by Appellate Body Report WT/DS464/AB/R
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
US – Zeroing (EC)
(Article 21.5 – EC)
Panel 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/RW, adopted 11 June 2009, as
modified by Appellate Body Report WT/DS294/AB/RW, DSR 2009:VII, p. 3117
US – Zeroing (Japan) Appellate Body Report, United States – Measures Relating to Zeroing and
Sunset Reviews, WT/DS322/AB/R, adopted 23 January 2007, DSR 2007:I, p. 3
US – Zeroing (Japan)
(Article 21.5 – Japan)
Appellate Body Report, United States – Measures Relating to Zeroing and
Sunset Reviews – Recourse to Article 21.5 of the DSU by Japan ,
WT/DS322/AB/RW, adopted 31 August 2009, DSR 2009:VIII, p. 3441
US – Zeroing (Japan)
(Article 21.5 – Japan)
Panel Report, United States – Measures Relating to Zeroing and Sunset Reviews
– Recourse to Article 21.5 of the DSU by Japan , WT/DS322/RW, adopted
31 August 2009, upheld by Appellate Body Report WT/DS322/AB/RW,
DSR 2009:VIII, p. 3553

ABBREVIATIONS USED IN THIS REPORT
Abbreviation Description
ACT Program NASA Advanced Composites Technology Program
AECA Arms Export Control Act
AFRL Air Force Research Laboratory
AJCA American Jobs Creation Act of 2004
AMC American Metalcasting Consortium
Anti-Dumping Agreement Agreement on Implementation of Article VI of the General Agreement on Tariffs
and Trade 1994
ARMD NASA Aeronautics Research Mission Directorate
AST Program NASA Advanced Subsonic Technology Program
ATCAS Program NASA Advanced Technology Composite Aircraft Structures Program
AWACS program element DOD Airborne Warning and Control System program element
Bayh-Dole Act United States Code, chapter 35, sections 200-212
B&O Business and Occupation
BCI Business Confidential Information
BOA Basic Ordering Agreement
CASP NASA Cross Agency Support Program
CATT Program South Carolina Center for Accelerated Technology Training Program
CFD Computational Fluid Dynamics
CFRP Carbon Fibre Reinforced Plastic
FAA CLEEN Program FAA Continuous Lower Energy Emissions, and Noise Program
CRA Charles River Associates
DARPA Defense Advanced Research Project Agency
DAS Defense Acquisition System
D.O. Delivery Order
DOD U.S. Department of Defense
DRAGON Project Diminishing Manufacturing Sources Replacement of Avionics for Global
Operations and Navigation Project under the DOD AWACS program element
DSB Dispute Settlement Body
DSU Understanding on Rules and Procedures Governing the Settlement of Disputes
DUS&T program element DOD Dual Use Science & Technology program element
EADS European Aeronautics Defence and Space Company N.V.
EAR Export Administration Regulations
EMD Engineering, Manufacturing and Development
ERA Project Environmentally Responsible Aviation Project under the NASA Integrated
Systems Research Program
ETI Act FSC Repeal and Extraterritorial Income Exclusion Act of 2000
FAA U.S. Federal Aviation Administration
FAR U.S. Federal Acquisition Regulation
FILOT Fee-in-lieu-of taxes
FOIA Freedom of Information Act
FPDS-NG Federal Procurement Data Base – Next Generation
FSC Foreign Sales Corporation
FSC/ETI Foreign Sales Corporation/Extraterritorial Income
FY Fiscal Year
FYDP Future Years Defense Program
GAO U.S. Government Accountability Office
GATT 1994 General Agreement on Tariffs and Trade 1994
HB 2294 House Bill 2294 in the State of Washington
HB 2466 House Bill 2466 in the State of Washington
HLFC Hybrid Laminar Flow Control
HSBI Highly Sensitive Business Information
HSR Program NASA High Speed Research Program
ICAO International Civil Aviation Organization
IDIQ Indefinite Delivery/Indefinite Quantity
IP Intellectual Property
IR&D Independent Research and Development
IRB Industrial Revenue Bond
IRS U.S. Internal Revenue Service
ITAR U.S. International Traffic in Arms Regulations
ITR International Trade Resources LLC
JCATI Joint Center for Aerospace Technology Innovation in the State of Washington
JCIDS DOD Joint Capabilities Integration and Development System
LCA Large Civil Aircraft
LCF Large Cargo Freighter
LERD Limited Exclusive Rights Data

Abbreviation Description
IP ManTech program
elements
Manufacturing Technology/Industrial Preparedness program elements
administered individually by the Defense Logistics Agency, Air Force, Navy and
Office of Secretary of Defense
MCIP Multi-County Industrial Park
MTOW Maximum take-off weight
NASA U.S. National Aeronautics and Space Administration
NATO North Atlantic Treaty Organization
NIAR National Institute for Aviation Research
NPD NASA Policy Directive
NPV Net Present Value
NRA NASA Research Announcement
PBBES Planning, Programming, Budgeting, and Execution System for commissioning
RDT&E under systems acquisition/military aircraft program elements
PRO-ACT Project Procurement Readiness Optimization-Advanced Casting Technology Project
under the Defense Logistics Agency IP ManTech program element
PRSEUS Pultruded Rod Stitched Efficient Unitized Structure
R&D Research and Development
R&T Base Program NASA Research and Technology Base Program
RDT&E Research, Development, Test and Evaluation
RDT&E Program DOD Research, Development, Test and Evaluation Program
readySC South Carolina Technical College System's job training programme
RFID Radio Frequency Identification
RFI Request for Information
RFP Request for Proposal
ROA Research Opportunities in Aeronautics
S&T Science and Technology
SBU Standard Billing Units
S.C. State of South Carolina
SCM Agreement Agreement on Subsidies and Countervailing Measures
SOW Statement of Work
Space Act National Aeronautics and Space Act of 1958, as amended
SEC U.S. Securities and Exchange Commission
TIPRA Tax Increase Prevention and Reconciliation Act of 2005
TRL Technology Readiness Level

1 INTRODUCTION
1.1 Complaint by the European Union1
1.1. The European Union 's complaint in this proceeding under Article 21.5 of the Understan ding
on Rules and Procedures Governing the Settlement of Disputes (DSU) concerns the alleged failure
of the United States to implement the recommendations and rulings adopted by the Dispute
Settlement Body (DSB) in the original proceeding US – Large Civil Aircraft (2nd complaint).
1.2. The panel report and Appellate Body report in the original proceeding were circulated to
Members on 31 March 2011 and 12 March 2012, respectively. The DSB adopted the Appellate
Body report and the panel report, as modified by the Appellate Body report, on 23 March 2012.2
1.3. In its report, as modified by the Appellate Body report, the original panel found that certain
measures of the United States, including measures adopted at a sub -federal level, constituted
specific subsidies to t he U.S. large civil aircraft (LCA) industry 3 and were inconsistent with the
Agreement on Subsidies and Countervailing Measures (SCM Agreement).
1.4. First, the panel found that certain tax exemptions and tax exclusions provided to Boeing
under the Foreign Sale s Corporation (FSC) legislation and the FSC Repeal and Extraterritorial
Income Exclusion Act of 2000 (ETI), including the transition and grandfather provisions of the ETI
Act and the American Jobs Creation Act of 2004 (AJCA), were prohibited export subsidies under
Articles 3.1(a) and 3.2 of the SCM Agreement.4 This finding was not appealed.
1.5. Second, the panel and the Appellate Body found that the following measures were
inconsistent with Articles 5(c) and 6 of the SCM Agreement:
a. payments provided to Boeing by the National Aeronautics and Space Administration
(NASA) pursuant to procurement contracts entered into under eight aeronautics research
and development (R&D) programmes and access to facilities, equipment, and employees
provided to Boeing pursuant to p rocurement contracts and Space Act Agreements
entered into under these programmes;
b. payments and access to facilities provided to Boeing by the Department of Defense
(DOD) pursuant to assistance instruments entered into under 23 Research,
Development, Test and Evaluation (RDT&E) programmes;
c. tax exemptions and tax exclusions provided to Boeing pursuant to the FSC/ETI
measures;
d. Washington State Business and Occupation (B&O) tax rate reduction for commercial
aircraft and component manufacturers; and
e. property and sales tax abatements related to Industrial Revenue Bonds (IRBs) issued by
the City of Wichita, Kansas.
1.6. These five groups of measures were found to involve specific subsidies, within the meaning of
Articles 1 and 2 of the SCM Agreement , and to cause s erious prejudice to the interests of the
European Communities, within the meaning of Articles 5(c) and 6.3 of the SCM Agreement , as
follows:
a. The NASA and DOD aeronautics R&D measures caused serious prejudice , within the
meaning of Articles 5(c), 6.3(b), an d (c), with respect to the 200 -300 seat LCA product

1 The European Union replaced and succeeded the European Communities as of 1 December 2009.
2 Dispute Settlement Body, Minutes of the Meeting held on 23 March 2012, WT/DSB/M/313 (circulated
29 May 2012), para. 79.
3 The European Communities in the original proceeding used the term "U.S. large civil aircraft industry"
to refer to the Boeing Company and the McDonnell Douglas Corporation prior to its merger with Boeing. (Panel
Report, US – Large Civil Aircraft (2nd complaint), paras. 2.1 and 7.1).
4 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1434-7.1464 and 8.2.

market in the form of a threat of displacement and impedance of European
Communities' exports in certain third-country markets and significant lost sales.
b. The tax exemptions and tax exclusions provided t o Boeing pursuant to the FSC/ETI
measures, together with the Washington State B&O tax rate reduction, caused serious
prejudice, within the meaning of Articles 5(c) and 6.3(c) , with respect to the 100 -200
seat LCA product market in the form of significant lost sales.
c. Property and sales tax abatements related to IRBs issued by the City of Wichita, Kansas
complemented and supplemented the price effects of the FSC/ETI subsidies and the
Washington State B&O tax rate reduction, thereby causing serious prejudice to the
interests of the European Communities, within the meaning of Articles 5(c) and 6.3(c), in
the 100-200 seat LCA product market in the form of significant lost sales.
1.7. In relation to the finding that the FSC/ETI measures were prohibited subsidies , within the
meaning of Articles 3.1 (a) and 3.2 of the SCM Agreement, the original panel refrained from
making a new recommendation under Article 4.7. The panel noted "the conclusion of the Panel in
US – FSC (Article 21.5 – EC II), which was upheld by the Appe llate Body, that the
recommendation made by the panel in the dispute in US – FSC continued to be 'operative'".5
1.8. In respect of the findings of serious prejudice caused by certain subsidies, the Appellate Body
recommended that:
{T}he DSB request the United S tates 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. More
specifically, having regard to the recommendation made by the Panel in paragraph 8.9
of its Report and the provisions of Article 7.8 of the SCM Agreement, the Appellate
Body recommends that the United States take appropriate steps to remove the
adverse effects found to have been caused by its use of s ubsidies, or to withdraw
those subsidies.6
1.9. On 23 September 2012, the United States provided a notification to the DSB identifying "a
number of actions to withdraw the subsidies found to have caused adverse effects or to remove
their adverse effects", in light of which the United States considered that it "ha{d} fully complied
with the recommendations and rulings of the Dispute Settlement Body in this dispute".7
1.10. On 25 September 2012, the European Union requested consultations with the United States,
explaining that it was of the view that "{t}he actions and events listed by the United States in its
23 September 2012 notification do not withdraw the subsidies or remove their adverse effects, as
required by Articles 4.7 and 7.8 of the SCM Agreement " and that "the United States has failed to
achieve compliance with the recommendations and rulings of the DSB".8
1.11. The European Union and the United States held consultations on 10 October 2012, but the
consultations failed to resolve the dispute.
1.2 Panel establishment and composition
1.12. On 11 October 2012, the European Union requested the establishment of a panel "in
accordance with Articles 4.4 and 7.4 of the SCM Agreement and Article 21.5 of the DSU ", with

5 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 8.7.
6 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1352. (emphasis original)
7 US – Large Civil Aircraft (2nd complaint), Communication from the United States, WT/DS353/15 (dated
23 September 2012, circulated 26 September 2012) (United States' Compliance Communication), para. 2.
8 US – Large Civil Aircraft (2nd complaint), European Union's request for consultations, recourse to
Article 21.5 of the DSU, WT/DS353/16 (dated 25 September 2012, circulated 2 October 2012)
(European Union's request for consultations), p. 2.

standard terms of reference.9 At its meeting on 23 October 2012, the DSB referred this dispute to
the original panel, if possible, in accordance with Article 21.5 of the DSU.10
1.13. The Panel's terms of reference are the following:
To examine, in the light of the relevant provisions of the covered agreements cited by
the parties to the dispute, the matter referred to the DSB by the European Union in
document WT/DS353/18 and to make such findings as will assist the DSB in making
the recommendations or in giving the rulings provided for in those agreements.
1.14. In accordance with Article 21.5 of the DSU, the Panel was composed on 30 October 2012 as
follows11:
Chairperson: Mr Crawford Falconer

Members: Mr Francisco Orrego Vicuña
 Mr Virachai Plasai

1.15. Australia, Brazil, Canada, China, Japan, Korea, and Russia notified their interes t in
participating in the Panel proceedings as third parties.
1.3 Panel proceedings
1.3.1 General
1.16. The Panel held an organizational meeting with the parties on 2 November 2012.
1.17. After consultation with the parties, the Panel adopted its Working Procedures 12 on
18 December 2012 and timetable on 14 January 2013 . The Panel re vised its timetable on
12 April 2013 and 4 July 2013. The Panel made additional modifications to its timetable over the
course of the proceeding.
1.18. At the request of the parties and after consulting th em, the Panel adopted Additional
Procedures to Protect Business Confidential Information and Highly Sensitive Business Information
(BCI/HSBI Procedures) on 18 December 2012.13
1.19. The European Union and the United States filed their first written submissions on
28 March 2013 and 27 June 2013, respectively and their second written submissions on
25 July 2013 and 22 August 2013, respectively. Brazil, Canada, Japan, and Korea as third parties
filed written submissions on 23 July 2013.14
1.20. On 25 September 2013, the Pan el sent the parties a list of issues which the parties were
requested to address in their oral statements at the meeting with the parties. The Panel held one
substantive meeting with the parties on 29 -31 October 2013. A session with the third parties took
place on 30 October 2013. At the request of the parties, the Panel 's meeting with the parties was

9 US – Large Civil Aircraft (2nd complaint), European Union's request for the establishment of a panel,
recourse to Article 21.5 of the DSU, WT/DS353/18 (dated 11 October 2012, circulated 12 October 2012)
(European Union's request for the establishment of a panel), para. 34.
10 Dispute Settlement Body, Minutes of the Meeting held on 23 October 2012, WT/DSB/M/323
(circulated 13 December 2012), para. 81. At this meeting, the United States stated its view that the panel was
being established only under Article 21.5 of the DSU. (Dispute Settlement Body, Minutes of Meeting held on
23 October 2012, WT/DSB/M/323 (circulated 13 December 2012), paras. 78 and 79).
11 US – Large Civil Aircraft (2nd complaint), Recourse to Article 21.5 of the DSU by the European Union,
Constitution of the Panel, Note by the Secretariat, WT/DS353/21 (dated 23 October 2012, circulated
5 November 2012), para. 3.
12 See the Panel's Working Procedures in Annex A-1.
13 The BCI/HSBI Procedures were subsequently revised several times. The final version is attached in
Annex A-2.
14 Australia, China, and Russia did not make written submissions or oral statements to the Panel.

opened to the public by means of a delayed video showing. 15 A portion of the Panel's meeting with
the third parties was also opened to the public by means of a delayed video showing.16
1.21. In addition to the questions that the Panel had posed in December 2012 at the request of
the parties that the Panel seek information under Article 13 of the DSU 17, the Panel posed
questions to the parties and third parties on 7 Nove mber 2013 and additional questions to the
parties on 4 November 2014 and 17 September 2015.
1.22. On 11 August 2016 , the Panel issued the descriptive part of its Report to the parties. The
Panel issued its Interim Report to the parties on 16 September 2016. The Panel issued its Final
Report to the parties on 20 December 2016.
1.3.2 The Panel's ruling and decision s regarding Annex V of the SCM Agreement and
requests of the parties that the Panel seek information under Article 13 of the DSU
1.23. On 31 October 2012, eight days after the DSB established the Panel, the European Union
filed a preliminary ruling request 18 asking the Panel to rule that the conditions for the automatic
initiation of an information -gathering procedure under Annex V of the SCM Agreement had been
met in this case and that, consequently, automatic initiation of an Annex V procedure had
occurred, was deemed to have occurred or should have occurred. The European Union also
requested the Panel to exercise its right under Article 13 of the DSU to seek certain information by
posing to the United States questions that the European Union had prepared for submission under
Annex V of the SCM Agreement that it considered necessary for the Panel to carry out its mandate.
1.24. In a submission filed on 8 November 2012 19, the United States disputed the
European Union's interpretation of the provisions of the SCM Agreement relating to the initiation of
procedures under Annex V and requested the Panel to reject the European Union 's request
regarding the initiation of procedures u nder Annex V. While the United States agreed with the
European Union that there were unique reasons that would justify the Panel seeking information
from the parties at an early point in the proceeding, the United States expressed its disagreement
with the European Union regarding the timing, manner and extent to which the Panel should
exercise its authority to seek information pursuant to Article 13 of the DSU.
1.25. On 15 November 2012, the Panel advised the parties that it would exercise its authority
under A rticle 13 of the DSU to seek information from the United States, and that it would
communicate the rationale for that decision and the modalities that the Panel intended to apply, in
the near future.20 The Panel also invited the United States to submit any specific comments on the
questions proposed by the European Union. On 19 November 2012, in partial response to the
Panel's invitation, the United States requested the Panel to see k information from the
European Union pursuant to Article 13 of the DSU in order to assist the Panel with its examination
of the matter before it.21
1.26. Regarding the European Union's request of 31 October 2012, and after hearing the views of
both parties 22, the Panel issued a communication to the parties a nd third parties on
26 November 2012, finding that Annex V procedures were available in compliance proceedings,
the conditions for initiating an Annex V procedure had been met, and automatic initiation of an

15 See Additional Working Procedures for the partial opening to the public of the meeting of the Panel in
Annex A-3.
16 Brazil, Canada, and Japan consented to having their statements videotaped for delayed showing.
Korea did not consent.
17 See para. 1.27 below.
18 European Union's request for a preliminary ruling and request for the Panel to exercise its authority
pursuant to Article 13 of the DSU, dated 31 October 2012.
19 United States' response to European Union's request for a preliminary ruling and request for the Panel
to request information pursuant to Article 13 of the DSU, dated 8 November 2012.
20 The Panel did so in its communications of 5 and 18 December 2012. (See Annexes E-2 and E-3).
21 United States' request for the Panel to exercise its authority pursuant to Article 13 of the DSU, dated
19 November 2012.
22 The United States submitted its comments on 8 November 2012, and the European Union submitted
further views on 5 and 9 November 2012. The European Union opposed the United States' request that the
Panel seek information from the European Union pursuant to Article 13 of the DSU in a letter dated
23 November 2012.

Annex V procedure had occurred. 23 The Panel also noted that, while the European Union
considered it was entitled to proceed with an Annex V procedure, the European Union had
requested the Panel to seek information through an early exercise of its authority under Article 13
of the DSU. The Panel recalled that it had requested the Unit ed States to comment on the
questions suggested by the European Union and indicated that it would make an information
request to the United States under Article 13 of the DSU "as soon as possible taking into account
the requests and comments made and responses received".24 Regarding the United States' request
that the Panel seek information from the European Union pursuant to Article 13 of the DSU, the
Panel further indicated that it would make an information request to the European Union under
Article 13 of the DSU, "as soon as possible taking into account the request and any comments
received".25
1.27. After receiving the comments of the parties on the questions that each party proposed the
Panel ask the other party in exercise of the Panel 's authority to seek inf ormation under Article 13
of the DSU, the Panel posed questions to the United States on 5 December and
18 December 2012, and to the European Union on 18 December 2012. 26 Following requests for
extensions of time to respond to certain of the Panel's requests for information, the United States
provided its responses to the questions posed by the Panel pursuant to Article 13 of the DSU on
25 January 2013, 1, 14, and 28 February, 22 March , and 2 May 2013. 27 The European Union
provided its responses to the questio ns posed by the Panel pursuant to Arti cle 13 of the DSU on
28 February 2013.
1.28. By letters dated 19, 20, and 21 December 2012, Brazil, Australia, and Canada respectively,
as third parties to this dispute, noted that they were initially not made aware of a req uest by the
European Union for a preliminary ruling regarding the interpretation of provisions relating to the
initiation of procedures under Annex V of the SCM Agreement, and of requests by both the
European Union and the United States for the Panel to ex ercise its right to seek information under
Article 13 of the DSU. On 25 January 2013, the Panel issued a communication to the parties and
third parties request ing the parties to serve upon the third parties their relevant submissions
concerning the European Union's request for a preliminary ruling in regard to Annex V , to the
extent that they had not already done so, on the grounds that these submissions could properly be
considered to be "submissions", within the meaning of Article 10.3 of the DSU .28 The Panel further
considered that, in the circumstances of the present requests for information pursuant to Article 13
of the DSU, the communications concerning these requests and the parties ' responses to the
requests, were not "submissions" which the third par ties were entitled to receive pursuant to
Article 10.3 of the DSU. However, given the close link between the particular Article 13 requests
and issues concerning the interpretation and application of Annex V of the SCM Agreement, the
Panel considered it appropriate in this situation that the communications concerning the Article 13
requests (but not the parties ' responses to those requests) be provided to the third parties.
Accordingly, the Panel served upon the third parties the information requests that i t had made to
the United States and the European Union pursuant to Article 13 of the DSU.
1.3.3 Requests for preliminary rulin gs on the Panel 's terms of reference and other
procedural rulings
1.3.3.1 The United States' request for preliminary rulings
1.29. On 13 November 201 2, the United States submitted a request for preliminary rulings ,
objecting to the inclusion of certain claims and challenged measures as outside the Panel 's terms

23 Preliminary ruling and decision regarding information-gathering under Article 13 of the DSU, dated
26 November 2012, para. 33, reproduced in Annex E-1.
24 Preliminary ruling and decision regarding information-gathering under Article 13 of the DSU, dated
26 November 2012, para. 52, reproduced in Annex E-1.
25 Preliminary ruling and decision regarding information-gathering under Article 13 of the DSU, dated
26 November 2012, para. 52, reproduced in Annex E-1.
26 Communications of the Panel dated 5 December 2012 and 18 December 2012, reproduced in
Annexes E-2 and E-3, respectively. In addition, the Panel in its communication of 18 December 2012 invited
the parties to make further submissions regarding the measures that properly fall within the scope of this
proceeding in their first written submissions.
27 Such requests for extensions of time were made by letters from the United States dated
23 January 2013 and 14 February 2013, and by email dated 12 February 2013.
28 Communication regarding third-party rights, dated 25 January 2013, reproduced in Annex E-4.

of reference . The parties exchan ged views on the merits of this request in a number of
submissions, including their first and second written submissions.29 The Panel addresses the issues
raised by this request of the United States in Section 7 of this Report.
1.3.3.2 The European Union 's request for leave to file an additiona l submission
pertaining to Washington State Legislature Substitute Bill 5952
1.30. On 4 March 2014, the European Union requested leave from the Panel to file an additional
submission detailing "the legal ramifications of the 2013 amendments to the Washington St ate
measure".30 The European Union asserted that these 2013 amendments (Washington State Senate
Bill 5952 (SSB 5952)) constitute "additional measures taken to comply by the United States"31 that
are properly within the scope of this proceeding. In a letter dated 21 March 2014, the
United States requested the Panel to deny the European Union 's request to file an additional
submission, as inconsistent with the requirements of Article 6.2 of the DSU and the Panel 's
Working Procedures. The European Union responde d on 31 March 2014, requesting that the Panel
proceed to consider the substance of its arguments. On 9 April 2014, the United States reiterated
its request that the Panel disregard the European Union's request.32
1.31. In a communication to the parties dated 27 May 2014, the Panel advised that it had decided
to decline the European Union 's request and indicated that it would issue the reasons underlying
its decision in due course. On 18 September 2014, the Panel issued to the parties its Reasons for
Declining the European Union 's Request for Leave to File an Addi tional Submission Regarding
SSB 5952. These reasons as issued on 18 September 2014 are reproduced in Section 7.7 of this
Report.
1.3.3.3 Other procedural rulings
1.32. On 23 October 2013, the Panel issued an additional ruling regarding renewed requests from
the European Union for additional information in connection with certain NASA and DOD contracts,
NASA, DOD, and FAA technical reports , NASA new technology reports , and documents related to
certain sales campaigns.33
2 PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS
2.1. The European Union requests that the Panel find that the United States has failed to
implement the DSB recommendations in US – Large Civil Aircraft (2 nd complaint) to withdraw the
subsidies or take appropriate steps to remove the adverse effects, pursuant to Article 7.8 of the
SCM Agreement.
2.2. In particular, the European Union requests that the Panel find that:
a. subsequent to the end of the implementation period, the United States g rants or
maintains the subsidies to the U.S. LCA industry through the following programmes and
measures:
i. NASA aeronautics R&D measures;

29 United States' request for preliminary rulings, dated 13 November 2012; European Union's letter to
the Panel, dated 13 November 2012; European Union's response to the United States' request for preliminary
rulings, dated 23 November 2012; and United States' reply to the European Union's response to the
United States' request for preliminary rulings, dated 3 December 2012. In response to a communication of the
Panel dated 6 May 2013 addressing an issue outlined in paragraph 55 of the European Union's first written
submission, the European Union filed a "supplemental submission" on the United States' request for
preliminary rulings on 13 May 2013 prior to the United States filing its first written submission.
30 European Union's letter to the Panel, dated 4 March 2014, para. 2.
31 European Union's letter to the Panel, dated 4 March 2014, para. 1.
32 United States' letter to the Panel, dated 9 April 2014.
33 Decision regarding requests for certain information, dated 23 October 2013, reproduced in Annex F-2.
As noted in para. 2.5 of that ruling, certain of the categories of information identified by the European Union in
its requests for additional information were within the scope of the Panel's Article 13 request to the
United States in December 2012.

ii. the Federal Aviation Administration 's Continuous Lower Energy Emissions, and Noise
Program (FAA CLEEN);
iii. the DOD RDT&E Program;
iv. income tax exemptions/exclusions pursuant to FSC/ETI legislation and successor
acts;
v. property and sales tax concessions for LCA component production facilities
associated with IRBs issued by the City of Wichita;
vi. certain tax and other measures ap plied by the State of Washington and
municipalities therein; and
vii. measures applied by the State of South Carolina and municipalities therein in the
context of "Project Gemini" and "Project Emerald" as well as "Phase II";
b. each of these subsidies is also inc onsistent with Articles 3.1(a), 3.1(b), and 3.2 of the
SCM Agreement and Article III of the GATT 199434; and
c. the subsidies collectively cause present adverse effects to LCA -related interests of the
European Union, in violation of Article 5 of the SCM Agree ment. In particular, the
subsidies are a genuine and substantial cause of:
i. displacement and impedance, or threat thereof, in the LCA product markets of the
United States, within the meaning of Article 6.3(a) and footnote 13 of the SCM
Agreement;
ii. displacement and impedance, or threat thereof, in the LCA product markets of
several third countries, within the meaning of Article 6.3(b) and footnote 13 of the
SCM Agreement;
iii. significant price suppression, or threat thereof, in the LCA product markets, within
the meaning of Article 6.3(c) and footnote 13 of the SCM Agreement; and
iv. significant lost sales, or threat thereof, in the LCA product markets, within the
meaning of Article 6.3(c) and footnote 13 of the SCM Agreement.
2.3. The European Union requests that the Panel make "appropriate consequential
recommendations".35
2.4. The United States requests the Panel to reject all claims of the European Union. The
United States also requests that the Panel rule that certain claims are outside the Panel 's terms of
reference or otherwise outside the scope of this proceeding.36
3 ARGUMENTS OF THE PARTIES
3.1. The arguments of the parties are reflected in their executive summaries, provided to the
Panel in accordance with paragraph 12 of the Working Procedures adopted by the Panel (see
Annexes B-1 to B-4 and C-1 to C-3).

34 The European Union in its subsequent submissions confines its claim under Article III of the
GATT 1994 to paragraph 4 of that provision, see fn 606.
35 European Union's first written submission, paras. 1933 and 1934.
36 See Section 1.3.3 above. The Panel addresses the issues raised by this request of the United States in
Section 7 of this Report.

4 ARGUMENTS OF THE THIRD PARTIES
4.1. The arguments of Brazil, Canada, Japan, and Korea are reflected in their executive
summaries, provided in accordance with paragraph 12 of the Working Procedures adopted by the
Panel (see Annexes D-1 to D-8).
5 INTERIM REVIEW
5.1 Introduction
5.1. The Panel issued its Interim Report to the parties on 16 September 2016. Both parties
submitted written requests for review of precise aspects of the Interim Report on 14 October 2016,
and written comments on each ot her's written requests on 28 October 2016. The parties also
provided written comments on the treatment of certain information as BCI or HSBI in their
respective requests. Neither party requested the Panel to hold an interim review meeting.
5.2. The Panel explains below its responses to issues of a substantive nature raised by the parties
in their requests for review of precise aspects of the Interim Report. The Panel has also corrected a
number of typographical and other non -substantive errors throughout the In terim Report,
including those identified by the parties, which are not specifically referred to below. More
specifically, the Panel has corrected stylistic and grammatical errors and errors in references to
submissions and exhibits. The Panel has also corr ected inconsistencies in terminology and has
made changes to improve the clarity and accuracy of the Report. In addition, the Panel has added
references to dispute settlement reports that were circulated subsequent to the date of issuance of
the Interim Report to the parties.
5.3. Due to changes as a result of our review, the numbering of the footnotes and certain of the
paragraphs in the Final Report has changed from the Interim Report. The text below refers to the
footnote and paragraph numbers in the Interim Report, with the corresponding footnote numbers ,
and where applicable, paragraph numbers, in the Final Report provided in parentheses for ease of
reference.
5.2 Specific requests for review submitted by the parties
5.2.1 Explicit attributions of arguments to the parties
5.4. The Panel has, in various places throughout the Interim Report, omitted explicit attribution of
an argument to the United States or the European Union, as the case may be, where it considered
the context made the attribution clear, albeit implicitly.
5.5. The European Union has requested a number of modifications to descriptions of the
parties' arguments to explicitly attribute the argument to a party and thereby remove the
possibility that the particular argument could be misunderstood as a finding of the Panel. The
United States does not object to the omission of attributions to the parties where the argument in
question occurs in a section labelled "main arguments of the parties" or "main arguments of the
parties and third parties", as the context makes clear that the text summarizes arguments by one
of the parties and the omission of attributions improves the readability of the Interim Report. 37
With respect to the requested specific attribution to the United States of an argument described in
the sixth s entence of paragraph 8.1002 of the Interim Report (now paragraph 8.1006 ), which
appears in an "Evaluati on" section, the United States considers that the context of the sentence
and the existence of a footnote citing a U.S. submission as the source of the s tatements in the
sentence would lead an alert reader to understand that the statement was not a finding of the
Panel. However, the United States does not oppose the insertion of a textual attribution of that
sentence to the United States, for the avoidance of doubt.

37 Indeed, the United States sees no grounds for the European Union's concerns, both in light of the
drafting of the relevant paragraphs and the headings of the sections. Additionally, it considers that adding the
attributions requested by the European Union could suggest an a contrario reading that unattributed sentences
in the summaries of arguments were in fact findings of the Panel. The United States requests the Panel to take
these concerns into account in evaluating the European Union's comments.

5.6. The Panel has decided to grant the European Union's requests to explicitly attribute
arguments to the parties, even where those arguments appear in a section labelled as "main
arguments of the parties" or "main arguments of the parties and third parties". While specific
attributions make the text longer, the Panel has concluded that it is important to ensure that the
reader clearly understands when an argument or assertion is that of a party, and when it is a legal
or factual finding of the Panel . The Panel adds that in acceding to the European Union's requests
for specific attributions of arguments to parties, even within sections clearly labelled as "main
arguments of the parties" or "main arguments of the parties and third parties", it does not thereby
suggest that arguments within those sections that are not specifically attributed to a party are
findings of the Panel.
5.2.2 Introduction to Panel findings
Paragraph 6.21
5.7. The European Union requests that the Panel replace the word "subsidies" with "t he subsidy"
in the second sentence of paragraph 6.21, and that the words "from any subsidies that are not
withdrawn" be added to the end of the same sentence, for the sake of clarity. The United States
did not respond specifically to this aspect of the European Union's comment.
5.8. The Panel has modified the second sentence of paragraph 6. 21 as requested by the
European Union.
5.9. The European Union further requests that its position as to ways in which an implementing
Member may achieve withdrawal of a subsidy be more compreh ensively reflected in
paragraph 6.21, specifically by adding the following sentence between the second and third
sentences of that paragraph: "The European Union argues that the withdrawal of a subsidy can be
achieved through the repayment of the financial contribution or the removal of the benefit." In
support of this request, the European Union asserts that its position in the present dispute,
consistent with its position in EC and certain member States – Large Civil Aircraft , has been that
the withdrawal of a subsidy can be achieved through the removal of one or two constituent
elements of the subsidy; i.e. the financial contribution or the benefi t. In this regard, the
European Union explains that repayment of the financial contribution, unli ke refraining from
providing an additional financial contribution, would achieve withdrawal of the subsidy. The
European Union asserts that its position is that there is no "obligation" on an implementing
Member to seek or secure repayment of a financial c ontribution; it is but one option available to a
Member choosing to achieve compliance by withdrawing the subsidy, rather than by removing the
adverse effects. The European Union asserts that "consistent with this position", it has argued in
its submissions that, for each instance of a subsidy that had not been withdrawn, there continued
to be both a (non-repaid) financial contribution and a benefit.38
5.10. The United States requests the Panel to reject this aspect of the European Union's comment
regarding paragr aph 6.21 as the Panel's summary as currently drafted reflects the actual
arguments and positions taken by the European Union and the interim review stage is not the
appropriate stage for the European Union to recast its arguments. The United States argues that
the European Union fails to provide a citation to support its assertion that its position in the
present dispute has been that the withdrawal of a subsidy can be achieved through the removal of
the financial contribution or benefit. The United States notes that the European Union points
instead to paragraphs in its first written submission arguing for the existence of a financial
contribution and benefit for a variety of measures. The United States considers that the existence
of such arguments in no way communicates the overarching position that the European Union now
seeks to assert. Moreover, the United States asserts that it is not aware of anywhere else in the
European Union's submissions where the European Union summarizes its argument in the way in
which it now requests the argument to be reflected.
5.11. While the Panel has carefully reviewed the relevant passages of the European Union's first
written submission cited by the European Union in support of its request, it appears that they do
not contain the specific statement that the European Union pr oposes to be added to
paragraph 6.21 of the Interim Report. Significantly, the European Union itself does not provide a

38 The European Union refers to the following examples from its first written submission:
paras. 169-198, 363-389, 401-404, 417-422, and 434-441.

specific citation to particular paragraphs of its submissions that explicitly set out t he idea that "the
withdrawal of a subsidy can be achieved through the repayment of the financial contribution or the
removal of the benefit". The Panel is therefore not persuaded that the addition proposed by the
European Union is warranted to provide a mo re "comprehensive" description of the position of the
European Union in this proceeding with regard to the interpretation of the term "withdraw the
subsidy". The Panel thus declines the European Union's request.
Paragraph 6.37
5.12. The European Union requests the Panel to remove footnote 80, as the associated sentence
in paragraph 6.37 (i.e. the fourth sentence of paragraph 6.37), in stating that the European Union
does not argue that the United States was obligated under Article 7.8 of the SCM Agreement to
seek repayment from Boeing of subsidies granted in the past, already fully and accurately reflects
the views of the European Union on whether the payment of royalties should occur on a retroactive
basis. The United States responds that it has no objection to the European Union's request.
5.13. The Panel has removed the footnote in question as requested by the European Union.
5.2.3 Whether certain measures and claims are outside the Panel's terms of reference
or are otherwise outside the scope of this proceeding
Paragraph 7.44
5.14. The European Union requests the Panel to add a footnote defining the terms "tied subsidy"
and "untied subsidy" in paragraph 7.44. The European Union suggests that the Panel either
reproduce the explanation of "tied subsidy" in paragraph 9.71 as a foo tnote to paragraph 7.44 or
add a cross-reference, in paragraph 7.44, to paragraph 9.71. The United States has no objection
to either of the alternative proposals advanced by the European Union.
5.15. The Panel has added a footnote to paragraph 7.44 (footnote 146) to explain the concepts
"untied" subsidy and "tied" subsidy as used in this proceeding.
Paragraph 7.127
5.16. The European Union requests that the Panel replace the words "{a}fter some reflection" at
the beginning of the second sentence of paragraph 7.127 wi th the words "{a}fter considering the
circumstances described above" to clarify the basis for the Panel's conclusion.
5.17. The United States objects to the European Union's proposal, because it sees no reason to
limit the basis for the Panel's conclusion to "ci rcumstances" described in the preceding paragraphs
when, according to the United States, much of that discussion consists of a legal analysis of the
Appellate Body's findings and citations to past reports.
5.18. Given the circumstances described in paragraph 7.1 28 of the Interim Report, the Panel
considers it most appropriate to retain the current language of t he second sentence of
paragraph 7.127. The Panel thus declines the European Union's request.
Paragraph 7.198
5.19. The United States suggests that the Panel could consider referring in paragraph 7.198 to the
nature of R&D under systems acquisition/military aircraft program elements in Sections 8.2.3.2.4
and 8.2.3.3.3 of the Interim Report. The European Uni on has no comment on the
United States' request.
5.20. The Panel has added additional references in a footnote to the first sentence of
paragraph 7.198 which it considers reflect the United States' suggestion.

Paragraph 7.244
5.21. The European Union requests that the Panel delete the first sentence of paragraph 7.244 on
the basis that this sentence does not appear to add anything new to the paragraph and the Panel's
analysis would be clearer without it.
5.22. The United States objects to the European Union's sugg estion. According to the
United States, the first sentence of paragrap h 7.244 indicates that the Panel does not consider it
necessary to conduct the analysis described in paragraph 7.243 (namely, to identify and properly
delineate the DOD aeronautics R&D measures that are within the Panel's terms of reference
according to th e Panel's evaluation of the potential for the R&D to lead to civil applications). The
United States considers that the statement in the first sentence of paragraph 7.244 makes explicit
the Panel's conclusion on the terms of reference issue that it raised, and as such, adds clarity to
the discussion in paragraph 7.244.
5.23. The Panel has removed the first sentence of paragraph 7.244, as requested by the
European Union, in order to improve the clarity of this paragraph.
Paragraphs 7.251, 7.283, 7.284 (and 8.505)
5.24. The United States requests the Panel to delete references in paragraphs 7.251, 7.283,
7.284, 7.289 (and 8.505) suggesting that Boeing has responsibility for managing the entire FAA
CLEEN Program, rather than simply its activities under the Boeing CLEEN Agr eement. The
United States considers that the suggestion that Boeing has responsibility for managing the FAA
CLEEN Program is incorrect. The United States asserts that Boeing does not manage the FAA
CLEEN Program. Rather, as explained by the United States i n its submissions, the FAA CLEEN
Program is managed by the FAA on the basis of Other Transaction Agreements entered into with
industry partners. The United States explains that the statement in the Boeing CLEEN Agreement
referring to integrated programme m anagement pertains to Boeing's management of its own
performance under the Boeing CLEEN Agreement.
5.25. The European Union objects to the United States' request and asks that the Panel leave
undisturbed the existing language related to Boeing's integrated manag ement of the FAA CLEEN
Program in paragraphs 7.251, 7.283, 7.284 (and 8.505). The European Union argues that the text
of the Boeing CLEEN Agreement plainly provides that the Boeing team will manage the overall FAA
CLEEN Program to ensure completion of all required elements in the program statement of work,
and repeatedly references "Boeing's Integrated Program Management" as a work element in
addition to, and distinct from, identified R&D activities. The European Union notes that these are
the portions of t he Boeing CLEEN Agreement upon which the Panel relies when it states, in
paragraph 7.251, that Boeing is responsible for integrated management of the FAA CLEEN
Program as well as two categories of R&D activities. The European Union considers that the Panel's
characterization of Boeing's integrated management of the FAA CLEEN Program, including in the
paragraphs identified by the United States in its request, is no different from the characterization
in the Boeing CLEEN Agreement, and is simply a restatement of the language used in the Boeing
CLEEN Agreement itself. Finally, the European Union argues that the United States' argument that
the statement referencing integrated program management in the Boeing CLEEN Agreement
pertains to Boeing's management of it s own performance under the Boeing CLEEN Agreement
finds no support in the text of the Agreement, which unambiguously refers to Boeing's
management of the "overall CLEEN program", nor does the United States cite to any portion of the
Boeing CLEEN Agreement or to any other evidence before the Panel, to support its conclusion.
5.26. In addressing the United States' request, the Panel has again reviewed the evidence before
it regarding the FAA CLEEN Program and the Boeing CLEEN Agreement. Section C.3 of the Boeing
CLEEN Agreement sets forth the work to be performed by Boeing. The "Overview" subsection to
section C.3 explains that Boeing will increase the technology readiness level of three technologies
as part of the FAA CLEEN Program. These are: (a) CMC/Oxide -Oxide Nozzle Technology; (b)
Adaptive Trailing Edges (excluding Flaplets); and (c) Alternative Fuels – Aromatics and Seal Swell.
The Overview also refers to "overall Integrated Program Management and Flight
demonstration(s)".

5.27. The next subsection to section C.3 of the Boeing CLEEN Agreement is entitled "Integrated
Program Management and Technology Demonstrations". A further subheading to this subsection,
entitled "Integrated Program Management", states that the "Boeing team will manage the overall
CLEEN program t o ensure completion of all required elements in the program SOW". A second
subheading to this subsection is entitled "Technology Demonstration Tests". This subheading
describes flight test demonstrations that Boeing will conduct "as part of the technology maturation
program" in 2012 and 2013, respectively. In each case, "Boeing will conduct integrated program
management, design, and safety reviews to ensure the technologies integrate onto the selected
demonstration airplane, and to ensure compliance with required procedures and safety of flight."
5.28. There are three further subsections to section C.3 of the Boeing CLEEN Agreement. These
deal with: (a) CMC/Oxide -Oxide Acoustic Nozzle Technology; (b) Adaptable Trailing Edge
Technology; and (c) Alternative Fuels – Aromatics, Seals Technology. For each of these technology
areas, there are separate subheadings that discuss "project management", "technology
maturation", "systems engineering and integration", "technology demonstration tests", and
"technology assessments". The Boeing CLEEN Agreement plainly states that "Boeing will manage
the overall CLEEN program to ensure completion of all required elements in the program SOW".39
This statement is made in a distinct subsection of section C.3 that refers to "integrated p rogram
management". Moreover, the concept of integrated program management appears to be distinct
from the "program management" envisaged for each of the three technology areas and discussed
elsewhere in section C.3.
5.29. The United States considers that the r eferences to integrated program management pertain
to Boeing's management of its own performance under the Boeing CLEEN Agreement. We do not
discount the possibility that the "Integrated Program Management and Technology
Demonstrations" work that is described in section C.3 of the Boeing CLEEN Agreement, understood
in its proper context, in fact concerns the management of those aspects of the FAA CLEEN Program
for which Boeing is the main contractor, and does not extend to management of the activities of
the other FAA CLEEN main contractors under the FAA CLEEN Program (i.e. General Electric,
Honeywell, Pratt & Whitney, and Rolls -Royce North America). However, the United States did not
attempt such an explanation in its submissions and does not fully explain the basis for this position
in its comments on precise aspects of the Interim Report. Indeed, the European Union, in its first
written submission, asserted that "Boeing (the only aircraft producer in the CLEEN consortium) is
responsible for integrated mana gement of the entire CLEEN Program, allowing Boeing to benefit
from FAA funding of other participants, all of whom are Boeing suppliers." 40 The European Union
cited to section C.3 of the Boeing CLEEN Agreement in support of this assertion. The United States
did not refute this assertion in its submissions.41
5.30. We consider that the Panel's interpretation of the Boeing CLEEN Agreement is reasonable on
its face, and is not contradicted by other evidence before it, or by the United States in its
submissions, despite the fact that the European Union, in its first written submission, made the
very assertion to which the United States now objects. In light of these factors, we have decided
to leave undisturbed the existing language related to Boeing's integrated manag ement of the FAA
CLEEN Program in paragraphs 7.251, 7.283, 7.284, 7.289, (and 8.505).
Paragraph 7.409
5.31. The United States requests the Panel to modify the first sentence of paragraph 7.409
referring to the European Union's argument that the Panel describes in paragraph 7.409 as
relating to a "change in WTO law resulting from an intervening Appellate Body report" to clarify
that the European Union's argument concerns a purported "clarification of relevant WTO law" and
thus a "subsequent interpretation" of the WTO agreements, as opposed to a change in WTO law
itself. The United States notes that the DSU provides that the findings and recommendations of
panels and the Appellate Body cannot add to or diminish the rights and obligations provided in the
covered agr eements. Moreover, the United States does not understand the European Union to

39 Emphasis added.
40 European Union's first written submission, para. 202. (fn omitted)
41 While the United States provided information concerning the FAA CLEEN Program and the Boeing
CLEEN Agreement in response to the Panel's Article 13 request, it did not specifically address the issue of
whether Boeing had any responsibility for the management of the FAA CLEEN Program overall.

argue, in paragraph 7.390 (d) of the Interim Report, that WTO law has actually changed, but
rather that the interpretation of WTO law has changed.
5.32. The European Union objects to the United States' request and requests that the Panel retain
the current wording of paragraph 7.409. While the European Union does not disagree with the
assertion that a report of the Appellate Body does not add to or diminish the rights and obligations
provided in the covered agreements, it does not share the United States' concern that the current
language in paragraph 7.409 would imply otherwise. The European Union considers that the Panel
uses the phrase "a change in WTO law as a result of an interveni ng Appellate Body report" as a
convenient way of referring to a scenario in which an Appellate Body report identifies, from the
terms of a provision in the covered agreements, a meaning that is different from the one that was
previously understood. In fact , the European Union regards the Panel's current formulation as the
most appropriate one to describe the situation referenced, so as to achieve precision and clarity,
and considers that the United States' proposed alternative formulation falls short in thi s regard.
More specifically, the European Union argues that the United States' suggested formulation of
"subsequent interpretation" conveys only a temporal relationship between two interpretations,
while in the current circumstances, the relevant issue is that the subsequent interpretation is
different from the earlier interpretation, not that it is "subsequent".
5.33. The Panel has modified the first sentence of paragraph 7.409 to more closely reflect the
terms used by the European Union in making the argument i n question in paragraphs 68 -74 of its
second written submission, which refers to a "clarification of relevant WTO law to be applied by the
compliance panel", rather than a "change in WTO law resulting from an intervening Appellate Body
report".
5.2.4 Whether the United States has failed to withdraw the subsidy within the meaning
of Article 7.8 of the SCM Agreement
Subsection 8.1.2
5.34. The European Union requests the Panel, in its summary of the European Union's arguments,
to set forth the European Union's position on patent ownership in situations where inventions are
jointly made by NASA or DOD employees on the one hand, and Boeing employees on the other, in
the same manner as the Panel summarized the United States' posi tion on this issue in
paragraph 8.20. The Eur opean Union considers that in its submissions it explains why, even in a
situation where inventions arrived at by NASA or DOD employees jointly with a private contractor's
employees, the private contractor may ultimately be provided with something more tha n an
undivided share in rights under the patent. The European Union refers in this regard to its
comments on the United States' response to Panel question No. 85, at paragraphs 217 -221 and
the European Union's opening statement, at paragraph 31. The Europe an Union additionally
requests that the Panel consider whether the European Union's position on patent ownership in the
joint inventorship situation requires any modifications to paragraph 8.34(c) of the Interim Report.
5.35. The United States objects to the Eur opean Union's requests. The United States considers
that granting the European Union's request to modify the summary of the European Union's
arguments would deprive the United States of an opportunity to comment on the accuracy of the
summary, or suggest r elevant additions to the summary of the U.S. argument. Moreover, the
United States considers that at this stage, the European Union (rather than the Panel) bears the
responsibility for suggesting how the Panel should modify summaries of the European Union' s own
arguments. The United States also objects to the European Union's request to consider whether
the referenced arguments of the European Union require a modification to the Panel's finding in
paragraph 8.34(c) of the Interim Report. The United States notes that paragraph 8.34(c) is part of
subsection 8.1.3.1 which covers "The allocation of intellectual property rights and data rights
under NASA procurement contracts and under DOD assistance instruments and procurement
contracts". The United States argue s that the arguments referenced by the European Union,
however, deal with the possibility that the United States might licence its joint rights to the
contractor subsequent to the contract. Thus, according to the United States, such assertions have
nothing to do with the allocation of rights under R&D contracts. Moreover, the United States adds
that the European Union has not pointed to any procurement contract or assistance instrument
that licences the government ownership of joint inventions to the contractor.

5.36. The Panel considers that it has, in the summary of the European Union's arguments, set
forth the European Union's position on patent ownership in situations where inventions are jointly
made by NASA or DOD employees on the one hand, and Boeing emplo yees on the other, in the
same manner as the Panel has set forth in paragraph 8.20 the United States' position on this issue
in its summary of the United States' arguments . Specifically, in paragraph 8.12 of the Interim
Report, the Panel recounts the Europ ean Union's argument, from paragraph 309 of its second
written submission, that under the NASA procurement contracts and agreements and the DOD
assistance instruments, inventions made jointly between NASA and Boeing or DOD and Boeing are
owned solely by Bo eing as the commission ed party. The European Union requests that the Panel
reflect paragraphs from the European Union's submissions explaining why, even where inventions
are jointly made by NASA or DOD employees, and by Boeing employees, during the course of work
under an R&D contract, the private contractor may ultimately be provided with something more
than an undivided share in the rights under the patent.
5.37. The Panel considers that the arguments made by the European Union in the paragraphs of
its submissions to which it refers address, not the issue of how patent ownership is allocated in
cases of such joint inventorship by NASA/DOD and Boeing employees under R&D contracts as a
matter of U.S. law, but a different issue; namely that, notwithstanding the formal ownership rights
that the U.S. Government receives in such situations, the situation is similar to cases of sole
inventorship by Boeing employees as a practical matter.42
5.38. Paragraph 8.34 of the Interim Report sets forth the Panel's conclusions regarding the
allocation of patent rights, by operation of U.S. law, under NASA procurement contracts and
cooperative agreements and under DOD assistance instruments and procurement contracts,
including in subparagraph (c), in the situation where a NASA or DOD empl oyee and a Boeing
employee jointly make an invention in the course of work under a NASA procurement contract or
cooperative agreement, or under a DOD assistance instrument or procurement contract, as th e
case may be. The Panel has reflected the arguments o f the parties on this particular issue in
paragraphs 8.12 and 8.20 of the Interim Report, and has reached its own conclusion in
paragraph 8.34(c), which it sees no need to modify.
5.39. In light of the foregoing, the Panel declines to make the modification requ ested by the
European Union.
Footnote 943 (now footnote 959) to paragraph 8.20
5.40. The European Union requests the Panel to remove the reference to United States Code of
Federal Regulations , chapter 37, section 501.6 , (Exhibit USA -310) in footnote 943 to
paragraph 8.20 (now footnote 959 ). The European Union notes that the cited U.S. federal
regulation relates to inventions made solely by government employees, and not to inventions
made jointly by government employees and contractors like Boeing. The European U nion
additionally requests the Panel to clarify that the proposition that, under U.S. law, the U.S.
Government takes title and interest in inventions jointly made by DOD employees and by private
contractors reflects an argument of the United States, and is not a finding by the Panel.

42 The European Union argues in this regard that, even though NASA/DOD, by operation of U.S. law
acquires joint ownership over an invention jointly invented by a NASA/DOD employee jointly with Boeing
employees as a result of work under a NASA or DOD contract or agreement, the European Union considers that
contractors like Boeing nevertheless expect that NASA and DOD will not attempt to exploit additional rights
they obtain from joint ownership, above and beyond those they would receive through the government use
licence that they would obtain in the different situation in which Boeing as contractor owns the patent
developed through government-funded R&D. (European Union's comments on the United States' response to
Panel question No. 85, para. 217). The European Union similarly argues in its oral statement, that joint
inventorship by U.S. Government and Boeing employees "effectively" leads to the same situation as
inventorship by a Boeing employee alone, as the U.S. Government agrees to waive any additional rights
acquired through joint inventorship to Boeing, if it finds that it would expedite the development of the
invention. (European Union's opening statement at the meeting with the Panel, para. 31). The European Union
refers in this regard to Patent Rights in Inventions Made with Federal Assistance, United States Code,
chapter 35, sections 200-212, (Exhibit EU-220), section 202(e). The United States responds in its submissions
that the European Union profoundly misstates the U.S. law. (United States' response to Panel question No. 85,
para. 139 and fn 205).

5.41. The United States disputes the European Union's understanding of United States Code of
Federal Regulations , chapter 37, section 501.6 as being limited to situations in which the
government employee is the sole inventor of an in vention. The United States refers to its
submissions, wherein it explains that in situations where inventions are jointly made by NASA or
DOD employees on the one hand, and by Boeing employees on the other, the respective laws and
regulations governing invention by a government employee and by a contractor employee operate
in parallel. Thus, according to the United States, the citation to United States Code of Federal
Regulations, chapter 37, section 501.6 is correct, as that regulation gives the U.S. Gover nment
ownership of a patent issued for an invention made by a government employee as part of the
employee's work, even where another person is a co -inventor. The United States suggests, for the
sake of completeness and to address the European Union's conce rn, that the Panel could consider
citing Inventions Patentable, United States Code , chapter 35 section 101 , (Exhibit USA-466) and
the Bayh-Dole Act and various related measures, as support for its findings regarding the situation
where inventions are joint ly made by NASA or DOD employees on the one hand, and Boeing
employees on the other.
5.42. The Panel has revised footnote 943 (now footnote 959) to paragraph 8.20 to clarify that the
assertions that, under U.S. law, NASA and DOD obtain ownership over inventions made solely by
their employees during work under a procurement contract or assistance instrument, and joint
ownership over inventions made jointly with Boeing employees, is part of a U.S. argument.
Footnote 964 (now footnote 980) to paragraph 8.33
5.43. The United States requests the Panel to add a sentence to footnote 964 (now footnote 980)
to clarify, as the original panel had at footnote 2913 of its report, that the Bayh -Dole Act
supersedes the National Aeronautics and Space Act of 1958, as amended (Space Act) with respect
to title to inventions made pursuant to NASA procurement contracts with non -profit organizations
and small businesses, which are governed by separate regulations and contract clauses. The
European Union does not make any comment regarding the United States' request.
5.44. The Panel has made the modification to footnote 964 (now footnote 980) requested by the
United States.
Paragraph 8.120
5.45. The European Union requests the Panel to add a reference to the block quote at the end of
the paragraph, which it suggests is NASA, Research Opportunities in Aeronautics – 2008
(ROA-2008), NASA Research Announcement NNH08ZEA001N, (7 March 2008) , as amended
(Exhibit USA-61), Appendix A, pp. A1 and A2. The United States has no objection to the proposed
citation for this block quotation.
5.46. The Panel has amended paragraph 8.120 to add a reference to the block quotation at the
end of the paragraph on the basis requested by the European Union.
Paragraph 8.189
5.47. The United States requests the Panel to modify the secon d-to-last sentence in
paragraph 8.189 to remove the suggestion that Boeing receives intellectual property rights and
data rights from NASA under Space Act Agreements, in the sense that Space Act Agreements
involve the transfer of patent rights from NASA to the oth er party. The United States notes that
the Panel does not undertake an analysis of whether Space Act Agreements involve a transfer of
intellectual property rights from NASA to the other party. It therefore suggests that the relevant
sentence of paragraph 8 .189 be modified to state that Boeing may nevertheless advance its R&D
activities and commercial objectives by developing patentable inventions or data subject to
copyright, in addition to contributing to NASA's particular mission or programme objectives.
5.48. The European Union objects to the United States' request and requests that the Panel retain
the current wording of paragraph 8.189. The European Union argues that the statement in
paragraph 8.189 that Boeing receives valuable intellectual property rights o r data rights is not a
finding that those rights are transferred by NASA, within the meaning of Article 1.1(a)(1) of the
SCM Agreement. The European Union notes that in paragraph 8.158 of the Interim Report, the

Panel found it unnecessary to address the Eu ropean Union's alternative argument that what it
refers to as the "transfers" to Boeing of patent and other intellectual property rights could
separately be considered a financial contribution. The European Union also notes that in the
DOD-related analysis , at paragraphs 8.388 and 8.389, the Panel considered whether DOD
"provides" or "transfers" patents to Boeing pursuant to R&D contracts. The European Union argues
that, by contrast, the Panel's reference in paragraph 8.189 to Boeing's receipt of valuable
intellectual property rights is not a finding that those rights are transferred to Boeing by NASA,
within the meaning of Article 1.1(a)(1). According to the European Union, it is merely an
acknowledgement that Boeing receives ownership rights over intellect ual property created in the
course of working under the Space Act Agreements. The European Union asserts, referring to
Articles 27, 29, 32, and 62 of the TRIPS Agreement, that patent rights, in particular, are rights
that are granted and revoked under a legal regime put in place by governments.
5.49. The Panel considers that the European Union's interpretation of the second -to-last sentence
of paragraph 8.189 is correct. In other words, in stating that Boeing receives valuable intellectual
property rights or data rights, the Panel does not mean to suggest that those rights are
"transferred" by NASA in the sense of Article 1.1(a)(1). The Panel considers this is clear from the
context of paragraphs 8.158, and 8.388-8.389, as well as paragraph 8.192.
5.50. However, the Panel has modified the second-to-last sentence of paragraph 8.189 to remove
the possibility that the discussi on therein could be misinterpreted as suggesting that Boeing
receives intellectual property rights and data rights from NASA under Space Act Agreemen ts, in
the sense that Space Act Agreements involve the transfer of patent rights from NASA to the other
party.
Footnote 1209 (now footnote 1225) to paragraph 8.189
5.51. The United States requests the Panel to modify the first sentence of footnote 1209 (now
footnote 1225 ) to clarify that NASA has determined that Space Act Agreements are not
procurement contracts, agreements, understandings, or other arrangements, within the meaning
of section 305(j) of the Space Act. As currently drafted, the United States consi ders that the first
sentence of footnote 1209 (now footnote 1225) could be read to suggest, erroneously, that a
Space Act Agreement is not a contract. The European Union does not make any comment on the
United States request.
5.52. The Panel has made the modification requested by the United States.
Paragraph 8.228
5.53. The United States requests the Panel to modify the last sentence of paragraph 8.228 to
clarify that this statement pertains also to other instruments, such as Executive Order 12591 and
the NASA waiver regulations, which are not within the scope of the Bayh -Dole Act, its associated
legislative instruments and implementing regulations. The European Union does not make any
comment on the United States request.
5.54. The Panel has made the modification requested by the United States.
Paragraph 8.504
5.55. The United States requests the Panel to delete the reference to NASA in the first sentence of
paragraph 8.504. The United States disputes that NASA was involved in the inauguration of the
FAA CLEEN Program and argues that the statement that the FAA and NASA inaugurated the FAA
CLEEN Program, as currently reflected in paragraph 8.504, is unsupported by the evidence. The
United States argues that it has explained in its submissions, and the Panel has recognized in
paragraph 7.249 of the Interim Report, that the FAA, not NASA, established the FAA CLEEN
Program to accelerate aircraft technology development to reduce fuel burn, emissions and noise of
civil subsonic jet aircraft, in partnership with industry through Other Transaction Agreements.
5.56. The European Union objects to the United States' request and suggests an alternative
formulation of the first sentence of paragraph 8.504, along with a conforming modification to
paragraph 7.249. More specifically, the European Union r efers to a statement at paragraph 7.280

of the Interim Report, on which the United States has not commented, that the FAA CLEEN
Program was created in conjunction with the ERA Project of NASA's Integrated Systems Research
Program. The European Union refers to confirmation for this statement in statements made by
NASA and its representatives, noting in particular the statement of NASA's Associated
Administrator to the U.S. Congress that, "{t}o facilitate the transition of advanced ideas and
technologies into the aircraft fleet, NASA is partnering with the Federal Aviation Administration's
(FAA) Continuous Low Emissions, Energy and Noise (CLEEN) Program to guide efforts to mature
technologies that have already shown promise to the point where they can be adopt ed by the
current and future aircraft fleet". 43 The European Union argues that, based on the foregoing, the
Panel should leave unchanged its existing characterization of the inauguration of the FAA CLEEN
Program by the FAA and NASA in paragraph 8.504. Howev er, if th e Panel disagrees, the
European Union suggests that it could alternatively change the statement that the FAA and NASA
inaugurated the FAA CLEEN Program to a statement that the FAA, in conjunction with NASA,
inaugurated the FAA CLEEN Program, which it considers to be more closely in line with the Panel's
discussion at paragraph 7.280. The European Union further suggests, in order to remove the
existing inconsistency identified by the United States betwee n paragraph 8.504 and
paragraph 7.249, that th e Panel modify paragraph 7.249 to refer to NASA's role in launching the
FAA CLEEN Program.
5.57. The Panel does not consider that there is sufficient support on the record for the
modification suggested by the European Union that the FAA in conjunction with NASA, inaugurated
the FAA CLEEN Program. The Panel notes that the se cond sentence of paragraph 7.280 refers to a
relationship between the FAA CLEEN Program and NASA's ERA Project, but not necessarily a direct
involvement by NASA in inaugurating the FAA CLEEN P rogram. The Panel has decided to modify
paragraph 8.504 by removing the reference to NASA in the first sentence and by adding a
cross-reference to paragraph 7.280 in footnote 1664 (which was footnote 1649 in the Interim
Report) to paragraph 8.504.
Paragraph 8.511
5.58. The United States requests the Panel to correct the second sentence of paragraph 8.511 to
reflect the United States' argument, which is that the FAA (as opposed to NASA as currently
appears in the second sentence of paragraph 8.511) does not trans fer any patent to Boeing. The
European Union does not make any comment on the United States' request.
5.59. The Panel has made the correction requested by the United States.
Paragraph 8.514
5.60. The United States requests the Panel to delete the second sentence of pa ragraph 8.514, in
which the Panel states that the United States does not dispute that Boeing receives rights to
patents and other data rights. The United States argues that this sentence is incorrect, because
the United States explicitly disputed the Europ ean Union's assertion that the FAA transferred
patent and intellectual property rights to Boeing under the FAA CLEEN Program. The
European Union does not make any comment on the United States' request.
5.61. The Panel has made the correction requested by the United States.
Paragraph 8.552
5.62. The European Union requests the Panel to correct what it considers appear to be
typographical errors in the third and fourth sentences of paragraph 8.552; namely, references to
the Boeing CLEEN Agreement as opposed to the FAA CLEEN Program.
5.63. The United States objects to the European Union's request. The United States does not
consider that the references to the Boeing CLEEN Agreement in paragraph 8.552 are typographical
errors. The United States argues that the Panel frames the qu estion in paragraph 8.546 as being

43 Interim Report, para. 7.280 (quoting the statement of J. Shin, NASA Associate Administrator for
Aeronautics Research Mission Directorate, Hearing before the U.S. House of Representatives Committee on
Science, Subcommittee on Space and Aeronautics, 1 May 2008, (Exhibit EU-21)).

"whether the subsidies provided to Boeing under the Boeing CLEEN Agreement are specific within
the meaning of Article 2.1(a) of the SCM Agreement". The United States considers that, as a
substantive matter, the specificit y analysis of the FAA CLEEN Program should be based on the
programme itself, rather than the contractual instrument through which the FAA made payments
to Boeing. However, the United States does not consider the Panel's framing of the question or its
references to the Boeing CLEEN Agreement at paragraph 8.552 to be inconsistent with this view.
5.64. The Panel declines the European Union's request because the references in paragra ph 8.552
of the Interim Report are not typographical errors. Rather, they reflect tha t the subsidies at issue
which are the subject of the specificity analysis are subsidies resulting from financial contributions
provided under the Boeing CLEEN Agreement. Accordingly, the question before us in this Section
of the Report is whether "the subsidies provided to Boeing under the Boeing CLEEN Agreement are
specific within the meaning of Article 2.1(a) of the SCM Agreement". 44 As explained in
Section 8.2.8.6.3.3 of this Report , the Panel agrees that the analysis of whet her a subsidy
provided to an individual recipient is specific must take into account the broader programme in
which context the subsidy is provided. However, that does not mean that we should treat that
programme itself as the subsidy that is the object of the specificity analysis. In sum, we consider
that the references to the Boeing CLEEN Agreement correctly refl ect the measure that we fi nd to
be a subsidy and in no way prevent us from adequately taking into account, for purposes of the
specificity analysis, the context within this measure is applied pursuant to the FAA CLEEN Program.
Paragraphs 8.614, 8.628 (now 8.627), 8.633 (now 8.632), and 8.634 (now 8.633)
5.65. The European Union requests that the Panel change the references to "IRB" in singular form
in a number of places in paragraphs 8.614, 8.628 (now 8.627), 8.633 (now 8.632), and 8.634
(now 8.633) to reflect, consistent with the original panel report and Exhibit EU -419, that multiple
IRBs were issued in any given year.
5.66. The United States agrees that Wic hita typically issued more than one IRB per year.
However, it considers the Panel's use of the singular to be typically consistent with this
understanding and thus sees no need to pluralize "IRB" in the insta nces identified by the
European Union in paragra phs 8.614, 8.628 (now 8.627) , and the second through fourth
sentences of paragraph 8.633 (now 8.632) . In the first and last sentences of paragraph 8.633
(now 8.632), the United States suggests alternative formulations to address the concern raised by
the E uropean Union. The United States has no objection to the European Union's proposal
regarding paragraph 8.634 (now 8.633).
5.67. The Panel has modified paragraphs 8.614, 8.628 (now 8.627) , 8.633 (now 8.632) , and
8.634 (now 8.633) of the Interim Report as requeste d by the European Union, consistent with the
terminology used in the original panel report.
Paragraph 8.787 (now paragraph 8.786)
5.68. The United States requests the Panel to modify its summary of the United States' argument
in the last sentence of paragraph 8. 787 (now paragraph 8.786), to reflect the terms on which the
argument was made in the United States' submission. The European Union does not make any
comment on the United States request.
5.69. The Panel has made the modification requested by the United States.
Paragraph 8.947 (now paragraph 8.950)
5.70. The United States requests the Panel to modify the fifth sentence of paragraph 8.947 (now
paragraph 8.950), for the sake of clarity and to mirror the text of Article 2.1(c) and the arguments
contained in the United Sta tes' submissions. The European Union does not make any comment on
the United States' request.
5.71. The Panel has made the modification requested by the United States.

44 See para. 8.546 below.

Footnote 2603 to paragraph 8.1050 (now footnote 2614 to paragraph 8.1054)
5.72. The European Union requests the Panel to modify the description of its argument in its first
written submission, at footnote 2603 to paragraph 8.1050 (now footnote 2614 to
paragraph 8.1054), to clarify that its discussion of the three sales and use tax exemptions in its
first written submission relates to the post-2011 period.
5.73. The United States considers such modification unnecessary because it is clear that the
statement regarding the "three sales and use tax exemptions" refers to the post-2011 period.
5.74. The Panel has made th e modification of footnote 2603 to paragraph 8.1050 (now
footnote 2614 to paragraph 8.1054 ) as requested by the European Union, for the sake of greater
clarity.
5.2.5 Whether the United States has failed to take appropriate steps to remove the
adverse effects within the meaning of Article 7.8 of the SCM Agreement
Footnote 2646 (now footnote 2657) to paragraph 9.4(a)(iii)
5.75. The European Union requests the Panel to modify footnote 2646 (now footnote 2657 ) to
clarify that the European Union's arguments and evidence re garding impedance of exports of the
A350XWB (and threat thereof) in third-country markets were not limited to Boeing delivery market
shares significantly exceeding 50%. The European Union asserts that its arguments and evidence
also covered impedance (and threat thereof) based on sales lost in the relevant country markets,
and more generally based on the causal mechanisms that the European Union asserted and that it
argued indicated higher counterfactual sales volumes and market shares for Airbus, absent th e
U.S. subsidies. The European Union also requests the Panel to add the word "significantly" before
"50%" in footnote 2646 (now footnote 2657) to reflect that the European Union's market share -
based argument regarding impedance applied where Boeing's marke t share significantly exceeds
50%.
5.76. The United States does not make any comment with respect to the first aspect of the
European Union's request. As to the requested modification concerning the insertion of the word
"significantly" before 50%, the United St ates requests that if the Panel were to make the
modification, it do so in a manner that clarifies that the European Union asserts that Boeing is
projected to make significantly more than 50% of deliveries of the relevant aircraft, so as to avoid
giving the impression that a characterization of the market share evidence by the European Union
is a fact.
5.77. The Panel has modified footnote 2646 (now footnote 2657) in the manner requested by the
European Union, and consistent with the United States' qualification.
Paragraph 9.11
5.78. The European Union requests the Panel to modify the second sentence of paragraph 9.11 to
more accurately reflect the European Union's arguments that the pre -2007 and certain post-2006
aeronautics R&D subsides affect Boeing's technology dev elopment, while the remaining post-2006
subsides affect Boeing's LCA pricing behaviour.
5.79. The United States does not consider the European Union's requested revision to be
inaccurate. However, it notes that the Panel was laying out the g eneral contours of th e
European Union's causation allegations, which are based on the alleged effects of subsidies on a
horizontal basis rather than on the basis of a particular Boeing aircraft alleged to be subsidized. In
this context, 2006/2007 serves as the general line of division between the subsidies alleged to
cause technology effects and the subsidies alleged to cause price effects. The United States
considers that this latter feature could be lost if the European Union's proposed phrasing of
"certain post-2006" subsidies were adopted. The United States therefore proposes a modification
to the second sentence of paragraph 9.11 which notes that "generally" the post -2006 subsides
affect Boeing's pricing behaviour, with a footnote after the word "generally" to explain that the
European Union argues that a relatively small number of post -2006 aeronautics R&D subsidies,
like the pre -2007 aeronautics R&D subsidies, operate through a technology causal mechanism

rather than a price causal mechanism, with a citation to paragraphs 9.198 and 9.199 of the
Interim Report.
5.80. The Panel has decided that, given that paragraph 9.11 is part of the "Introduction" and
provides only a general explanation of the European Union's arguments, it is preferable at this
point in the discussion to refer to the basic distinction that the European Union draws between the
effects of the pre -2007 aeronautics R&D subsidies, on the one hand, and those of the post -2006
subsidies (including the majority of the post -2006 aeronautics R&D subsidies), on the other. 45
However, it also considers that it is appropriate to add a footnote providing greater detail
regarding the European Union's arguments concerning the causal pathway through which certain
post-2006 aeronautics R&D subsidies are alleged to operate. T he Panel has modified
paragraph 9.11 accordingly.
Footnote 2679 (now footnote 2691) in Table 5 of paragraph 9.28
5.81. The United States requests the Panel to modify footnote 2679 (now footnote 2691 ) to
indicate that it is the European Union's view that the 767, A340, a nd Original A350 are no longer
in any LCA product market. The European Union does not make any comment on the United States
request.
5.82. The Panel has made the modification requested by the United States.
Footnote 2710 (now footnote 2724) to paragraph 9.50
5.83. The United States requests the Panel to modify footnote 2710 (now footnote 2724) to clarify
that the various top tier Boeing customers reportedly obtain the benefits of Boeing's
"most-favoured customer" clause, to avoid giving the impression that the Panel is publicly
revealing HSBI information as to the contractual terms extended to any specific Boeing customers.
The European Union does not make any comment on the United States request.
5.84. The Panel has made the modification requested by the United States.
Paragraph 9.51
5.85. The European Union requests the Panel to delete the last two sentences of paragraph 9.51
because it considers that it is not factually correct that the Panel "does not have before it direct
evidence of the airframe prices actually agreed between Boeing and the airline and leasing
company customers in any sales campaigns". The European Union refers to the fact that the
United States had provided pricing for a number of sales that Boeing had secured, which
information the European Union had summariz ed in an exhibit. 46 The European Union also points
to the fact that it had provided pricing summaries, in the form of Airbus' business control sheets,
associated with final offers Airbus made to potential customers. The European Union notes that the
Panel i tself discusses pricing information for certain single -aisle sales campaigns, in
non-confidential form in paragraphs 9.385 -9.388 and 9.398 -9.407 of the Interim Report (now
paragraphs 9.382-9.385 and 9.395-9.404), and in confidential form in Appendix 2. Fin ally, the
European Union notes that at paragraph 9.392 (now paragraph 9.38 9), in Table 13, the Panel
includes (in the HSBI version of the Interim Report), average actual 2012 prices of certain Boeing
aircraft, derived from information provided by the Unite d States in response to the Panel's request
for information pursuant to Article 13 of the DSU.
5.86. The United States does not object to clarification or deletion of the penultimate sentence of
paragraph 9.51, which it considers could be confusing in light of t he Panel's surrounding
discussion. It also does not view the deletion of the last sentence identified by the European Union

45 The Panel notes moreover, that although the European Union argues that certain post-2006
aeronautics R&D subsidies operate through a technology causal mechanism rather than a price causal
mechanism, the European Union also makes an alternative argument that, should the Panel disagree that
certain post-2006 aeronautics R&D subsidies operate at present through a technology causal mechanism, they
would operate on a different basis through a price causal pathway. (European Union's response to Panel
question No. 43, para. 279 and fn 352). Therefore, the overall description of the European Union's arguments
46 Comparison of Net Aircraft Price and Appraised Value, (Exhibit EU-1183) (HSBI).

as "particularly problematic" as the Report will read coherently without it. However, it considers
that the last sentence of paragra ph 9.51 is clearly and unambiguously supported by the evidence
cited by the Panel.
5.87. The Panel has modified paragraph 9.51 to delete the second -to-last sentence of that
paragraph, and replaced it with the text that previously appeared in footnote 2711.
Paragraph 9.64
5.88. The European Union requests the Panel to revise the first sentence of paragraph 9.64 to
accurately reflect the European Union's argument, which is that all of the post -2006 subsidies,
except certain aeronautics R&D subsidies , enable Boeing to l ower the prices of its LCA in
competitive sales campaigns. The United States has no objection to the European Union's request.
5.89. The Panel has modified the first sentence of paragraph 9. 64 as requested by the
European Union. The Panel has added additional re ferences to the European Union's arguments
that certain post-2006 aeronautics R&D subsidies, identified in Exhibit EU -1265, presently operate
through a technology causal mechanism, while the remainder of the post -2006 aeronautics R&D
subsidies operate at p resent through a price causal mechanism. 47 The Panel has also included
cross-references to two conditional alternative arguments made by the European Union in
footnote 352 to its response to Panel question No. 43, that should the Panel disagree that certain
post-2006 aeronautics R&D subsidies operate, at present, through a technology causal
mechanism, alternatively, they operate through a price causal mechanism under so -called
"Category 2", and should the Panel disagree with that argument, alternatively, the y operate "on a
different basis", through a "price effects" causal pathway, as described for so -called "Category 3"
subsidies.
Footnote 2834 to paragraph 9.128 (now footnote 2849 to paragraph 9.127)
5.90. The European Union requests the Panel to delete footnote 2834 to paragraph 9.128 (now
footnote 2849 to paragraph 9.127). In footnote 2834 (now footnote 2849), the Panel contrasts the
findings in the original proceeding regarding the nature and effects of the aeronautics R&D
subsidies with those of the original panel in EC and certain member States – Large Civil Aircraft
regarding the nature and effects of certain subsidies at issue in that dispute on Airbus' ability to
launch and bring to market various Airbus LCA. The European Union appears to disagree with the
Panel's description of the findings of the original panel in EC and certain member States – Large
Civil Aircraft and, in any case, argues that the Panel's description is incomplete and unnecessary to
the resolution of issues in this proceeding, and therefore should be deleted.
5.91. The United States objects to the European Union's request. The United States argues that
footnote 2834 (now footnote 2849) contrasts the findings in the original dispute with those in EC
and certain member States – Large Civil Aircr aft in order to illumin ate the discussion in
paragraph 9.128 (now paragraph 9.127) , which includes the statement that the aeronautics R&D
subsidies were not found to have brought into existence any technology or product that would not
otherwise exist. The United States considers that the comparison with EC and certain member
States – Large Civil Aircraft is apt, drawing the distinction between subsidies that accelerate a
product's entry into a market and subsidies that enable the very existence of a product . The
United States considers that the Panel's characterization of EC and certain member States – Large
Civil Aircraft is correct, referring to the statements of the panel in the paragraphs 7.1949 and
7.1993 of the panel report, and of the Appellate Body a t paragraphs 1264, 1299 and 1300 of the
Appellate Body Report. According to the United States, these statements leave no doubt that
footnote 2834 (now footnote 2849) accurately describes the relevant findings in EC and certain
member States – Large Civil Aircraft and there is no "nuance" that the Panel fails to capture and
no unsettled "matter" from another dispute. Finally, the United States adds that it considers it
entirely normal and appropriate for panels to illustrate a point by comparing or contrasti ng the
dispute before it with a prior dispute.
5.92. The Panel does not consider that the discussion of certain of the causation findings made by
the panel and accepted by the Appellate Body in EC and certain member States – Large Civil

47 See European Union's response to Panel question No. 43, paras. 279 and 280.

Aircraft, can be misconstrued as attempting to comprehensively capture all aspects of the adverse
effects findings in that dispute. However, the Panel has modified footnote 2834 (now
footnote 2849) in order to clarify that this was not the Panel's intention. Rather, the Panel's
intention is simply to highlight an important distinction between the "technology effects" findings
of the panel in the original proceeding in this dispute, and the findings of the panel in EC and
certain member States – Large Civil Aircraft regarding the nature, operation and effects of certain
of the subsidies at issue in that dispute, because the difference, as explained in paragraph 9.129
(now paragraph 9.128) , is highly relevant to the nature of the counterfactual question that the
Panel should pose in d etermining whether the effects of the pre -2007 aeronautics R&D subsidies
have been demonstrated to continue in the post -implementation period. The Panel therefore
declines the European Union's request.
Paragraph 9.157 (now paragraph 9.156)
5.93. The United Stat es requests the Panel to modify the second sentence of paragraph 9.157
(now paragraph 9.156) to better express the point that the Panel appears to be making, which is
that, as the European Union itself observes, the European Union does not argue that, abse nt the
subsidies, the technology in question would never have existed.
5.94. The European Union agrees with the United States that t he second sentence of
paragraph 9.157 (now paragraph 9.156) is somewhat difficult to follow and ambiguous. However,
it also consid ers that the United States' proposed alternative formulation is equally difficult to
follow. The European Union suggests alternative wording to avoid combining the phrase "as the
European Union itself observes" with the phrase "the European Union does not argue that".
5.95. The Panel has made the requested modification in the terms suggested by the
European Union.
Paragraph 9.181 (now paragraphs 9.180 and 9.181)
5.96. The European Union requests the Panel to clarify whether the discussion that follows the
summary of th e United States' arguments in the first two sentences of paragraph 9.181 (now
paragraph 9.180) is also a summary of U.S. argument, or is intended to frame the Panel's own
analysis of the issues raised by the arguments. In the case of the former, the Europe an Union
requests the Panel to revise the discussion to clearly indicate that the discussion represents the
United States' arguments. In case of the latter, the European Union suggests that the Panel begin
a new paragraph that commences from the end of the second sentence of paragraph 9.181 (now
paragraph 9.181). The United States has no comment on the European Union's request.
5.97. The Panel confirms that the final three sentences of paragraph 9.181 of the Interim Report
are intended to frame the Panel's analysis of the issues raised by the parties' arguments. We agree
with the European Union's suggestion that, for the sake of clarity, it is preferable for the Panel to
present those sentences in a new paragraph (now paragraph 9.181) . We have revised the text
accordingly.
Paragraph 9.184
5.98. The European Union requests the Panel to modify the final sentence of paragraph 9.184 to
refer only to the 787 -10, and not also to the 787 -9/10. The European Union explains that Boeing
launched the 787 -9 as part of the original f amily of 787 LCA in 2004, with entry into service
scheduled later than for the 787 -8. The United States agrees with the revision requested by the
European Union.
5.99. The Panel has made the modification requested by the European Union.
Footnote 3132 to paragraph 9.302 (now footnote 3152 to paragraph 9.300)
5.100. The European Union requests the Panel to add a summary of the European Union's
arguments regarding the legal basis for finding significant price suppression across two product
markets. More specifically, the E uropean Union recalls that it argued that the omission from the
second part of Article 6.3(c), of the requirement that the "subsidized product" and the "like

product" be in the same market, means that significant price suppression, price depression, and
lost sales may be established where the effects of a subsidy arise in a product market separate
from the product market in which the subsidized product competes. The United States has no
comment on the European Union's request.
5.101. The Panel has made the addition requested by the European Union.
Footnote 3164 to paragraph 9.324 (now footnote 3185 to paragraph 9.322)
5.102. The European Union requests the Panel to add the relevant finding by the original panel
referenced in paragraph 7.1793 of that report as a quotation to this footnote which it considers
comprises the sixth through eighth sentences of that paragraph.
5.103. The United States notes that footnote 3164 (now footnote 3185) cites to paragraph 7.1793
of the Panel Report in US – Large Civil Aircraft (2 nd complaint), which it argues includes relevant
text that the European Union has not requested be included in the quotation from that paragraph.
The United States considers that, rather than adding an inco mplete quotation from
paragraph 7.1793, as proposed by the Europea n Union, or alternatively quoting virtually the
entirety of the cited paragraph, the best course of action is to reject the European Union's request
and leave footnote 3164 (now footnote 3185) unchanged.
5.104. The European Union has not adequately explained why it considers it appropriate to quote
only the sixth through eighth sentences of paragraph 7.1793 of the panel report in US – Large Civil
Aircraft (2 nd complaint) with the Panel's citation to that paragraph in footnote 3164 (now
footnote 3185).
5.105. The Panel therefore declines to make the modification requested by the European Union.
Footnote 3277 to paragraph 9.392 (now footnote 3288 to paragraph 9.389)
5.106. The European Union requests the Panel to clarify, in the second sentence of footnote 3277
(now footnote 3288), that the cited number of aircraft alleged to be lost sales between 2007 and
2012 covers not only alleged lost sales of the A350XWB but also of the A320neo and A320ceo. The
United States agrees with the requested correction.
5.107. The Panel has made the correction requested by the European Union.
Paragraph 9.461 (now paragraph 9.458)
5.108. The European Union requests the Panel to correct the second sentence of paragraph 9.461
(now paragraph 9.458) by adding the word "and" before the phrase "there were no other
non-price factors that explain Boeing's success in obtaining the sale …".
5.109. The United States responds that the European Union's proposed revision would be
confusing because the placement of the commas and the repeated use of the word "and" would
leave uncertainty as to which phrase or phrases explain what the Panel means by "price -sensitive"
and which ph rase or phrases are criteria in addition to price sensitivity that together resulted in
two of the examined sales campaigns. The United States proposes an alte rnative modification to
the second sentence of paragraph 9.461 (now paragraph 9.458) in which the word "and" would be
inserted as proposed by the European Union, but the comma that precedes that word would be
deleted.
5.110. The Panel has modified the second sent ence of paragraph 9.461 (now paragraph 9.458)
taking into account the comments of both parties.
Paragraph 9.483 (now paragraph 9.480)
5.111. The European Union requests the panel to add the term "significant" in the last clause of
paragraph 9.483 (now paragraph 9.480) to accurately reflect the European Union's arguments as
presented in paragraphs 9.415 and 9.432 (now paragraphs 9.412 and 9.429) . The United States
has no comment on the European Union's request.

5.112. The Panel has made the modification requested by the European Union.
5.2.6 Appendix 1
Paragraph 49
5.113. The United States argues that the evidence before the Panel does not support the
conclusion, expressed in the final sentence of paragraph 49 of Appendix 1 , that collaborative
research and development agreements "typic ally" give [***]. The United States accordingly
requests that the final sentence of paragraph 49 of Appendix 1 be modified to state only that

5.114. The United States argues that the analysis of the Panel in the preceding section of
Appendix 1 does not con tain a comprehensive discussion of the amounts paid by the
commissioning parties to use the intellectual property. Moreover, according to the United States,
taking the 18 R&D agreements identified by Berneman and Razgaitis as the broadest example:
a. 14 required the commissioning party to pay royalties to the commissioned party in the
event it made commercial sales of a product using the results of the contracted
research, without regard to whether the sale was subject to an exclusive or
non-exclusive licence;
b. a 15th contract called for the payment of royalties in some situations and profit -sharing
in others;
c. some of the agreements granted the commissioning party only an exclusive licence,
either because that licence covered essentially all products or because the exclusive
licence applied only to products that the commissioning party chose to commercialize,
while the commissioned party retained all of the rights with respect to other products;
d. nine of the 18 agreements required the commissioning party to make milestone
payments in addition to royalties, typically linked to the achievement of steps that lead
to marketability of products resulting from the research.
5.115. On the basis of the foregoing, the United States argues that the evidence before the Panel
does not support a conclusion that collaborative research and development agreements [***].
5.116. The European Union requests the Panel to leave unchanged the language of the text of the
Interim Report in paragraph 49 of Appendix 1.
5.117. The European Union considers that t he United States' comment appears to be focused on
the Panel's reference to the "cost" of non -exclusive licences for the commissioning party (in the
sense of the amounts paid by the commissioning parties to use the intellectual property), and the
reference in the last sentence of paragraph 49 to [***]. It notes, however, that the United States
requests the Panel to remove all reference to non -exclusive licences, and argues that such a
request is inconsistent with the fact that the Panel correctly explains i n paragraph 49 that, under
the sample collaborative R&D agreements, the commissioning party obtains [***].
5.118. The European Union further argues that the United States' references to the agreements
identified by Berneman and Razgaitis do not substantiate its request, including with respect to the
specific question of cost. Rather, the European Union considers that those agreements support the
Panel's conclusion that [***]. The European Union argues, more specifically that some of the 18
R&D agreements automati cally provide the commissioning party with royalty -free licences to
commercially use foreground intellectual property, while under other agreements in this group, the
commissioning party receives patent ownership rights to some of the newly developed techn ology,
and therefore does not need to acquire or pay for a licence to commercially use their own
intellectual property. Both of these situations, according to the European Union, are situations
where the commissioning party can [***], in parallel with the commissioned party, fully
consistent with the line in the last sentence of paragraph 49 of Appendix 1 that the United States
requests be deleted.

5.119. The European Union further observes that the final sentence in paragraph 49 appears in
the "Conclusions" secti on of Appendix 1, which considers evidence beyond the 18 agreements
referred to by the United States in its comment above, and includes also the Panel's examination
and findings under Contracts A through F, which fully support the conclusion in the final s entence
of paragraph 49 that the United States requests be deleted. In this regard, the European Union
notes that, under Contracts A through F, [***]. The European Union refers to the Panel's
summary of Contracts A through F in paragraph 21 of Appendix 1, noting that the United States
does not object to the Panel's conclusion that, with respect to Contracts A through F, [***]. The
European Union accordingly argues that, in requesting deletion of an important aspect of the
Panel's conclusion, the United States has chosen to ignore an entire section of the Panel's analysis
upon which that conclusion is partially based.
5.120. We consider that it is possible to address the United States' objection to the accuracy of
the last sentence of paragraph 49 of Appendix 1 without deleting the whole phrase that follows (b)
in that sentence, which as the European Union suggests, is not warranted. The Panel has modified
the last sentence of paragraph 49 of Appendix 1 accordingly.
5.3 The BCI or HSBI designation of certain information
5.121. The parties each made a number of requests regarding the bracketing and redaction of
information in the Interim Report as BCI or HSBI. The United States agrees with the
European Union's requests and the European Union did not com ment with respect to the
United States' requests.
5.122. The Panel has made the requested changes to the designations of certain information as
BCI or HSBI.
6 INTRODUCTION TO PANEL FINDINGS
6.1 Alleged non-compliance of the United States with Article 7.8 of the SCM Agreement
as the main subject of this compliance proceeding
6.1. Our task in this proceeding under Article 21.5 of the DSU is to resolve a "disagreement as to
the existence or consistency with a covered agreement of measures taken to comply with the
recommendations and rulings" of the DSB.48 The central issue before us, in this regard, is whether
the United States has complied with the recommendations and rulings adopted by the DSB in the
original proceeding pursuant to Article 7.8 of the SCM Agreement.49
6.2. The European Union claims that "the United States has failed to implement the DSB 's
recommendations in US – Large Civil Aircraft (2nd complaint) i.e. that it withdraw the subsidies or
take appropriate steps to remove the adverse effects, pursuant to Article 7.8 of the SCM
Agreement".50
6.3. The United States asserts that "the United States has either withdrawn the relevant subsidies
or taken appropriate steps to remove their adverse effects. The United States has accordingly
complied fully with the recommendations and rulings of the DSB".51
6.4. While the European Union's request for the establishment of a panel also refers to Article 4.7
of the SCM Agreement 52, the European Union has indicated that it does not request the Panel to
make a finding that the United States has failed to comply with that provision.53

48 We discuss relevant panel and Appellate Body decisions relating to the purpose and proper scope of
proceedings under Article 21.5 of the DSU in Section 7 of this Report.
49 See para. 6.7 below.
50 European Union's first written submission, para. 1933.
51 United States' first written submission, para. 1.
52 Paragraph 6 of the European Union's request for the establishment of a panel reads:
By communication dated 23 September 2012, the United St ates notified the
European Union that the United States has taken a number of actions allegedly
withdrawing the subsidies or removing their adverse effects (23 September
notification). The actions and events listed by the United States in its

6.5. We note that the European Union also claims that the measures at issue in this proceeding
are inconsistent with Articles 3.1(a) and (b) and 3.2 of the SCM Agreement and Article III:4 of the
GATT 1994. Insofar as these claims are within the sco pe of this proceeding, we address them in
Section 10 of this Report.
6.2 Article 7.8 of the SCM Agreement and Article 19 of the DSU
6.6. Article 7.8 of the SCM Agreement provides:
Where a panel report or an Appellate Body report is adopted in which it is determin ed
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.
6.7. In the original proceeding in this dispute the Appellate Body recommended:
{T}hat the DSB request the United States 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. More
specifically, having regard to the recommendation made by the Panel in paragraph 8.9
of its Report and the provisions of Article 7.8 of the SCM Agreement, the Appellate
Body recommends that the United States take appropriate steps to remove the
adverse effects found to have been caused by its use of subsidies, or to withdraw
those subsidies.54
6.8. Article 19.1 of the DSU provides that where a panel or the Appellate Body concludes that a
measure is inconsistent with a covered agreement, it shall recommend "that the Member
concerned bring the measure into conformity with that agreement ". It would appear from the
Appellate Body's recommendation in the original proceeding that the Appellate Body rega rds the
requirements of Article 7.8 of the SCM Agreement as a specific expression of this general
compliance obligation.
6.9. We note, in this regard, that in disputes involving findings of actionable subsidies, the
Appellate Body has consistently formulated i ts recommendations in the terms used in Article 19.1
of the DSU.
6.10. Thus, in US – Upland Cotton and US – Upland Cotton (Article 21.5 – Brazil), the Appellate
Body upheld panel findings regarding actionable subsidies provided by the United States to U.S.
cotton producers and recommended that "the Dispute Settlement Body request the United States
to bring its measures, found in this report and in the panel report as modified by this report to be

23 September 2012 notification do not withdraw the subsidies or remove their
adverse effects, as required by Articles 4.7 and 7.8 of the SCM Agreement.
Instead, after the end of the implementation period on 24 September 2012, the
United States maintains specific subsid ies that cause present adverse effects to EU
interests, that are prohibited subsidies contingent on export performance or on the
use of domestic over imported goods, and that are inconsistent with the
United States' national treatment obligations, as detai led below in section II.
Accordingly, in the view of the European Union, the United States has failed to
achieve compliance with the recommendations and rulings of the DSB.
(emphasis added)
See also European Union's first written submission, para. 11.
53 European Union's second written submission, para. 107. Therefore, we see no need to rule on the
request of the United States for a finding that Article 4.7 is not within the Panel's terms of reference.
(United States' request for preliminary rulings, dated 13 November 2012, paras. 58 and 59). We agree with
the European Union that the fact that it does not request the Panel to make findings under Article 4.7 in this
proceeding does not mean that the Panel is precluded from addressing the European Union's claims under
Article 3 of the SCM Agreement. (European Union's second written submission, para. 109).
54 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1352. (emphasis original)

inconsistent with the Agreement on Agriculture and the SCM Agreement, into conformity with its
obligations under those Agreements".55
6.11. Similarly, in EC and certain member States – Large Civil Aircraft , the Appellate Body
observed that to the extent that it had upheld the Panel 's findings regarding actionable subsidies
or those findings had not been appealed, "the Panel's recommendation pursuant to Article 7.8 of
the SCM Agreement, in paragraph 8.7 of the Panel Report, that 'the Member granting each subsidy
found to have resulted in such adverse effects, 'take appropriate st eps to remove the adverse
effects or … withdraw the subsidy'', stands". The Appellate Body then recommended "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 inco nsistent with the SCM Agreement , into conformity with its
obligations under that Agreement".56
6.12. We also note the Appellate Body's discussion in US – Upland Cotton (Article 21.5 – Brazil) of
the relationship of Article 7.8 of the SCM Agreement to the general DSU rules and procedures:
Article 7.8 is one of the "special or additional rules and procedures on dispute
settlement contained in the covered agreements " that are identified in Article 1.2 and
Appendix 2 of the DSU, which prevail over the general DSU rul es and procedures to
the extent that there is a difference between them. As we see it, Article 7.8 specifies
the actions that the respondent Member must take when a subsidy granted or
maintained by that Member is found to have resulted in adverse effects t o the
interests of another Member. This means that, in order to determine whether there is
compliance with the DSB 's recommendations and rulings in a case involving such
actionable subsidies, a panel would have to assess whether the Member concerned
has taken one of the actions foreseen in Article 7.8 of the SCM Agreement.57
6.13. The fact that in the original proceeding in this dispute the Appellate Body formulated its
recommendation under Article 7.8 of the SCM Agreement, as a specific instance of the general
obligation in Article 19.1 of the DSU that a Member bring its measure into conformity with its
obligations under a covered agreement , suggests to us that the Appellate Body does not consider
that the compliance obligations under Article 7.8 of the SCM Agree ment are of a fundamentally
different nature than the compliance obligations under Article 19.1 of the DSU. That the Appellate
Body interprets Article 7.8 in harmony with Article 19 of the DSU 58 is also apparent from the fact
that when the Appellate Body di scussed the scope of Article 7.8 in US – Upland Cot ton
(Article 21.5 – Brazil), it observed that "remedies in WTO law are generally understood to be
prospective".59
6.14. The Appellate Body has explained that Article 7.8 of the SCM Agreement will usually require
a Member to take "affirmative action":
Pursuant to Article 7.8, the implementing Member has two options to come into
compliance. The implementing Member: (i) shall take appropriate steps to remove the
adverse effects; or (ii) shall withdraw the subsidy. The use of the terms "shall take"
and "shall withdraw" indicate that compliance with Article 7.8 of the SCM Agreement

55 Appellate Body Reports, US – Upland Cotton, para. 764; and US – Upland Cotton (Article 21.5 –
Brazil), para. 449. Although in the latter case the Appellate Body did not refer to Article 7.8 in its own
recommendation, elsewhere in its report it upheld the panel's finding that the United States had failed to
comply with Article 7.8. (Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 447).
56 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1416 and 1418.
57 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 235 (fns omitted). See also
para. 240 ("Article 7.8 informs the meaning and scope of the DSB's recommendations and rulings arising from
the original proceedings. In our view, Article 7.8 specifies the actions that the United States ha d to take in
order to comply with the DSB's recommendations and rulings").
58 On the notion of harmonious treaty interpretation in the context of the WTO Agreement, see e.g.
Appellate Body Report, US – Upland Cotton, para. 549.
59 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), fn 494. Another illustration of the
Appellate Body's perspective on the close relationship between Article 7.8 of the SCM Agreement and Article 19
of the DSU is its observation that "{a}lthough there is no specific provision in the SCM Agreement requiring a
panel to make a recommendation of withdrawal with respect to actionable subsidies, a panel may do so
pursuant to the general rule in Article 19.1 of the DSU". (Appellate Body Report, EC and certain member States
– Large Civil Aircraft, fn 1740).

will usually involve some action by the respondent Member. This affirmative action
would be directed at effecting the withdrawal of the su bsidy or the removal of its
adverse effects. A Member would normally not be able to abstain from taking any
action on the assumption that the subsidy will expire or that the adverse effects of the
subsidy will dissipate on their own.60
6.15. The issues in dispute in this proceeding pertain to a large extent to the question of whether
the United States has taken such "affirmative action " and, if so, whether that action has been
adequate.61 The diverging positions of the parties with rega rd to whether the United States has
taken such "affirmative action " reflect the very different narratives underlying the parties '
respective cases.
6.16. The United States ' basic narrative is that it has withdrawn most of the specific subsidies
found to have caused adverse effects in the o riginal proceeding and that the subsidies that have
not been withdrawn are too small to cause adverse effects. The United States argues that NASA
and DOD have greatly reduced the amount of research they pay Boeing to conduct under the
relevant contracts and agreements and that NASA has also modified the way it conducts research
so as to remove the aspects of its practices that led to the findings against the pre -2007 NASA
procurement contracts. The U.S. Congress terminated the FSC/ETI measures in 2006 and B oeing
has not received FSC/ET I deductions since then. The value of the tax abatements associated with
the pre -2007 City of Wichita IRBs is tiny, the City of Wichita has not issued any new IRBs to
Boeing, and the IRB programme is no longer specific. The Uni ted States considers that, by
withdrawing the FSC/ETI measures, it has removed the adverse effects of the Washington State
B&O tax rate reduction (the only remaining subsidy subject to the DSB recommendations and
rulings which has not been withdrawn) becau se the amount of that tax rate reduction is too small
by itself to cause adverse effects. 62 The United States alleges that the European Union engages in
a number of unsustainable efforts to inflate the value of, and expand the scope of, the measures it
is challenging in order to mask the reality that the measures within the scope of this proceeding,
which the United States has for the most part withdrawn and reduced in value, cannot be causing
any adverse effects, let alone the magnified effects alleged by the European Union.63
6.17. The European Union 's basic narrative is that, far from withdrawing the subsidies found to
have caused adverse effects to the European Union 's LCA -related interests in the original
proceeding, the U.S. federal, state , and local authorit ies have significantly increased those
subsidies and worsened their adverse effects. The very same subsidies that were found in the
original proceeding to have enabled the availability and advanced technology of the 787 and the
lower prices of the 737NG, p lus additional, closely related subsidies, exist at present and cause
present significant competitive harm to the European Union 's LCA -related interests. The
European Union argues that none of the U.S. subsidies at issue in the original proceeding has been
withdrawn. The European Union rejects the United States ' arguments that adding allegedly lower
annual amounts of post-2006 aeronautics R&D subsidies results in a reduction in subsidies. Rather,
adding new subsidies to the earlier set of massive, non -withdrawn subsidies, even at a lower rate,
increases the pool of subsidies and the adverse effects. 64 The Eu ropean Union regards the
United States' objections to the inclusion of certain measures within the scope of this proceeding
as being without merit, and it s arguments concerning the magnitudes of the subsidies as

60 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 236. (fn omitted)
61 Brazil, a third party to this proceeding, argues that the obligation in Article 7.8 to take appropriate
steps to remove the adverse effects means that a Member is generally expected to take affirmative action and
to actively intervene to remove the adverse effects. In circumstances where adverse effects have been found
to be caused by a subsidy that no longer exists at the time of implementation, the relevant question is whether
the Member in question has taken steps that are appropriate to break the causal relationship between the
subsidy and the adverse effects. Such steps will only be appropriate "if they impact on the specific adverse
effects found to exist and are likely to lead to the removal of the specific adverse competitive advantage that
resulted from the use of the subsidy". Brazil also recalls its position in the dispute in US – Upland Cotton
(Art. 21.5 – Brazil) that a finding of adverse effects "applies beyond the historical period considered by the
panel" and that Article 7.8 requires the Member whose subsidies have caused adverse effects "to take
appropriate steps to fully withdraw the present, ongoing, and future effects of the subsidies". (Brazil's
third-party submission, paras. 53-57).
62 United States' opening statement at the meeting with the Panel, para. 2. The United States submitted
an opening statement at the meeting with the Panel but did not submit a closing statement.
63 United States' opening statement at the meeting with the Panel, para. 3.
64 European Union's opening statement at the meeting with the Panel, para. 60.

depending on "atomising" the subsidy – an analysis the Appellate Body rejected. 65 The
European Union alleges that the United States has provided Boeing with USD 8.85 billion in
subsidies over the 200 7-2014 period, with the annual amounts significantly increasing each year.
Accordingly, the amount of subsidies available to Boeing for pricing down its LCA in strategic, price
sensitive sales campaigns is substantial and not insignificantly small, as the United States
suggests.66
6.3 Structure of the European Union's case that the United States has failed to withdraw
the subsidy and take appropriate steps to remove the adverse effects , within the
meaning of Article 7.8 of the SCM Agreement
6.18. It is well establis hed that the general rules on the allocation of the burden of proof in WTO
dispute settlement also apply to Article 21.5 of the DSU 67, including in cases involving an alleged
failure of a Member to take the steps required by Article 7.8 of the SCM Agreement . As a
consequence, the European Union as complaining party in this proceeding bears the burden of
demonstrating both that the United States has failed to withdraw the subsidy and that the
United States has failed to take appropriate steps to remove the ad verse effects , within the
meaning of Article 7.8. This aspect of the allocation of the burden of proof is not in dispute
between the parties.68
6.19. In this regard, we also note, and agree with, the observation of the panel in US – Upland
Cotton (Article 21.5 – Brazil) that there is "no support in the text of Article 7.8 of the SCM
Agreement and Article 21.5 of the DSU for the proposition that in a proceeding under Article 21.5
involving an alleged failure to comply with Article 7.8 of the SCM Agreement, a Membe r which has
not withdrawn the subsidy has the burden of showing that it has removed the adverse effects".69
6.20. Given that the burden of proof is on the European Union to demonstrate that the
United States has failed to comply with Article 7.8, our analysis in this Report proceeds on the
basis of an examination of the arguments and evidence advanced by the European Union. We find
it useful, in this respect, to set out in this Section of our Report how the European Union has
structured its case in accordance with its interpretation of Article 7.8.
6.21. The European Union argues that a finding of non -compliance with Article 7.8 requires a
determination that a Member grants or maintains subsidies after the end of the implementation
period70 and that these subsidies cause present adverse effects. 71 Thus, the European Union
interprets the obligation to "withdraw the subsidy " as an obligation not to grant or maintain the
subsidy after the end of the implementation period 72 and it interprets the obligation to "take
appropriate steps to remove the adverse effects " as an obligation to ensure that no present
adverse effects arise after the end of that period from any subsidies that are not withdrawn . In
light of this interpretation, the European Union claims that the United States has failed to comply
with its obligations under Article 7.8 on the basis that: (a) the United States has failed to withdraw

65 European Union's opening statement at the meeting with the Panel, para. 61.
66 European Union's opening statement at the meeting with the Panel, para. 86.
67 Appellate Body Report, Chile – Price Band Systems (Article 21.5 – Argentina), paras. 134-136; and
Panel Report, US – Upland Cotton (Article 21.5 – Brazil), para. 9.4.
68 European Union's first written submission, paras. 32, 45, and 48; United States' first written
submission, paras. 40 and 41.
69 Panel Report, US – Upland Cotton (Article 21.5 – Brazil), fn 89. The panel made this statement in
response to an argument of New Zealand as third party that "Article 7.8 of the SCM Agreement affects the
distribution of burden of proof in this proceeding under Article 21.5 of the DSU", such that "a Member that fails
to withdraw the measure in question then should have the burden of showing that it has removed the adverse
effects". (Panel Report, US Upland Cotton (Article 21.5 – Brazil), fn 89).
70 "Implementation period" as used by the European Union in this case means the period of six months
referred to in Article 7.9 of the SCM Agreement, which in this dispute ended on 23 September 2012.
71 See e.g. European Union's first written submission, para. 816:
In short, under Article 7.8 of the SCM Agreement, a compliance panel must find
that the responding Member has failed to comply with the recommend ations and
rulings of the DSB if two conditions are met: (i) it is demonstrated that the
responding Member grants or maintains subsidies after the end of the
implementation period, which it has failed to withdraw; and (ii) these
non-withdrawn subsidies presently cause adverse effects presently arising.
72 We consider that this interpretation of the phrase "withdraw the subsidy" is implicit in the
European Union's arguments. The European Union does not explicitly discuss the meaning of this phrase.

the subsidy, within the meaning of Article 7.8 , because it grants or maintains subsidies to Boeing
after the end of the implementati on period; and ( b) the United States has failed to take
appropriate steps to remove the adverse effects , within the meaning of Article 7.8 , because these
subsidies cause present adverse effects to the interests of the European Union, within the meaning
of Article 5 of the SCM Agreement. 73 These present adverse effects to the interests of the
European Union occur "in the form of tens of billions of U .S. dollars of lost revenue to Airbus
through significant lost sales, significantly suppressed prices, and disp laced or impeded market
shares in various LCA product markets".74
6.22. With respect to the European Union 's interpretation of Article 7.8, the United States
considers that "{i}n effect, the EU is asserting that a Member chall enging compliance under
Article 7.8 must make its entire case again ". The United States notes that "the DSU and the SCM
Agreement do not constrain a Member to adopt this approach " but that "as the EU does not
advance any other arguments, the question of whether it is the only way to demonstr ate
noncompliance under Article 7.8 is not before the panel".75
6.23. Thus, in light of how the European Union has framed its case, our task in this proceeding is
to determine whether the United States has failed to withdraw the subsidy within the meaning of
Article 7.8 because it grants or maintains subsidies to Boeing after the end of the implementation
period and, if so, whether the United States has failed to take appropriate steps to remove the
adverse effects, within the meaning of Article 7.8 , because these subsidies cause present adverse
effects. In proceeding on the basis, we do not mean to imp ly that we endorse the
European Union's apparent view that a finding of non -compliance with Article 7.8 always requires
this type of analysis.
6.24. While the central pro position advanced by the European Union in support of its claim that
the United States has failed to comply with Article 7.8 is that the United States grants or maintains
subsidies to Boeing after the end of the implementation period that cause present adv erse effects,
we see an important conceptual distinction in the manner in which the European Union purports to
substantiate this assertion between two groups of measures: seven types of "post-2006" subsidies
allegedly provided by the United States to Boein g since the reference period considered in the
original proceeding, on the one hand, and certain "pre-2007" NASA and DOD aeronautics R&D
subsidies at issue in the original proceeding, on the other.
6.25. The main argument of the European Union in support of its position that the United States
grants or maintains subsidies to Boeing after the end of the implementation period that cause
present adverse effects is that , subsequent to the 2004-2006 reference period considered in the
original proceeding, the United S tates has granted or maintained subsidies to Boeing that are of
"the same nature" as the subsidies that were found to be actionable in the original proceeding. In
this respect, the European Union asserts that the United States grants or maintains seven
categories of "post-2006 subsidies to Boeing 's LCA Division ".76 These post-2006 subsidies include
alleged subsidies provided pursuant to programmes that continue the programmes at issue in the
original proceeding and additional subsidies allegedly introduced b y the United States that the
European Union considers to be within the scope of this proceeding because of their relationship
with the measures at issue in the original proceeding.77
6.26. The European Union submits that the post -2006 subsidies at issue are eith er "similar to,
and essentially a continuation of " or "similar to " the subsidies the subject of the DSB
recommendations and rulings in the original proceeding:

73 See e.g. European Union's first written submission, paras. 5, 817, 818, and 1934.
74 European Union's first written submission, para. 818.
75 United States' first written submission, para. 41.
76 European Union's first written submission, para. 56, figure 1. See para. 8.55 below.
77 See e.g. European Union's request for the establishment of a panel, para. 7; and first written
submission, section V. It would appear that by "additional subsidies" within the scope of this proceeding the
European Union means: (a) NASA aeronautics R&D subsidies provided pursuant to "successor and other closely
related programmes"; (b) the FAA CLEEN Program; (c) DOD aeronautics R&D subsidies provided under DOD
RDT&E program elements that either did not exist at the time of the original panel or that previously existed
but did not fund Boeing's dual-use LCA relevant research and development until 2007; (d) the Washington
State Joint Center for Aerospace Technology Innovation; and (e) all of the South Carolina measures.
(European Union's first written submission, paras. 60 and 197; 229 and 232; 388 and 389; 541; and 734 and
736).

In the present dispute, the European Union challenges a number of post -2006
subsidies maintained by the United States. With respect to these subsidies, the
European Union demonstrated that NASA 's post-2006 aeronautics R&D subsidies are
similar to, and essentially a continuation of, NASA 's pre -2007 aeronautics R&D
subsidies. The European Union has also demonstrated that the FAA CLEEN Program is
similar to, and essentially a continuation of, NASA 's aeronautics R&D subsidies.
Similarly, the European Union established that the "new" DOD subsidies are similar to,
and essentially a continuation of, the NASA and DOD programmes at issue before the
original panel. The European Union also demonstrated that the South Carolina
subsidies are similar to the Washington, Kansas, and FSC/ETI subsidies at issue
before the original panel. In respect of all these measures , the European Union has
demonstrated that they are specific subsidies, within the meaning of Articles 1 and 2
of the SCM Agreement , that under current factual circumstances cause adverse
effects, rendering them inconsistent with Articles 5 and 6.3 of the SCM Agreement.78
6.27. The European Union submits that the post -2006 subsidies cause adverse effects in the
post-implementation period mainly through a "price causal mechanism".
6.28. On the other hand, with respect to certain pre -2007 NASA and DOD aeronautics R&D
subsidies that were found to be a cause of adverse effects by virtue of their technology effects in
relation to the Boeing 787 79, the European Union submits that the United States grants or
maintains subsidies to Boeing after the end of the implementation per iod and has thereby failed to
withdraw the subsidy , within the meaning of Article 7.8 , because the United States has failed to
modify the terms of the measures found to be actionable subsidies in the original proceeding so as
to remove the benefit conferre d by these measures. With respect to these pre -2007 NASA and
DOD aeronautics R&D subsidies, as well as the pre -2007 DOD procurement contracts which it
considers are within the scope of this proceeding, the European Union argues that the United
States has f ailed to take appropriate steps to remove the adverse effects , within the meaning of
Article 7.8 , because these subsidies continue to cause additional adverse effects in the post -
implementation period through a "technology causal mechanism ". Additionally, the
European Union argues that the particular adverse effects found in the original proceeding to have
been caused by the pre -2007 NASA and DOD aeronautics R&D subsidies to the 787 have not
ceased to exist and that these adverse effects themselves continue into the post -implementation
period.
6.29. Thus, it is possible to represent the main aspects of the European Union's case as follows:
a. The United States grants or maintains subsidies to Boeing after the end of the
implementation period and has thus failed to withdraw the subsidy, within the meaning
of Article 7.8 of the SCM Agreement:
 Post-2006 subsidies: The United States grants or maintains seven categories of
subsidies to Boeing that are similar to (and a continuation of) the measures found to
be actionable subsidies in the original proceeding.
 Pre-2007 NASA and DOD aeronautics R&D subsidies: The United States has failed to
modify the terms of the particular NASA and DOD transactions at issue in the original
proceeding in a manner that removes the benefit.80

78 European Union's response to Panel question No. 151, para. 8 (fns omitted). See also
European Union's comments on United States' response to Panel question No. 151, para. 9 ("{i}n sum, the
European Union has demonstrated that several of the post-2006 subsidies are of the same nature as, in the
sense that they are similar to and essentially a continuation of, the original subsidies, and that such subsidies
cause 'present' adverse effects (including a 'present' threat of various forms of serious prejudice). The
compliance Panel should, therefore, find that the United States has failed to comply with Article 7.8 of the SCM
Agreement." (fns omitted))
79 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1773 and 7.1797.
80 Thus, the European Union uses the term "subsidies granted or maintained after the end of the
implementation period" not only where an alleged financial contribution continues after the end of the
implementation period but also where the financial contribution may have ended before the end of the
implementation period but the benefit has not been removed. With regard to certain pre-2007 aeronautics R&D
subsidies, the European Union argues that the United States maintains, and has thus failed to withdraw, its

b. The subsidies granted or maintained by the United States cause present adverse effects
and the United States has thus failed to take appropriate steps to remove the adverse
effects, within the meaning of Article 7.8 of the SCM Agreement 81:
 Post-2006 subs idies: the subsidies cause new adverse effects in the
post-implementation period mainly through a price causal mechanism.
 Pre-2007 NASA and DOD aeronautics R&D subsidies: (i) the subsidies continue to
cause additional adverse effects in the post -implementation period through a
technology causal mechanism; and (ii) adverse effects found in the original
proceeding to have been caused by these subsidies have not ceased to exist and
continue into the post-implementation period.
6.30. The European Union's approach to attempt to demonstrate non -compliance with Article 7.8
on the basis of certain pre -2007 subsidies the subject of the DSB recommendations and rulings ,
and alleged post-2006 subsidies and their effects, rests on the premise that Article 7.8 applies not
only to the particular subsidy measures granted in the past that were the subject of the relevant
DSB recommendations and rulings in the original proceeding , but also to measures taken
subsequent to the conclusion of the original proceeding. We consider that this premise is
consistent with the Appellate Body 's interpretation of the concept of "withdrawal" of the subsidy
and its analysis in US – Upland Cotton (Article 21.5 – Brazil) of the scope of Article 7.8.
6.31. The meaning of the term "withdraw" the subsidy ha s been discussed mainly in disputes
involving Article 4.7 of the SCM Agreement, which provides that in case of a finding of a prohibited
subsidy "the panel shall recommend that the subsidizing Member withdraw the subsidy without
delay".
6.32. In Brazil – Aircraft (Article 21.5 – Canada), the Appellate Body observed that the word
"withdraw" in Article 4.7 of the SCM Agreement "has been defined as 'remove' or 'take away' and
as 'to take away what has been enjoyed; to take from '" and that "{t}his definition suggests that
'withdrawal' of a subsidy, under Article 4.7 of the SCM Agreement, refers to the 'removal' or
'taking away ' of that subsidy ".82 The Appellate Body considered that "to continue to make
payments under an export subsidy measure found to be prohibited is not consistent with the
obligation to 'withdraw' prohibited export subsidies, in the sense of 'removing or 'taking away'"
and thus found that "the recommendation of the DSB requires Brazil to stop issuing NTN -I bonds
as from 18 November 1999 pursuant to l etters of commi tment issued before
18 November 1999".83
6.33. In US – FSC (Article 21.5 – EC II), the Appellate Body considered that:
Where a Member withdraws a prohibited subsidy only in part, it has failed to comply
fully with its WTO obligation and the Artic le 4.7 recommendation continues to be in
effect with respect to the part of the subsidy that has not been withdrawn. Similarly,
full withdrawal of a prohibited subsidy within the meaning of Article 4.7 of the SCM
Agreement cannot be achieved by a "measure taken to comply " that replaces the
original subsidy with yet another subsidy found to be prohibited. In both instances,
the Member cannot be said to have complied with the obligation to withdraw fully the
prohibited subsidy.84
6.34. In US – Upland Cotton (Article 21.5 – Brazil), the Appellate Body clarified that the obligation
in Article 7.8 is not limited to the particular "subsidies granted in the past and which may have

subsidies, even where payments have ceased to be made pursuant to those measures, because the
United States has failed to take action to remove the benefit within the meaning of Article 1.1(b) in respect of
these measures. (European Union's second written submission, paras. 429 and 431; response to Panel
question No. 58, para. 15).
81 For a more detailed discussion of the different aspects of the European Union's adverse effects case
see, Section 9 of this Report.
82 Appellate Body Report, Brazil – Aircraft (Article 21.5 – Canada), para. 45. (fn omitted)
83 Appellate Body Report, Brazil – Aircraft (Article 21.5 – Canada), para. 45. See also Appellate Body
Report US – FSC (Article 21.5 – EC), paras. 229-231; and Panel Report, US – FSC (Article 21.5 – EC II),
para. 7.62.
84 Appellate Body Report, US – FSC (Article 21.5 – EC II), para. 83. (emphasis original)

formed the basis of a panel 's determination of present serious prejudice and adverse effect s" but
"is of a continuing nature, extending beyond subsidies granted in the past":
The question then becomes: With respect to which subsidies must the implementing
Member take such action? Such action would certainly be expected with respect to
subsidies granted in the past and which may have formed the basis of a panel 's
determination of present serious prejudice and adverse effects. However, we do not
see the obligation in Article 7.8 as being limited to subsidies granted in the past.
Article 7.8 express ly refers to a Member "granting or maintaining such subsidy ". The
verb "maintain" suggests, to us, that the obligation set forth in Article 7.8 is of a
continuous nature, extending beyond subsidies granted in the past. This means that,
in the case of recurring annual payments, the obligation in Article 7.8 would extend to
payments "maintained" by the respondent Member beyond the time period examined
by the panel for purposes of determining the existence of serious prejudice, as long as
those payments contin ue to have adverse effects. Otherwise, the adverse effects of
subsequent payments would simply replace the adverse effects that the implementing
Member was under an obligation to remove. Such a reading of Article 7.8 would not
give meaning and effect to th e term "maintain", which is distinct from the term
"grant", and has also been included in that Article. Indeed, it would render the term
"maintain" redundant. In addition, it would fail to give meaning and effect to the
obligation to "take appropriate steps to remove the adverse effects" in Article 7.8, and
to the requirement under Article 21.5 to "comply" with the DSB 's recommendations
and rulings, including the requirement to take the reme dial action foreseen in
Article 7.8 as a consequence of a finding of adverse effects.85
6.35. The Appellate Body found support for this view in the context provided by Article 4.7 of the
SCM Agreement. Referring to the above -quoted passage from US – FSC (Article 21.5 – EC II)86,
the Appellate Body stated that "{s}imilarly, a Mem ber would not comply with the obligation in
Article 7.8 to withdraw the subsidy if it leaves an actionable subsidy in place, either entirely or
partially, or replaces that subsidy with another actionable subsidy".87
6.36. In light of the Appellate Body 's interpretation of the term "withdraw" the subsidy and its
analysis of the scope of Article 7.8, it is clear that the scope of our analysis under Article 7.8 is not
inherently limited to the particular pre -2007 measures that were found to be inconsistent with the
SCM Agreement in the original proceeding and that subsidies allegedly granted to Boeing
subsequent to the reference period considered by the original panel can also be the basis for a
finding of non -compliance under Article 7.8. Although the subsidies at i ssue considered in US –
Upland Cotton (Article 21.5 – Brazil) were so -called recurrent subsidies, the reasoning of the
Appellate Body in our view is not limited to such subsidies and applies more generally to situations
in which a Member "leaves an actiona ble subsidy in place, either entirely or partially, or replaces
that subsidy with another actionable subsidy ".88 We note that the United States does not argue in
this proceeding that Article 7.8 does not apply to any measure taken subsequent to the conclusi on
of the original proceeding and that the Panel should therefore limit its analysis to the particular
pre-2007 measures the subject of the DSB recommendations and rulings. The United States
argues that many post -2006 measures raised by the European Union are not properly within the
scope of this proceeding on the basis that those measures do not have a sufficiently close nexus
with the measures the subject of the DSB recommendations and rulings to be considered
"measures taken to comply".89 However, the United States does not object to the inclusion of any
measure simply because it is a post-2006 measure. Our view that Article 7.8 can in principle apply
to measures introduced subsequent to the reference period considered in the original proceeding is
without prejudice to whether the particular post-2006 measures challenged by the European Union
are properly within the scope of this proceeding. We consider that matter below in Section 7 of this
Report.
6.37. In addition to the notion that Article 7.8 applies to both the subsidies found to be actionable
in the original proceeding and subsidies allegedly provided subsequent to the original proceeding,

85 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 237. (fns omitted)
86 See para. 6.33 above.
87 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 238.
88 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 238.
89 See Section 7 below.

another important aspect of the European Union 's analytical approach in this proceeding is that it
would appear to rest on a "prospective" interpretation of Article 7.8, both in respect of the
obligation to "withdraw the subsidy " and the obligation to "take appropriate steps to remove
adverse effects". The European Union expresses the failure of the United States to "withdraw the
subsidy" as resulting from the fact that after the end of the im plementation period the
United States grants or maintains subsidies to Boeing that cause present adverse effects. The
European Union does not argue that the United States has failed to comply with Article 7.8 by not
taking retroactive action with respect to the particular subsidies found to be actionable subsidies in
the original proceeding or to their effects. It has not argued that the United States was obligated
under Article 7.8 to seek repayment from Boeing of subsidies granted in the past. With regard to
the failure of the United States to take appropriate steps to remove the adverse effects , within the
meaning of Article 7.8, the European Union states explicitly that the obligatio n in Article 7.8 to
take appropriate steps to remove the adverse effects "does not refer to the removal of adverse
effects in the past " but "to the withdrawal of adverse effects in the sense of ensuring that there
are no adverse effects arising in the new reference period".90
6.38. As noted above, the Appellate Body observed in US – Upland Cotton (Article 21.5 – Brazil)
that "remedies in WTO law are generally understood to be prospective in nature ".91 Thus, the
Appellate Body does not consider that the fact that Ar ticle 7.8 uses a formulation that is different
from the language of Article 19 of the DSU supports a retrospective reading of that provision. The
Appellate Body 's approach in this respect appears to be different from the reasoning of the
compliance panel i n Australia – Automotive Leather II (Article 21.5 – US). The panel in that
proceeding concluded from an analysis of the ordinary meaning of the term "withdraw the subsidy"
in Article 4.7 of the SCM Agreement, "read in context, and in light of its object and purpose, and in
order to give it effective meaning, that this term is not limited to prospective action only but may
encompass repayment of the prohibited subsidy ". The panel also found that "repayment in full of
the prohibited subsidy is necessary in or der to 'withdraw the subsidy ' in this case ".92 The
European Union does not rely on the reasoning contained in this panel report in this proceeding.93
6.39. Aside from the Appellate Body Report in US – Upland Cotton (Article 21.5 – Brazil), we
consider that the context provided by Articles 7.9 and 7.10 of the SCM Agreement provides further
support for a prospective interpretation of Article 7.8.
6.40. Article 7.9 provides that:
In the event the Member has not taken appropriate steps to remove the adverse
effects of the s ubsidy or withdraw the subsidy within six months from the date when
the DSB adopts the panel report or the Appellate Body report, and in the absence of
agreement on compensation, the DSB shall grant authorization to the complaining
Member to take counterme asures, commensurate with the degree and nature of the
adverse effects determined to exist, unless the DSB decides by consensus to reject
the request.
6.41. Article 7.10 provides that:
In the event that a party to the dispute requests arbitration under paragrap h 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.

90 European Union's first written submission, para. 49.
91 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), fn 494.
92 Panel Report, Australia – Automotive Leather II (Article 21.5 – US), paras. 6.39 and 6.48.
93 Korea, a third party to this proceeding, argues that "the 'withdrawal' of subsidies described in
Article 7.8 of the SCM Agreement occurs when the government in question ceases to give any additional
subsidies" and that, notwithstanding the panel report in Australia – Automotive Leather II (Article 21.5 – US),
the concept of "withdrawal" does not impose "an obligation to have the recipient repay the amount of subsidies
received in the past". (Korea's third-party submission, fn 18). Brazil, a third party to this proceeding, argues
that "where the finding of adverse effects was based on the use of a subsidy from the past which no longer
existed at the time of the reference period for adverse effects, the 'withdrawal' of the subsidy will require more
than the simple reiteration of the fact that the subsidy no longer exists" and that the additional action required
must entail the "taking away" of the subsidy. (Brazil's third-party submission, para. 58).

6.42. The decision of the arbitrator in US – Upland Cotton (Article 22.6 – US II) suggests that a
determination under Article 7.10 of the SCM Agreement whether proposed countermeasures are
"commensurate with the degree and nature of the adverse effects determined to exist " should be
made on the basis of the effects found to exist as at th e end of the implementation period without
consideration of past adverse effects that have occurred prior to that date. 94 We consider that this
is relevant to the interpretation of the temporal scope of the obligation in Article 7.8 to take
appropriate step s to remove the adverse effects because i n our view, "the a dverse effects
determined to exist" in Articles 7.9 and 7.10 are "the adverse effects" in Article 7.8.
6.43. Finally, with regard to the requirement of Article 7.8 to "take appropriate steps to remove
the adverse effects", it is important to note that the European Union does not argue that present
adverse effects may be presumed to exist on account of the similarity of the post -2006 subsidies
with the measures found to confer subsidies in the original pro ceeding. The European Union
specifically states in this respect that it "disagrees that a finding of inconsistency with Article 7.8 of
the SCM Agreement can be based on presumed, rather than established, similar effects from the
new subsidies".95
6.4 Organization of Panel's analysis
6.44. In Section 7 of the Report , we examine whether certain measures and claims of the
European Union are outside the Panel's terms of reference or are otherwise outside the scope of
this proceeding.
6.45. Having identified the measures and claims within our terms of reference and within the
scope of this proceeding, we examine in Section 8 of the Report whether the United States has
failed to withdraw the subsidy , within the meaning of Article 7.8 of the SCM Agreement. Our
analysis in that S ection is structured around the distinction discussed above between the
arguments of the European Union regarding the pre -2007 NASA and DOD aeronautics R&D
subsidies and its arguments with respect to the broader group of the post-2006 subsidies:
a. Regarding the particular pre-2007 NASA and DOD aeronautics R&D subsidies the subject
of the DSB recommendations and rulings, we examine, in Section 8.1 of the Report,
whether the United States has failed to withdraw the subsidy on the b asis that the
modifications made by the NASA -Boeing Patent Licence Agreement and DOD -Boeing
Patent Licence Agreement to the terms of the NASA procurement contracts and DOD
assistance instruments identified in annexes A and B of the United States' Compliance
Communication have not removed the benefit , within the meaning of Article 1.1(b) of
the SCM Agreement.
b. In Section 8.2 of this Report, we examine whether the United States has failed to
withdraw the subsidy by granting or maintaining certain post -2006 subsidies to
Boeing: NASA aeronautics R&D measures; DOD aeronautics R&D measures 96; FAA
aeronautics R&D measure; tax exemptions and exclusions under FSC/ETI legislation and
successor legislation; tax abatements pro vided through IRBs issued by the City of
Wichita; Washington state and local measures; and South Carolina measures.
6.46. In Section 9 of the Report, we examine whether subsidies that the United States grants or
maintains after the end of the implementation peri od and which we will have found to be specific ,
within the meaning of Article 2 , cause present adverse effects in the form of certain kinds of
serious prejudice to the interests of the European Union, within the meaning of Articles 5(c) and
6.3 of the SCM Agreement, and wh ether the United States has thus failed to take appropriate
steps to remove the adverse effects. The Panel addresses the European Union's arguments
concerning the effects of the various subsidies on Boeing's product development and pricing
behaviour in the context of the particular LCA product markets and the particular Boeing LCA that
are said to benefit from the subsidies. The Panel therefore examines: (a) whether subsidies

94 Decision by the Arbitrator, US – Upland Cotton (Article 22.6 – US II), para. 4.118.
95 European Union's comments on United States' response to Panel question No. 151, fn 4. (emphasis
original)
96 As explained below in para. 8.289, this Section of the Report also includes an analysis of whether
pre-2007 DOD procurement contracts are specific subsidies within the meaning of Articles 1 and 2 of the
SCM Agreement.

benefiting the 787 and 777X cause serious prejudice in respect of the A350XWB and A330; and
(b) whether subsidies benefiting the 737 MAX and 737NG cause serious prejudice in respect of the
A320neo and A320ceo, respectively, in each case, through the various causal mechanisms alleged
by the European Union.
6.47. In Section 10 of the Report, we examine the European Unions' claims that the subsidies
granted or maintained by the United States are inconsistent with Articles 3.1(a) and (b) and 3.2 of
the SCM Agreement and Article III:4 of the GATT 1994, insofar as we will have found those claims
to be within our terms of reference and within the scope of this proceeding.
7 WHETHER CERTAIN MEASURES AND CLAIMS ARE OUTSIDE T HE PANEL 'S TERMS OF
REFERENCE OR ARE OTHERWISE OUTSIDE THE SCOPE OF THIS PROCEEDING
7.1 Introduction
7.1. In this Section of the Report, we address whether certain measures, and claims with respect
to certain measures, are outside the Panel's terms of reference or are otherwise outside the scope
of this proceeding. In Section 1.3.3, we indicate that on 13 November 2012, the United States
submitted a request for preliminary rulings, objecting to the inclusion of certain claims and
challenged measures as outside the Panel's terms of reference. Although the United States raises
many specific objections, which we address in this Section, they are generally of one of the
following three types:
a. objections based on a failure to comply with the requirements of Article 6.2 of the DSU
to identify the specific measures at issue and to provide a brief summary of t he legal
basis of the complaint sufficient to present the problem clearly;
b. objections to the inclusion of certain measures within the scope of the compliance
proceeding on the basis that the challenged measures are neither measures subject to
the DSB recommendations and rulings, nor measures taken to comply , within the
meaning of Article 21.5 of the DSU; and
c. objections that the European Union is precluded from bringing certain claims in respect
of certain measures on the basis that these claims : (i) were un successfully brought
against certain measures in the original proceeding and therefore cannot be
"re-litigated" in relation to those same measures in the compliance proceeding; or (ii)
were not brought against certain measures in the original proceeding wh en they could
have been and therefore cannot be brought against those same measures for the first
time in the compliance proceeding.
7.2. For purposes of our discussion below, we refer to the objections involving conformity with the
requirements of Article 6.2 of the DSU as "terms of reference" objections, while the other types of
objections we refer to more generally as "scope" objections. Although these latter types of
objections also pertain to the Panel's terms of reference, the issues raised by these objec tions
relate to the permissible scope of compliance proceedings under Article 21.5 of the DSU.
7.3. In Section 7.2 below, we address the various objections made by the United States to the
inclusion of certain Washington state and local measures within the scope of this proceeding. The
scope objections regarding the DOD aeronautics R&D measures, the FAA aeronautics R&D measure
and the South Carolina measures are addressed in Sections 7.3, 7.4 and 7.5, respectively. In
Section 7.6 we address a number of objections pertaining to the European Union's claims under
Articles 3.1(a), 3.1(b), and 3.2 of the SCM Agreement and Article III of the GATT 1994.
7.4. As explained in Section 1.3.3.2 of this Report, on 4 March 2014, the Panel received a request
from the European Union for leave to file an additional submission dealing with the "legal
ramifications" of SSB 5952, enacted in 2013 to amend the Washington State tax measures in
certain respects, which it argued constituted "additional measure s taken to comply by the
United States" that are within the scope of this proceeding. 97 The Panel declined the
European Union's request on 27 May 2014. The Panel issued its reasons for that decision to the

97 European Union's letter to the Panel, dated 4 March 2014, para. 1.

parties on 18 September 2014, explaining that the Washington State tax measures, as amended
by SSB 5952, are outside the Panel's terms of reference. The text of this ruling appears in
Section 7.7 of this Report.
7.2 Washington state and local measures
7.5. The European Union's claims in this proceeding cover, among other measures, five tax
measures enacted by the State of Washington or its municipal ities, each of which was challenged
and found to be a specific subsidy in the original proceeding:
a. Washington State B&O tax rate reduction for the aerospace industry;
b. Washington State B&O tax credits for preproduction/aerospace product development;
c. Washington State B&O tax credit for property taxes;
d. Washington State sales and use tax exemptions for computer software, hardware, and
peripherals; and
e. City of Everett B&O tax rate reduction.
7.6. The European Union also identifies two additional measures enacted by the State of
Washington that have come into existence since the end of the reference period in the original
proceeding (i.e. the end of 2006). These two measures are:
a. Washington State B&O tax credit for leasehold exc ise taxes granted pursuant to House
Bill 2466 (HB 2466)98; and
b. the establishment and operation of the Washington State Joint Center for Aerospace
Technology Innovation (JCATI).99
7.7. The United States requests rulings that the Washington measures that were challenged by
the European Communities in th e original proceeding , other than the Washington State B&O tax
rate reduction in subparagraph (a) of paragraph 7.5 above, are outside the scope of this
compliance proceeding on the basis that those measures, while found to cons titute specific
subsidies, were not found to have caused adverse effects and therefore were not subject to the
DSB recommendations and rulings.
7.8. The United States also objects to the inclusion of the Washington State B&O tax credit for
leasehold excise taxes and the JCATI measure within the scope of this proceeding on the basis that
those measures are neither declared measures taken to comply, nor have they been demonstrated
to constitute "undeclared" measures taken to comply on the basis of their close nex us in terms of
nature, effects , and timing, with any declared measures taken to comply , or with the DSB
recommendations and rulings.
7.9. Although the European Union's submissions present the Washington State B&O tax credit for
leasehold excise taxes as a sepa rate measure from the Washington State B&O tax credit for
property taxes, HB 2466 in fact modifies the scope of application of the B&O tax credit previously
available with respect to property taxes, to additionally be available with respect to leasehold
excise taxes. 100 Another Washington measure that was challenged in the original proceeding;

98 European Union's first written submission, para. 491. This measure, while presented in the
European Union's first written submission as a measure distinct from the B&O tax credit for property taxes,
was enacted under House Bill 2466 (HB 2466) as an expansion of the B&O tax credit on property taxes. The
European Union alleges that the United States maintains the Washington State B&O tax credit for leasehold
excise taxes and that this subsidy contributes to present adverse effects when it is "aggregated" with other
subsidies that operate through a price causal mechanism, and when the effects of those subsidies are
"cumulated".
99 European Union's first written submission, para. 541.
100 HB 2466 section 10 provides as follows:
Sec. 10. RCW 82.04.4463 and 2005 c 514 s 501 are each amended to read as
follows:

namely, the Washington State B&O tax credits for preproduction/aerospace product development ,
was similarly modified by section 7 of Washington State Substitute Senate Bill 6828 (SSB 6828) to
expand: (a) the application of the tax credits to all aerospace product development, rather than
just preproduction development; and (b) the eligible entities/persons that may claim the credit (so
as to permit non -manufacturing enti ties to claim the credit for expenditures after 30 June
2008).101 The modifications to the Washington State B&O tax credit measures expand the
availability of those tax credits and thus the existing original measures. In the circumstances, it
seems somewhat artificial to analyse these modifications on the basis that they are "new"
measures, separate from the original measures that they modify.102
7.10. Therefore, in our analysis of the United States' objections to the inclusion of the Washington
state and local meas ures within the scope of this proceeding, we treat the original B&O tax credit
measure and the modification thereto as the same measure; i.e. the Washington State B&O tax
credit for property taxes is as modified by HB 2466 to apply to leasehold excise taxe s, and the
Washington State B&O tax credits for preproduction/aerospace product development are as
modified by section 7 of SSB 6828.103
7.2.1 Whether the four original Washington tax measures are outside the scope of th is
proceeding
7.11. The United States ' makes prel iminary rulings request s concerning three tax measures
maintained by the State of Washington and one tax measure maintained by the City of Everett
(the four original Washington tax measures):
a. Washington State B&O tax credits for preproduction/aerospace product development;
b. Washington State B&O tax credit for property taxes;
c. Washington State sales and use tax exemptions for computer software, hardware, and
peripherals; and
d. City of Everett B&O tax rate reduction.

(1) In computing the tax imposed under this chapter, a credit is allowed for
property taxes and leasehold excise taxes paid during the calendar year.
(2) The credit is equal to:
(a)(i) (A) Property taxes paid on new buildings, and land upon which this property
is located, built after December 1, 2003, and used exclusively in manufacturing
commercial airplanes or components of such airplanes; and
(B) Leasehold excise taxes paid with respec t to a building built after
January 1, 2006, the land upon which the building is located, or both, if the
building is used exclusively in manufacturing commercial airplanes or components
of such airplanes … .
(House Bill 2466, sections 10(1) and (2)(a)(i) (B) (2006), (Exhibit EU -439), section 10 (underlining
original))

The Final Bill Report for HB 2466 also characterized the B&O tax credit for leasehold excise taxes as
being an expansion of the original tax credit for property taxes:
The B&O tax credit for property taxes paid on property used in the manufacture of
commercial airplanes and airplane components is expanded to include leasehold
excise taxes. The credit starts January 1, 2007.
(Summary of the Final Bill Report for House Bill 2466 (C 177 L 06), 1 January 2007, (Exhibit EU-436))
101 Substitute Senate Bill 6828, "Aerospace Tax Incentives", Washington Session Laws 365 (2008),
(Exhibit EU-434). See European Union's first written submission, para. 450.
102 For example, the European Union has argued that the Washington State B&O tax credit for leasehold
excise taxes is within the scope of this proceeding as a measure taken to comply on the basis of its close nexus
to the measure prior to its amendment, or to the DSB recommendations and rulings.
103 We therefore do not regard as being on point the United States' objection that the Washington State
B&O tax credit for leasehold excise taxes is not within the scope of this proceeding because the
European Union has failed to demonstrate that this "measure" meets the requirements of the close nexus test.
(See United States' second written submission, paras. 80-84). Given the Panel's view that this so-called
measure is in fact a modification to extend the scope of the original Washington State B&O tax credit for
property taxes, we do not consider that the European Union was required to demonstrate that the modification
as a standalone new measure satisfies the requirements of the close nexus test.

7.12. All four original Washington tax measures we re previously challenged as actionable
subsidies in the original pro ceeding, however, none was found to cause serious prejudice , within
the meaning of Articles 5(c) and 6.3 of the SCM Agreement. Consequently, none of these
measures was subject to the DSB recommendations and rulings.
7.13. In this proceeding, the European Union alleges that each of these measures is a specific
subsidy, that the United States continues to maintain these subsidy programmes, and that they
cause adverse effects to the European Union's interests.104 The United States requests preliminary
rulings that the four original Washington tax measures are outside the scope of the compliance
proceeding because the original panel had found that these measures did not cause serious
prejudice, and that finding was not disturbed by the Appellate Body.105
7.2.1.1 Main arguments of the parties and third parties
7.14. The United States argues that the four original Washington tax measures are outside the
scope of this compliance proceeding because they existed and were c hallenged on the merits in
the original proceeding. They are accordingly not measures taken to comply with the DSB
recommendations and rulings. The United States notes that Article 21.5 of the DSU provides for
panel proceedings "{w}here there is disagreeme nt as to the … consistency with a covered
agreement of measures taken to comply with the recommendations and rulings " of the DSB. The
United States submits that the "negative implication of this charging" is that Article 21.5 does not
provide relief for disagreements about other types of measures, referring to the Appellate Body in
Canada – Aircraft (Article 21.5 – Brazil):
Proceedings under Article 21.5 do not concern just any measure of a Member of the
WTO; rather, Article 21.5 proceedings are limited to those "measures taken to comply
with the recommendations and rulings" of the DSB. In our view, the phrase "measures
taken to comply" refers to measures which have been, or which should be, adopted by
a Member to bring about compliance with the recommendati ons and rulings of the
DSB.106
7.15. The United States argues that the Appellate Body has "defined" the term "measure taken to
comply" to refer, inter alia , to "measures which have been, or which should be, adopted by a
Member to bring about compliance with the re commendations and rulings of the DSB ".107
According to the United States, a measure that existed and was in fact unsuccessfully challenged
on the merits in the original proceedings cannot be a measure adopted by a Member to bring
about compliance with the DSB recommendations and rulings. 108 Accordingly, claims that those
measures are inconsistent with the covered agreements are not properly within the terms of
reference of a compliance panel.
7.16. Moreover, the United States submits that expanding the terms of refer ence of a compliance
proceeding to include claims against measures on which the complaining party did not prevail on
the merits in the original proceeding would seriously prejudice the responding party 's interests.
After the DSB adopts its recommendations and rulings in the original proceeding, the responding
party has no reason to consider that it should modify or withdraw measures considered on the

104 European Union's first written submission, para. 429. The European Union also claims that each of
these measures is a prohibited subsidy within the meaning of Article 3 of the SCM Agreement and is
inconsistent with Article III:4 of the GATT 1994. The United States has also raised preliminary objections
pertaining to the European Union's claims under Article 3 of the SCM Agreement and Article III:4 of the
GATT 1994, including with respect to the Washington state and local measures. We discuss the United States'
objections to the inclusion of those claims within the scope of this proceeding in Section 7.6 of this Report.
105 United States' first written submission, paras. 77, 494, and 499.
106 United States' second written submission, para. 14 (referring to Appellate Body Report, Canada –
Aircraft (Article 21.5 – Brazil), para. 36; quoted also in Appellate Body Report US – Zeroing (EC) (Article 21.5 –
EC), para. 199). (emphasis original)
107 United States' first written submission, fn 796; response to Panel question No. 3, para. 12 (referring
to Appellate Body Reports, Canada – Aircraft (Article 21.5 – Brazil), para. 36; and US – Softwood Lumber IV
(Article 21.5 – Canada), para. 77).
108 See United States' response to Panel question No. 3, para. 13: "by definition a measure that existed
at the time when the original panel was established and was not subject to any DSB recommendation is not a
measure 'taken to comply' with any DSB recommendations" (emphasis original). See also United States'
second written submission, para. 15; response to Panel question No. 3, para. 12; and comments on the
European Union's response to Panel question No. 3, para. 23.

merits and not found to be WTO -inconsistent. An overly expansive reading of Article 21.5 would
require respo nding parties to either assume that a compliance panel would reverse the DSB
findings with respect to a measure, or risk potential countermeasures with no opportunity for a
reasonable period of time in which to come into compliance.109
7.17. The United States reje cts the European Union 's attempt to distinguish between the
"instances of application" of the relevant subsidy programmes that were challenged in the original
proceeding and the "instances of application" of those programmes presently being challenged in
order to argue that the measures are within the scope of this proceeding. 110 The United States
regards the four original Washington tax "measures" that were before the original panel and the
"measures" that the European Union is seeking to challenge now as be ing one and the same –
there is no basis for treating "subsequent instances of application " of a measure as a separate
measure.111
7.18. The United States further rejects the European Union 's assertion that the four original
Washington tax measures are within the Panel's terms of reference on the basis of their close
nexus to the Washington State B&O tax rate reduction.112 According to the United States, the basis
of the European Union 's assertion is flawed because the four original Washington tax measures
cannot be measures taken to comply: These measures existed at the time when the original panel
was established and were not subject to any DSB recommendation or ruling. A panel cannot find
that a measure unsuccessfully challenged on the merits in the original proce eding constitutes a
measure taken to comply on the basis of the close nexus test.113
7.19. The European Union rejects the United States ' objection that the four original Washington
tax measures are outside the Panel 's terms of reference. The fact that the origina l panel did not
ultimately find that these measures caused adverse effects during the particular reference period
at issue does not now create an issue of jurisdiction or terms of reference.
7.20. The European Union submits that a panel's terms of reference are fixed by the complaining
Member in the panel request. It is when a matter is not set out in the panel request in accordance
with the requirements of Article 6.2 of the DSU that it is outside the panel's terms of reference and
the panel does not have the a uthority to rule on it. 114 When a matter is properly within the
jurisdiction and terms of reference of a WTO adjudicator, that adjudicator is required to assess and
rule upon it (subject to the proper exercise of judicial economy which is not relevant for pr esent
purposes).115
7.21. The European Union argues that Article 21.5 of the DSU captures two types of disputes over
the existence of measures taken to comply: disputes about whether a particular measure (whether
an act or omission) exists, an d disputes about whe ther a particular measure should exist.116
According to the European Union, the United States has failed to ensure that the measures in
question, as they are maintained and currently applied, are in conformity with WTO law. There is

109 United States' response to Panel question No. 3, para. 14.
110 United States' comments on the European Union's response to Panel question No. 4, para. 25
(referring to the European Union's response to Panel question No. 4, para. 35).
111 United States' comments on the European Union's response to Panel question No. 4, para. 25;
second written submission, para. 38.
112 Although the parties in their submissions address certain of their arguments concerning the
measures and claims that are within the scope of this compliance proceeding as "terms of reference" issues, as
we explain in paragraph 7.2 we refer to the objections involving conformity with the requirements of Article 6.2
of the DSU as "terms of reference" objections, while the other types of objections we refer to more generally as
"scope" objections.
113 United States' response to Panel question No. 3, para. 13. According to the United States, to do so
would conflict with the basic definition of a "measure taken to comply" which is "in principle … a new and
different measure" (quoting from Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil), para. 41).
Second written submission, paras. 74-76.
114 European Union's second written submission, para. 17.
115 European Union's second written submission, para. 26.
116 European Union's opening statement at the meeting of the Panel, para. 11; second written
submission, paras. 31 and 32; and European Union's comments on the United States' response to Panel
question No. 1, para. 8.

thus a "disagreement" between the parties as to whether the United States is under an obligation
to do so: This matter clearly falls within the scope of Article 21.5 of the DSU.117
7.22. The European Union argues that in the original proceeding, each of the four original
Washington measur es "and their relevant instances of application " was found to be a specific
subsidy, and these findings were not appealed by the United States. The European Union considers
that the question of whether these specific subsidy programmes "and their present i nstances of
application cause adverse effects in a new reference period " requires consideration of changing
facts in the evolving market, as well as consideration of the Appellate Body 's clarification of the
law on aggregation and cumulation of subsidies. Thus, the measures and the facts and evidence
with regard to the "instances of application of these programmes that post -date the original
proceedings" have changed. Given that these instances of application are not separable from the
programmes themselves , all of the relevant measures are therefore within the scope of the
compliance proceeding.118
7.23. In addition, the European Union argues that the four original Washington tax measures are
within the scope of this proceeding based on their particularly close re lationship to declared
measures taken to comply and to the DSB recommendations and rulings (i.e. on the basis that
they can be considered "undeclared" measures taken to comply due to their close nexus with
declared measures taken to comply and the DSB recommendations and rulings in the original
proceeding). The first three of the original Washington tax measures were all part of the same
"overarching measure" as the Washington State B&O tax rate reduction (which was subject to the
DSB recommendations and rulings); namely, House Bill 2294 ( HB 2294) and the Project Olympus
Master Site Agreement. The European Union argues that there is a sufficiently close nexus, in
terms of nature, effects, and timing, between the first three original Washington tax measures and
the Washington State B&O tax rate reduction to satisfy the close nexus test and bring the first
three original Washington tax measures within the scope of the compliance proceeding as
"undeclared" measures taken to comply.119
7.24. As to the fourth original Wa shington tax measure, the City of Everett B&O tax rate
reduction, the European Union argues that the nature of this measure is identical to the
Washington State B&O tax rate reduction, being the same type of tax reduction enacted at the
municipal rather than state level. Like the other original Washington tax measures, this measure is
a tax reduction to lower Boeing 's overall tax liability, it worsens the United States ' existing
situation of non -compliance by increasing the amount of revenue due that is for egone, and the
value of the tax measure has increased subsequent to the adoption of the DSB recommendations
and rulings (a factor that the European Union argues is relevant to the "timing" element of the
close nexus test).120
7.25. Brazil argues that, while it su pports a "broad approach" to d etermining the scope of
Article 21.5 proceedings, any such approach must ensure that compliance panels not be used as a
forum for a complaining Member to re -litigate issues relating to measures that were not found to
be inconsistent with a covered agreement in the original proceedings or as a forum for the remand
of matters that could have been (but were not) taken up by the Appellate Body in response to a
request to complete the analysis.121 Compliance proceedings should not unfairly give complainants
a "second bite of the apple" .122 However, Brazil considers that, with respect to claims that were
not definitively resolved in the original proceeding, a distinction may need to be made between
matters for which the Appellate Body was asked to fully consider the issues but was unable to
complete its analysis, and matters for which the complaining party did not seek full
consideration.123
7.26. Canada considers that, as a general proposition, a complainant is prohibited from
re-litigating matte rs that were decided and lost on the merits in the original proceedings. 124

117 European Union's second written submission, paras. 32 and 48.
118 European Union's response to Panel question No. 4, paras. 34 and 35; second written submission,
paras. 55 and 78.
119 European Union's second written submission, paras. 126,127, 130, and 133.
120 European Union's second written submission, paras. 126, 129, 132, and 133.
121 Brazil's third-party submission, para. 35; third-party response to Panel question No. 1, para. 5.
122 Brazil's third-party response to Panel question No. 1, para. 5.
123 Brazil's third-party response to Panel question No. 1, para. 6.
124 Canada's third-party response to Panel question No. 1, paras. 4 and 6.

Specifically, claims in which the complainant did not establish a prima facie case, or w here there
was a finding of WTO -consistency are outside the scope of compliance proceedings. 125 However,
Canada also considers that claims should not be excluded where the original panel or Appellate
Body exercised judicial economy, or was unable to complete the analysis.126 In either situation, the
merits of the claim have not been decided and the respondent should thus not have an expectation
of finality of the decision.127
7.27. Japan, while noting that the scope of Article 21.5 proceedings is not limited to a measure
declared by the implementing Member to be a measure taken to comply, submits that the scope of
claims that may be raised is not "unbounded". Japan takes the general position that allowing
re-litigation of issues that were the subject of the original proceedings, or otherwise providing the
complainant with an "unfair second chance ", should be avo ided.128 Like Canada, Japan points to
the specific situation of a complainant failing to establish a prima facie case, or a finding of WTO
consistency, as examples of situations in which claims are outside the scope of compliance
proceedings.129
7.28. Korea points out that Article 21.5 of the DSU operates to provide a prompt and efficient
forum for addressing any claims that were not, for whatever reason, finally resolved in the original
proceedings.130 Korea emphasizes in particular that the requirement of "unconditional acceptance"
of a panel or Appellate Body report only precludes a party from re -litigating those issues that were
"actually addressed" and "finally decided by the panel or Appellate Body".131
7.2.1.2 Evaluation by the Panel
7.29. The United States ' requests r aise the question of whether each of the four original
Washington tax measures is within the scope of this compliance proceeding, notwithstanding that
there were no DSB -adopted recommendations and rulings in relation to these measures in the
original proceeding.
7.30. It is well settled that Appellate Body findings and unappealed panel findings that are
adopted by the DSB must be regarded as a final resolution to a dispute between the parties in
respect of the particular claim and the specific component of the measure t hat is the subject of
that claim.132 The Appellate Body based this conclusion on its analysis of the relevant provisions of
the DSU:
Thus, a reading of Articles 16.4 and 19.1, paragraphs 1 and 3 of Article 21, and
Article 22.1, taken together, makes it abun dantly clear that a panel finding which is
not appealed, and which is included in a panel report adopted by the DSB, must be
accepted by the parties as a final resolution to the dispute between them, in the same
way and with the same finality as a finding included in an Appellate Body Report
adopted by the DSB – with respect to the particular claim and the specific component
of the measure that is the subject of the claim. 133
With respect to Article 21.5 of the DSU, the Appellate Body stated:
Article 21.5 ad vances the purpose of achieving a prompt settlement of disputes by
providing an expeditious procedure to establish whether a Member has fully complied
with the recommendations and rulings of the DSB. … It would be incompatible with
the function and purpose of the WTO dispute settlement system if a claim could be
reasserted in Article 21.5 proceedings after the original panel or the Appellate Body
has made a finding that the challenged aspect of the original measure is not
inconsistent with WTO obligations , and that report has been adopted by the DSB. At

125 Canada's third-party statement, para. 4; third-party response to Panel question No. 1, para. 5.
126 Canada's third-party response to Panel question No. 1, para. 8.
127 Canada's third-party response to Panel question No. 1, para. 8.
128 Japan's third-party response to Panel question No. 1, para. 4.
129 Japan's third-party response to Panel question No. 1, para. 1.
130 Korea's third-party submission, para. 13.
131 Korea's third-party submission, para. 12; third-party statement, paras. 6-8.
132 Appellate Body Report, EC – Bed Linen (Article 21.5 – India), para. 93.
133 Appellate Body Report, EC – Bed Linen (Article 21.5 – India), para. 93. (emphasis original)

some point, disputes must be viewed as definitely settled by the WTO dispute
settlement system.134
7.31. In EC – Bed Linen (Article 21.5 – India), the original panel found that the complaining party
had failed to make a prima facie case with respect to its challenge to an element of a measure that
remained unchanged in the compliance proceeding. The complaining party had not appealed the
panel's finding that it had failed to make a prima facie case, and that finding formed part of the
panel report adopted by the DSB. In those circumstances, the complaining party could not raise
the same claim against the same aspect of the implementation measure in the compliance
proceeding.135
7.32. The Appellate Body has also referred to t he "due process concerns " if a complaining party
were provided, through an Article 21.5 proceeding, an unfair "second chance" to make a case it
had failed to make in the original proceedings, in a manner that would compromise the finality of
the DSB recommendations and rulings.136
7.33. However, the Appellate Body has permitted complaining parties in compliance proceedings
to reassert claims against aspects of measures where such claims were unsuccessfully asserted in
the original proceeding. It appears to us that the Appellate Body has done so in situations where
the finality of the DSB recommendations and rulings would not thereby be compromised. Thus, a
complaining party in a compliance proceeding was able to reassert claims against aspects of
measures that were unchanged from those unsuccessfully challenged in the original proceedings,
where the original panel had exercised judicial economy with respect to one challenged aspect of
an original measure, that aspect had become an integral part of the measure taken to comply, and
the challenge was to that same aspect of the measure taken to comply. 137 The Appellate Body
distinguished this situation from one in which the complaining party had been unsuccessful in the
original proceedings, either because that aspect of t he measure had been found WTO -consistent,
or the complaining party had failed to make out a prima facie case.
7.34. Similarly, a complaining party in a compliance proceeding was permitted to challenge the
same aspect of a measure taken to comply that it had uns uccessfully challenged on appeal in the
original proceeding owing to a reversal of the panel's finding by the Appellate Body in favour of the
complaining party, but an inability of the Appellate Body to complete the analysis due to
insufficient factual findings or undisputed facts on record.138
7.35. Our review of the case law suggests that, while panels and the Appellate Body have been
careful not to permit complaining parties to use Article 21.5 proceedings as an opportunity to
re-litigate issues that were resol ved adversely to them in the original proceeding, this does not
apply where the failure to achieve a definitive resolution of a claim cannot reasonably, in the
circumstances, be laid at the feet of the complaining party. The Appellate Body has no power to
remand a decision back to a panel to apply a corrected interpretation of the law to the facts.
Moreover, in certain situations, the Appellate Body may simply be unable to complete the analysis
by applying that corrected interpretation to the panel 's factua l findings or undisputed factual
material on the record. In these circumstances, while a complaining party may in some senses
have been "unsuccessful" in establishing its claims at the end of the compliance proceeding, it is
more accurate to consider the claims unresolved. To permit a complaining party to seek resolution
of those unresolved claims as part of a compliance proceeding does not necessarily afford it an
unfair second chance.

134 Appellate Body Report, EC – Bed Linen (Article 21.5 – India), para. 98. (italics original, underlining
added, fn omitted)
135 Appellate Body Report, EC – Bed Linen (Article 21.5 – India), para. 96.
136 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 210:
Because adopted panel and Appellate Body reports must be accepted by the
parties to a dispute, allowing a party in a n Article 21.5 proceeding to re -argue a
claim that has been decided in adopted reports would indeed provide an unfair
"second chance" to that party.
(fn omitted)
See also Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), para. 428.
137 Appellate Body Report, US – Oil Country Tubular Goods Sunset Reviews (Article 21.5 – Argentina),
para. 150.
138 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 210.

7.36. We also recall that Article 3.3 of the DSU sets forth the principle tha t the prompt settlement
of disputes is essential to the effective functioning of the WTO. The Appellate Body has stated
that: "the aim of Article 21.5 of the DSU is to promote the prompt compliance with DSB
recommendations and rulings and the consistency o f 'measures taken to comply' with the covered
agreements by making it unnecessary for a complainant to begin new proceedings and by making
efficient use of the original panellists and their relevant experience."139
7.37. The United States argues that the only mea sures susceptible to review in compliance
proceedings are original measures in respect of which there are DSB -adopted recommendations
and rulings, and measures properly characterized as being measures taken to comply with the
DSB recommendations and ruling s (whether declared by the responding party or "undeclared").
The United States says that in Canada – Aircraft (Article 21.5 – Brazil), the Appellate Body defined
the phrase "measures taken to comply " in Article 21.5 of the DSU in a manner which logically
prevents original measures from falling within the scope of a compliance proceeding under Article
21.5 of the DSU.
7.38. In Canada – Aircraft (Article 21.5 – Brazil), the Appellate Body said:
Proceedings under Article 21.5 do not concern just any measure of a Me mber of the
WTO; rather, Article 21.5 proceedings are limited to those "measures taken to comply
with the recommendations and rulings" of the DSB. In our view, the phrase "measures
taken to comply" refers to measures which have been, or which should be, adopted by
a Member to bring about compliance with the recommendations and rulings of the
DSB. In principle, a measure which has been "taken to comply with the
recommendations and rulings " of the DSB will not be the same measure as the
measure which was the subject of the original dispute, so that, in principle, there
would be two distinct and separate measures: the original measure which gave rise to
the recommendations and rulings of the DSB, and the "measures taken to comply "
which are – or should be – adopted to implement those recommendations and
rulings.140
7.39. In explaining the meaning of the phrase "measures taken to comply", in the
above-referenced passage from its report in Canada – Aircraft (Article 21.5 – Brazil), the Appellate
Body did not set forth a d efinitive list of measures that may properly be considered to be within
the scope of proceedings brought under Article 21.5 of the DSU . Rather, the Appellate Body 's
statement that in principle , a measure taken to comply will not be the same as the measure
challenged in the original proceeding, explained why the panel, in reviewing the consistency of the
implementation measure in that compliance proceeding, was not confined to examining its
consistency with the relevant provisions of the WTO agreements from the perspective of the
reasoning adopted by the original panel when it had reviewed the original measure and found it to
be WTO -inconsistent. The Appellate Body found that the proceedings in question in that case
involved the consistency of the revised pro gramme (i.e. a new measure) with Article 3.1(a) of the
SCM Agreement.141 The Appellate Body sought to explain why, in compliance proceedings where
the measure at issue is a new measure, the compliance panel should not confine its analysis of the
consistency with the covered agreements of the measures taken to comply to the perspective of
the claims, arguments and facts that related to the original measure.142
7.40. As the European Union observes, the Appellate Body has also indicated that the scope of
Article 21.5 proceedings includes disagreements as to the existence of measures taken to comply,

139 See Appellate Body Report, US – Oil Country Tubular Goods Sunset Reviews (Article 21.5 –
Argentina), para. 151. We further note that in two cases in which a complaining party in a compliance
proceeding was permitted to reassert claims against unchanged aspects of original measures incorporated into
a measure taken to comply, and which had not been definitively resolved on the merits in the original
proceeding, one of the justifications advanced by the Appellate Body was that it would not be efficient for a
new panel to examine those claims, while other aspects of the same measure were being considered by the
compliance panel. (See Appellate Body Reports, US – Oil Country Tubular Goods Sunset Reviews (Article 21.5
140 Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil), para. 36. (emphasis original, fns
omitted)
141 Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil), para. 37.
142 Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil), para. 41.

including situations where the responding party has failed to adopt implementing measures. 143 In
other words, Article 21.5 proceedings clearly encompass situations in which th e responding party
arguably should have revised an original measure, even if it did not. That being so, it is difficult to
sustain the United States' argument that an original measure is, logically and by definition, outside
the scope of a compliance proceeding.
7.41. In our view, the relevant issue is not whether original measures are per se outside the
scope of a compliance proceeding because original measures not the subject of DSB
recommendations and rulings can never logically be measures taken to comply. Ra ther, the issue
is in which circumstances a complaining party may, in a compliance proceeding, pursue claims
against original measures that it had pursued in the original proceedings. The answer depends on
the way in which the claim against the particular original measure was resolved in the original
proceeding. More specifically, a s we have explained in paragraph 7.35 above, a panel should
consider whether the original measure was "unsuccessfully" challenged on the merits in th e
original proceeding, such that it cannot be raised again without compromising the finality of the
DSB recommendations and rulings.144
7.42. Accordingly, in determining whether the European Union may reassert claims against any of
the four original Washington ta x measures in this proceeding , we will examine the status of the
claims in respect of those measures at the conclusion of the original proceedings. If there was a
positive finding that the particular measure was "not inconsistent" with the challenged provision of
the covered agreements, then on the basis of EC – Bed Linen (Article 21.5 – India), the
European Union would be precluded from reasserting the same claims against the such measures
in this proceeding. This is because to allow it to do so would comp romise the finality of the DSB
recommendations and rulings.
7.43. We begin by recalling that all four original Washington tax measures were found by the
panel in the original proceeding to be specific subsidies.145 None of these findings was disturbed on
appeal. Although the original panel found that none of the four original Washington tax measures
caused serious prejudice, these findings were reversed on appeal owing to faults that the Appellate
Body found with aspects of the panel 's assessment of serious prejudi ce. We set forth in some
detail below how the Appellate Body 's modification of the panel 's reasoning, in the context of the
three LCA product markets at issue , ultimately affected whether any of the four original
Washington tax measures could be definitive ly considered not to have caused serious prejudice in
any of the LCA product markets . Based on those conclusions, we then determine whether a
consideration of the same measures in this proceeding would compromise the finality of the DSB
recommendations and rulings.
7.44. The European Communities argued in the original proceeding that the Washington State
B&O tax credits for preproduction/aerospace product development, the Washington State B&O tax
credit for property taxes and the Washington State sales and use t ax exemptions for computer
software, hardware, and peripherals , as "untied" subsidies, operated to increase Boeing 's
non-operating cash flow.146 The panel found that these subsidies, when aggregated with the other
subsidies that operated to increase Boeing 's non-operating cash flow, were of an insufficient
magnitude to have had any appreciable impact on Boeing 's LCA prices, and thus on sales or prices

143 Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil), para. 36:
In our view, the phrase "measures taken to comply" refers to measures which have
been, or which should be , adopted by a Member to bring about compliance with
the recommendations and rulings of the DSB.
(emphasis added)
144 We note that the United States' argument is that "a measure that was in existence at the time of the
establishment of the original panel, and that was unsuccessfully challenged on the merits in the original
proceeding, cannot constitute a measure taken to comply." (See United States' response to Panel question
No. 3, para. 12 (emphasis added)). See also United States' second written submission, para. 15; and
comments on the European Union's response to Panel question No. 4, para. 23.
145 The panel findings in relation to the existence of a subsidy and specificity are in Panel Report, US –
Large Civil Aircraft (2nd complaint), paras. 7.179, 7.212, 7.302, 7.333, and 7.346.
146 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1609. By "untied" subsidies, the Panel
refers to subsidies the receipt of which is not contingent on the production or sale of a particular product on a
per-unit basis. Such subsidies may be contrasted with "tied" subsidies, which in the context of this dispute,
refer to subsidies the receipt of which is contingent on the production or sale of a particular product on a
per-unit basis. (See paras. 9.68-9.71 below). See also Appellate Body Report, US – Large Civil Aircraft (2nd
complaint), para. 1339.

of Airbus LCA.147 Therefore, at the panel stage, none of those three Washington tax measures was
found to cause serious prejudice in any LCA product market.
7.45. The European Communities further argued that the City of Everett B&O tax rate reduction,
as a subsidy that was tied on a per -unit basis to the production or sale of LCA manufactured in
Everett (and therefore a pplied to the 777 and 787 families of LCA), operated to reduce Boeing 's
marginal unit costs of production and sale of LCA. 148 The panel found that the effect of the City of
Everett B&O tax rate reduction (when aggregated with the other tied tax subsidies tha t operated
to reduce Boeing's marginal unit costs, i.e. the FSC/ETI subsidies and the Washington State B&O
tax rate reduction) was significant price suppression, significant lost sales, and displacement and
impedance of exports in the 300 -400 seat LCA prod uct market. The panel declined to aggregate
the effects of the tied tax subsidies (i.e. the Washington State and City of Everett B&O tax rate
reductions, since FSC/ETI did not apply to 787 sales) with those of the aeronautics R&D subsidies
in the 200 -300 s eat LCA product market on the basis that the tied tax subsidies and the
aeronautics R&D subsidies operated through distinct causal mechanisms. 149 Considered separately
from the effects of the aeronautics R&D subsidies in the 200 -300 seat LCA product market, the
effects of the City of Everett B&O tax rate reduction (and the Washington State B&O tax rate
reduction) would not have had such an effect on Boeing's 787 pricing as to cause serious prejudice
to Airbus in the 200 -300 seat LCA product market. Thus at th e panel stage, the City of Everett
B&O tax rate reduction was found to have caused serious prejudice in the 300 -400 seat LCA
product market, but not in the 200-300 seat LCA product market.
7.46. On appeal, the Appellate Body first dealt with the United States ' appeals of the panel 's
findings that : (a) the FSC/ETI subsidies and Washington State B&O tax rate reduction caused
serious prejudice in the 100-200 seat LCA product market; and (b) the FSC/ETI, Washington State
B&O tax rate reduction and City of Everett B&O tax rate reduction caused serious prejudice in the
300-400 seat LCA product market. The Appellate Body reversed the panel's findings on the ground
that the panel had not provided a proper legal basis for them.150 It then attempted to complete the
analysis with the following results:
a. the FSC/ETI subsidies and Washington State B&O tax rate reduction, in two LCA sales
campaigns, caused serious prejudice in the 100-200 seat LCA product market151;
b. it was not possible to complete the analysis of the effects of the FSC/ETI subsidies,
Washington State B&O tax rate reduction and City of Everett B&O tax rate reduction in
the 300 -400 seat LCA product market because the panel had not engaged with the
evidence concerning the "other factors" that the United States alleged h ad attenuated
the causal link between the subsidies and the adverse effects.152
7.47. The Appellate Body then dealt with the European Union's appeals.153 In short, it reached the
following outcomes:
a. As to the European Union 's appeal that the panel failed to assess collectively the effects
of the Washington State and City of Everett B&O tax rate reductions with the effects of
the aeronautics R&D subsidies:
i. The panel erred in failing to consider whether the price effects of the Washington
State and City of Everett B& O tax rate reductions could be cumulated with (i.e.
complemented and supplemented) the technology effects of the aeronautics R&D
subsidies in causing serious prejudice in the 200 -300 seat LCA product market. The
European Union did not request completion of the analysis on this issue.154

147 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1834.
148 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1608.
149 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1824.
150 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1249.
151 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1274.
152 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1268.
153 The two specific alleged errors of law are described in Appellate Body Report, US – Large Civil
Aircraft (2nd complaint), para. 1275.
154 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1321.

b. As to the European Union 's appeal that the Panel failed to assess collectively the effects
of the tied tax subsidies and the effects of the untied subsidies (including the first three
original Washington tax measures listed in paragraph 7.11 above):
i. The panel erred in failing to consider whether the effects of the "untied" subsidies
(including the first three original Washington tax measures listed in paragraph 7.11
above) could be cumulated with (i.e. complemented and supplemented) the price
effects of the tied tax subsidies in the 100 -200 seat LCA product market. 155 On
completing the analysis for the 100 -200 seat LCA product market (which was the
only LCA product market in which the Appellate Body had found the tied tax
subsidies caused adverse effects, because it had been unable to complete the
analysis in the 300-400 seat LCA product market), the Appellate Body found:
ii. neither the Washington State B&O tax credits for pre production/aerospace product
development, nor the Washington State sales and use tax exemptions for computer
software, hardware, and peripherals appeared to be received in connection with
expenditures related to the 737NG and thus did not have effects in t he 100-200 seat
LCA product market156;
iii. as the European Union 's submissions revealed that the Washington State B&O tax
credit for property taxes benefits only the 787, the Appellate Body did not attempt to
cumulate the effects of this subsidy with the effects of the tied tax subsidies in the
100-200 seat LCA product market.157
7.48. In sum, at the conclusion of the original proceeding, as a result of the Appellate Body 's
reversal of various panel findings, its completion of the analysis in some instances and its inabi lity
to complete the analysis in others (or the failure of the European Union to request completion of
the analysis), none of the four original Washington tax measures was found to cause serious
prejudice to the European Union's interests, within the meaning of Articles 5(c), 6.3(b), and 6.3(c)
of the SCM Agreement.
7.49. Although none of the four original Washington tax measures was found to cause serious
prejudice at the conclusion of the original proceedings, in many cases, this was because the
Appellate Body did not complete the analysis fully for all relevant LCA product markets, either
because it was unable to, or because it was not requested to do so. It was not because the four
original Washington tax measures were adjudged on the merits, for all of the r elevant LCA product
markets, not to have caused serious prejudice.
7.50. In fact, had the Appellate Body been able to complete the analyses, it was potentially open
for it to have found that the City of Everett B&O tax rate reduction, the Washington State B&O t ax
credits for preproduction/aerospace product development and the Washington State sales and use
tax exemptions for computer software, hardware, and peripherals , caused serious prejudice .158
The only original Washington tax measure that arguably may not hav e been found to have caused

155 The 100-200 seat LCA product market was the only product market in which the Appellate Body had
found the tied tax subsidies caused adverse effects, because it had been unable to complete the analysis in the
300-400 seat LCA product market.
156 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 1344-1346.
157 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1341.
158 The City of Everett B&O tax rate reduction could have been found to have caused serious prejudice in
the 300-400 seat LCA product market except that the Appellate Body had been unable to complete the analysis
of whether the effects of the tied tax subsidies (including the City of Everett B&O tax rate reduction) had
caused serious prejudice, owing to the existence of disputed facts in the LCA sales campaigns in the 300-400
seat LCA market. The Washington State B&O tax credits for preproduction/aerospace product development, as
well as the Washington State sales and use tax exemptions for computer software, hardware, and peripherals
could have been found to have caused serious prejudice in the 300-400 seat LCA product market if the
Appellate Body had been able to complete the analysis with respect to the effects of the tied tax subsidies in
the 300-400 seat market (and had found that the tied tax subsidies did cause serious prejudice) and then that
the effects of these two original Washington measures "complemented and supplemented" the effects of the
tied tax subsidies in that product market. In addition, the price effects of the City of Everett B&O tax rate
reduction could have been found to have "complemented and supplemented" the technology effects of the
aeronautics R&D subsidies in the 200-300 seat LCA product market, and thus caused serious prejudice in that
product market, except that the European Union did not request the Appellate Body to complete the analysis
on this issue.

serious prejudice on the basis of the Appellate Body 's ruling is the Washington State B&O tax
credit for property taxes. Th is B&O tax credit (which w as part of the group of "untied" or
"remaining" subsidies) benefited only the 7 87 and thus , applying the Appellate Body's reasoning,
would only potentially have had effects in the 200 -300 seat LCA product market. 159 The
European Union did not allege that the panel erred in not collectively assessing (whether by
"aggregation" or "cumulation") the effects of the "untied" subsidies with the aeronautics R&D
subsidies.160
7.51. As explained above, the Appellate Body overruled the panel 's approach to assessing
whether the four original Washington tax measures listed in paragraph 7.11 above caused serious
prejudice, but could not complete the analyses. Therefore, the Appellate Body did not find that, for
every possible LCA product market, the European Union had failed to demonstrate that the
measures caused serious prejudice. Thus, at the conclusion of the appeal process, there cannot be
said to be findings that any of the four original Washington tax measures was "not inconsistent"
with Articles 5(c) and 6.3 of the SCM Agreement for all LCA product markets.
7.52. In the particul ar circumstances of t he outcome of the European Communities' original
serious prejudice claims against these measures, and particularly the fact that the European Union
successfully appealed the panel 's failure to collectively assess the effects of the tie d tax subsidies
with the aeronautics R&D subsidies, and the effects of the untied subsidies with the tied tax
subsidies, we consider that the reassertion of claims in respect of the original Washington tax
measures would not compromise the finality of the DSB recommendations and rulings, or amount
to an unfair second chance.161
7.53. On the basis of the foregoing, we consider that the European Union is not precluded from
reasserting claims in respect of the four original Washington tax measures in this compliance
proceeding. The Panel therefore rejects the United States ' requests for rulings that the
four original Washington tax measures are outside the scope of this compliance
proceeding.
7.2.2 Whether the Washington State Joint Center for Aerospace Technology Innovation
measure is outside the scope of this proceeding
7.54. In its panel request, the European Union makes claims in respect of the establishment by
the State of Washington and its political subdivisions of a Joint Center for Aerospace Technology
Innovation (JCATI) w hich it alleges is a specific subsidy to Boeing. The United States argues that
the JCATI is not a declared measure taken to comply, nor does it share a close nexus to a declared
measure taken to comply or to the DSB recommendations and rulings. 162 Accordingly, the
United States considers that this measure is outside the scope of this proceeding and requests a
preliminary ruling to that effect.163

159 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1341.
160 However, the European Union did successfully appeal: (a) the panel's failure to assess collectively
the effects of the tied tax subsidies (i.e. the Washington State and City of Everett B&O tax rate reductions)
with the technology effects of the aeronautics R&D subsidies; and (b) the panel's failure to assess collectively
the effects of the "untied" subsidies with the effects of the tied tax subsidies (including the Washington State
and City of Everett B&O tax rate reductions). If the European Union had requested completion of the analysis
on (a), then the Appellate Body potentially could have found that the effects of the City of Everett B&O tax rate
reduction complemented and supplemented the effects of the aeronautics R&D subsidies in the 200-300 seat
LCA product market. Since the Appellate Body also thought that the panel should have collectively assessed
the effects of the tied tax and "untied" subsidies, it was theoretically possible that the effects of the
Washington State B&O tax credit for property taxes (as well as the two other "untied" original Washington tax
subsidies) could have been found to have complemented and supplemented the effects of the tied tax subsidies
in the 200-300 seat LCA product market.
161 In the circumstances of the multiple appeals concerning the panel's collective assessment of the
subsidies in its serious prejudice analysis, we also do not consider it would be reasonable to conclude that the
Washington State B&O tax credit for property taxes are outside the scope of the proceeding owing to the
European Union's failure to request completion of the analysis of the collective assessment of the tied tax and
aeronautics R&D subsidies.
163 United States' first written submission, para. 76.

7.2.2.1 Main arguments of the parties and third parties
7.55. The United States disputes the contention that the JCATI shares a c lose nexus with the
Washington State B&O tax rate reduction: First, the European Union 's unsupported assertion that
the purpose of both measures is to convince Boeing to expand production in Washington says
nothing about the nature of these two very different types of measures.164 It is difficult to conceive
how a program me developed to foster the education of engineering students is akin to the
reduction of a B&O tax rate.165 Second, in relation to the European Union's argument that both the
JCATI and Washington State B&O tax rate reduction have the effect of reducing Boeing's costs of
doing business in Washington State, the European Union fails to articulate a coherent theory as to
how such effects would occur. 166 Moreover, the JCATI activities do not operate to negate the
removal of any adverse effects relating to the Washington State B&O tax rate reduction.167
7.56. As to the European Union 's arguments concerning the alleged nexus with the NASA and
DOD aeronautics R&D measures subject to the DSB recommendations and rul ings, the
United States argues that the JCATI does not function like, and its activities are not similar in any
meaningful way to, the measures administered by NASA and DOD. 168 Unlike the NASA and DOD
aeronautics R&D measures, the JCATI coordinates the devel opment of higher education aerospace
programmes at the University of Washington and Washington State University. Its activities with
industry are structured differently from those under the NASA and DOD aeronautics R&D
measures; for example, JCATI funding is allocated to projects by educational institutions, not
participating parties. 169 As to the alleged links in terms of effects, NASA awards contracts to
outside entities in order to obtain research into new scientific principles while the European Union
asserts that Boeing will be able to use technology developed through the JCATI to further its own
LCA-related research.170
7.57. The European Union argues that the JCATI measure constitutes a measure taken to comply ,
within the scope of this proceeding, based on its close nexus with "the other Washington State
subsidies subject to the DSB 's recommendations and rulings", as well as with the "NASA and DOD
aeronautics R&D subsidies subject to those recommendations and rulings ".171 As to the links in
terms of nature, the European Union makes the following arguments:
a. the JCATI shares the same purpose as the Washington State B&O tax rate reduction;
namely, to convince Boeing to retain and expand its production in Washington State by
lowering Boeing 's cost of doing business in the State. Just like the Washington State
B&O tax rate reduction, the JCATI 's subsidies are limited to enterprises in the aerospace
industry172; and
b. the JCATI has the same nature as the NASA and DOD aeronautics R&D subsidies subject
to the DSB recommendatio ns and rulings because it supports Boeing 's LCA-related R&D
efforts and contributes to Boeing 's development of, and access to, LCA -related
technology.173 Even where funding goes directly to the educational institutions involved,
participating enterprises suc h as Boeing nevertheless receive direct support from the
funded projects, and technologies owned by the universities are advanced in part
through R&D funding provided through NASA 's aeronautics R&D programmes and DOD's
RDT&E Program.174

164 United States' second written submission, para. 78.
166 United States' second written submission, para. 78.
167 United States' first written submission, para. 515.
168 United States' first written submission, paras. 514 and 515.
170 United States' second written submission, para. 79.
171 European Union's first written submission, para. 541.
172 European Union's second written submission, para. 137. The European Union refers to a press article
in which the Director of the Governor's Office of Aerospace says in relation to the JCATI that the focus is now
on the next aircraft Boeing will design and build after the 737 MAX. (See S. Wilhelm, "State Fires Up New
Efforts to Boost Aerospace Education", Puget Sound Business Journal, 29 June 2012, (Exhibit EU-456)).
173 European Union's second written submission, para. 138.
174 European Union's first written submission, para. 527; second written submission, para. 139.

7.58. The European Union argues that the effects of the JCATI measure are to worsen the existing
situation of non-compliance regarding the Washington State B&O tax rate reduction and the NASA
and DOD aeronautics R&D subsidies by expanding the adverse effects caused by such subsidies
during the new reference period. 175 The JCATI measure undermines compliance with the DSB
recommendations and rulings by enabling Boeing to use the technologies and research developed
through JCATI to further its own LCA -related research without paying anyth ing in return for such
goods, services and grants and by lowering Boeing's costs of doing business in Washington State.
7.59. As to timing, the European Union notes that the JCATI issued its first round of grant awards
in February 2013, which is after the date o f the DSB recommendations and rulings
(23 March 2012).
7.60. Brazil considers that an Article 21.5 panel is not confined solely to examining declared
measures taken to comply.176 Where an "undeclared" measure has a sufficiently close relationship
to a declared mea sure taken to comply , and to the DSB recommendations and rulings, it may be
within the scope of Article 21.5 compliance proceedings. 177 This requires a panel to "scrutinize the
links, in terms of nature, effects, and timing" between the respective measures.178 Brazil considers
that while an "undeclared" measure must share more than "some features " with the original
measure to be considered within the scope of Article 21.5, an overl y narrow approach to an
Article 21.5 panel's terms of reference could undermine the effectiveness of the dispute settlement
process.179
7.61. Canada considers that it is essential to the prompt settlement of disputes to include in the
scope of Article 21.5 compliance proceedings those measures that have a "sufficiently close
relationship" in "timing, nature and effects " with the declared measures taken to comply, and the
DSB recommendations and rulings. 180 To do otherwise would allow a respondent to evade
compliance with rulings and recommendations of the DSB.181
7.62. Japan considers that in order to e nsure full compliance and prevent circumvention, certain
"undeclared" measures taken to comply may also be included in the scope of compliance
proceedings. These are those "undeclared" measures that virtually replace the declared measure
taken to comply or that have "close links particularly in terms of their 'timing, nature and effects'"
with the declared measures.182
7.2.2.2 Evaluation by the Panel
7.63. The Joint Center for Aerospace Technology is an aerospace office created and funded by the
State of Washington since July 2012. Its statutory purposes are to:
a. pursue joint industry -university research in computing, manufacturing, efficiency,
materials/structures innovation , and other new technologies that can be used in
aerospace firms;
b. enhance the education of students in the engineering departments of the University of
Washington, Washington State University, and other participating institutions through
industry-focused research; and
c. work directly with existing small, medium-sized and large aerospace firms and aerospace
industry associations to identify research needs and opportunities to transfer
off-the-shelf technologies that would benefit such firms.183

175 European Union's second written submission, para. 140.
176 Brazil's third-party response to Panel question No. 2, para. 3.
177 Brazil's third-party response to Panel question No. 2, para. 3.
178 Brazil's third-party response to Panel question No. 2, para. 3. (emphasis original)
179 Brazil's third-party response to Panel question No. 2, para. 4.
180 Canada's third-party response to Panel question No. 2, para. 10.
181 Canada's third-party response to Panel question No. 2, para. 11.
182 Japan's third-party response to Panel question No. 2, para. 12. (emphasis original)
183 Substitute Senate Bill 5982, Washington Session Laws 1920 (2012), (Exhibit EU-459).

7.64. The JCATI is operated and administered as a multi -institutional education and research
center, conducting research an d development programmes in various locations within Washington
under the joint authority of the University of Washington and Washington State University. The
JCATI is administered by a Board of Directors appointed by the Governor with voting members as
follows: one voting member each representing small aerospace firms, medium -sized firms, large
aerospace firms, and labor ; and two voting members each, representing aerospace industry
associations and higher education. The Board is directed to work with aeros pace industry
associations and aerospace firms of all sizes to identify the research areas that will benefit the
intermediate and long -term economic viability of the Washington aerospace industry. 184 In
February 2013, the JCATI announced that it had awarded 16 projects a total of USD 1.24 million to
solve technological questions important to the aerospace industry in its first round of grant
awards.185 Six of those projects involved Boeing (partnering with Washington University with
respect to three and Washington State University with respect to three).186
7.65. The parties appear to agree that whether the JCATI measure is within the scope of this
compliance proceeding depends upon whether it meets the requirements of the close nexus test
and thus constitutes an "undeclared" measure taken to comply.
7.66. We recall that the close nexus test represents an attempt by panels and the Appellate Body
to balance the competing interests of (a) providing a responding party with a reasonable period of
time to bring its measures into c onformity prior to authorization for retaliation , with (b) the
efficient working of the dispute settlement system, and the importance of meaningful compliance .
In striking this balance, the close nexus test looks to see whether "undeclared" measures have a
"particularly close relationship " to the declared measure taken to comply, and to the DSB
recommendations and rulings, such that they are susceptible to review by a compliance panel. 187
Compliance panels "scrutinize these relationships ", which may, dependin g on the particular facts,
call for an examination of the timing, nature , and effects of the various measures, as well as an
examination of the "factual and legal background " against which a declared measure taken to
comply is adopted. The task of a compli ance panel is to determine whether there are "sufficiently
close links" to be able to characterize the "undeclared" measure as being one "taken to comply "
and consequently, for the panel to assess its consistency with the covered agreements in an
Article 21.5 proceeding.188 The focus or purpose of the exercise is to ascertain whether measures
other than original measures, or the responding party 's declared compliance actions, would in
practical terms undermine or nullify the purported compliance actions with the result that a panel
could not meaningfully undertake an assessment of whether there has been compliance without
also considering those "undeclared" measures.
7.67. This being so, the close nexus test is not satisfied by merely identifying any links at all
between the "undeclared" measure and the declared measures taken to comply or the DSB
recommendations and rulings. For example, in the subsidies context, the close nexus test should
not be applied in a manner that means that, once a Member is found to have g ranted a subsidy to
a recipient that causes adverse effects, a complaining party can challenge in a compliance
proceeding any subsequent financial contribution to that same recipient on the theory that it is a
subsidy and will cause adverse effects.
7.68. Application of the close nexus test by previous panels and the Appellate Body provides some
guidance as to the sufficiency of the links necessary in order to satisfy the close nexus test and
conclude that the measure is within the scope of a compliance proceedi ng. We briefly discuss
below the previous cases in which an "undeclared" measure was considered sufficiently closely
linked to either the DSB recommendations and rulings, or to declared implementation actions
taken by the responding party, that it was cons idered within the scope of the compliance
proceeding.

184 Substitute Senate Bill 5982, Washington Session Laws 1920 (2012), (Exhibit EU-459).
185 JCATI Press Release, "Research Center Promotes Washington Aerospace Industry Innovation",
5 February 2012 (formerly Exhibit US-13-150), (Exhibit EU-457).
186 JCATI Recommendations (formerly Exhibit US-13-147), (Exhibit EU-462).
187 Appellate Body Reports, US – Softwood Lumber IV (Article 21.5 – Canada), para. 77; and US –
188 Appellate Body Report, US – Softwood Lumber IV (Article 21.5 – Canada), para. 77.

7.69. The close nexus test was first articulated by the Appellate Body in US – Softwood Lumber IV
(Article 21.5 – Canada) in referring with approval to the approach taken by compliance panels in
two earlier cases.189 In the first of those, Australia – Salmon (Article 21.5 – Canada), the
compliance panel was required to determine whether Australia had complied with the DSB
recommendations and rulings adopted in November 1999 regarding import restrictions on
salmonid products that had been maintained through a federal quarantine proclamation. Australia
announced changes to its quarantine policy in July 1999, these being measures that Australia
considered brought it into full compliance with the DSB recommendations and rulings. However, in
October 1999, the State of Tasmania adopted an import ban applying to the product at issue. 190
The compliance panel considered that, in the context of this dispute, at least any quarantine
measure introduced by Australia subsequent to the adoption of the DS B recommendations and
rulings, and within a more or less limited time thereafter, that applied to imports of fresh chilled or
frozen salmon from Canada, was a measure taken to comply within the mandate of the compliance
panel.191
7.70. The second, Australia – Automotive Leather II (Article 21.5 – US), concerned compliance
with a DSB recommendation pursuant to Article 4.7 of the SCM Agreement, adopted in June 1999,
that Australia withdraw subsidies found to be contingent on export performan ce, within the
meaning of Article 3.1(a) of the SCM Agreement. The subsidies in question were payments under a
grant contract between the Government of Australia, a recipient company and its parent company.
Australia notified the DSB that it had complied w ith the DSB recommendation s and rulings in
September 1999, by requiring the recipient company to repay to the Australian Government an
amount that covered any remaining WTO-inconsistent portion of the grants made under the grant
contract and terminating al l subsisting obligations under the grant contract. On the day after the
company had repaid the prospective portion of the grant, Australia announced that it was
providing a loan to the recipient's parent company, which was conditioned on the repayment of the
original subsidy. The United States challenged the new loan in the compliance proceeding on the
basis that it was simply a reimbursement of the non -commercial terms of the purported
withdrawal of the prospective portion of the grant that was repaid by t he company. The panel
considered that the loan was "inextricably linked" to the steps taken by Australia to comply with
the DSB recommendation, in view of both its timing and nature. The panel further reasoned that it
could not exclude the loan from its co nsideration without severely limiting its ability to judge, on
the basis of the U.S. panel request, whether Australia had taken measures to comply with the DSB
recommendations and rulings.192
7.71. The compliance proceeding in US – Softwood Lumber IV (Article 21.5 – Canada), involved a
pass-through analysis used by USDOC in a First Assessment Review of a Final Countervailing Duty
Determination calculating the rate of subsidization of softwood lumber from Canada (the
"undeclared" measure). The declared measure taken to comply was a Section 129 Determination
which replaced the Final Countervailing Duty Determination, and thereby became the basis for the
continued imposition of countervailing duties. The USDOC adopted the same pass-through analysis
in the First Assessm ent Review and in the Section 129 Determination. The panel found that the
pass-through analysis in the First Assessment Review was so "inextricably linked " and "clearly
connected" to both the Section 129 Determination and the Final Countervailing Duty Determination
as to fall within the scope of the compliance proceeding. The United States objected, noting that
the Section 129 Determination (and the Final Countervailing Duty Determination that it revised)
considered the existence and amount of subsidization in the original period of investigation, while
the First Assessment Review was concerned with the amount of subsidization in a different peri od
of review. Moreover, Section 129 proceedings and assessment reviews had different legal
consequences, and the F irst Assessment Review was requested eight months before the adoption
of the panel and Appellate Body reports in the original proceeding. The Appellate Body rejected the
U.S. arguments. Rather, the Appellate Body considered the links between the "undeclared"
measure, the declared measure taken to comply, and the DSB recommendations and rulings in
terms of "subject matter ", "timing", and "effects" and upheld the panel 's finding that the First

189 Appellate Body Report, US – Softwood Lumber IV (Article 21.5 – Canada), para. 74.
190 Panel Report, Australia – Salmon (Article 21.5 – Canada), fn 141 of the preliminary ruling set forth at
paras. 7.10 and 7.15.
191 Panel Report, Australia – Salmon (Article 21.5 – Canada), para. 22 of the preliminary ruling set forth
at para. 7.10.
192 Panel Report, Australia – Automotive Leather II (Article 21.5 – US), para. 6.5.

Assessment Review, insofar as the pass -through analysis was concer ned, fell within the scope of
the compliance proceeding.193
7.72. The Appellate Body next applied the close nexus test in the context of determining whether
the United States had complied with the DSB recommendations and rulings regarding the
methodology of zeroing. In US – Zeroing (EC) (Article 21.5 – EC), the Appellate Body considered
the extent to which subsequent reviews that followed 15 original anti -dumping investigations and
16 administrative reviews in the original proceeding fell within the scope of the co mpliance
proceeding. The panel had ruled that only the subsequent reviews that came into effect after the
adoption of the DSB recommendations and rulings had a sufficiently close nexus with the original
measures at issue and the DSB recommendations and rul ings so as to come within the scope of
the compliance proceeding. 194 The European Communities appealed the panel 's conclusion
regarding the timing factor and exclusion of the other subsequent reviews. The Appellate Body
stated that the timing of a measure is not determinative of whether it bears a sufficiently close
nexus with a Member 's implementation of DSB recommendations and rulings so as to fall within
the scope of a compliance proceeding. As compliance can be achieved before the adoption of DSB
recommendations and rulings, a compliance panel may have to review events pre -dating the
adoption of those recommendations and rulings. 195 While the timing of a measure was a relevant
factor to consider in determining whether it is sufficiently closely connected to a Member 's
implementation of the DSB recommendations and rulings, the panel 's formalistic reliance on the
date of issuance of subsequent reviews in determining whether they had the requisite close nexus
with the DSB recommendations was found to be in error.196
7.73. The Appellate Body then examined whether any of the excluded subsequent reviews fell
within the scope of the compliance proceeding based on a consideration of the links, in terms of
nature and effects, between those measures, the declared measures taken to comply and the DSB
recommendations and rulings.197 It concluded that, with respect to the administrative reviews that
had replaced assessment rates and cash deposit rates found to be WTO-inconsistent in the original
proceeding with assessment rates and c ash deposit rates that continued to reflect the zeroing
methodology, there was a sufficient link, in terms of effects, with the DSB recommendations and
rulings.198 Similarly, the sunset review determinations that led to the continuation of the relevant
anti-dumping duty orders (which in turn provided the legal basis for the continued imposition of
assessment rates and cash deposit rates calculated with zeroing in subsequent administrative
reviews) and which had continued effects after the end of the reasonabl e period of time, had a
sufficiently close link in terms of effects with the DSB recommendations and rulings.199
7.74. Stepping back from the specific facts of these cases, the close nexus test appears to be
fundamentally directed to the question of whether, in th e specific factual and legal context of the
case, it would be feasible for a panel to undertake to determine whether the responding party has
complied with the DSB recommendations and rulings without taking into account these
"undeclared" measures. Thus, i n Australia – Salmon, it made no sense to examine whether
Australia had complied with the DSB recommendations and rulings by amending its federal
quarantine regulations if the compliance panel had not taken into account the fact that the state of
Tasmania had imposed its own import ban very shortly thereafter. Similarly, the compliance panel
in Australia – Automotive Leather II (Article 21.5 – US) could not sensibly have determined
whether Australia had complied with the DSB recommendations and rulings by r equiring the
recipient to repay the grant if it had ignored the fact that the next day, a loan in a similar amount
that expressly made reference to repayment of the grant had been granted to the recipient 's
parent company.
7.75. Although the cases involving com pliance in the context of the United States ' retrospective
system for assessing anti -dumping and countervailing duties are complex technically, the key
issue in those cases seems to be that, whatever the technical legal distinctions between original

193 Appellate Body Report, US – Softwood Lumber IV (Article 21.5 – Canada), paras. 83-85 and 92.
194 Panel Report, US – Zeroing (EC) (Article 21.5 – EC), paras. 8.115 and 8.121.
195 Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), para. 224.
196 Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), para. 226.
197 Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), para. 229.
198 Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), para. 231. By contrast, there was not
a sufficient link, in terms of effects, with respect to excluded subsequent reviews the effects of which had been
replaced by Section 129 Determinations in which zeroing was not applied. (Ibid. para. 232).
199 Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), para. 233.

determinations and assessment reviews, if at the end of the day there would be duties imposed
that reflected the WTO -inconsistency (e.g. zeroing or an impermissible pass -through
methodology), the measures in question should be considered by the compliance panels , because
to ignore this factor would mean that the complaining party may not truly receive the relief that it
could be expected to receive in bringing its complaint and succeeding on that complaint in the
original proceeding. Indeed, in these cases, a fai lure to take into account subsequent reviews
would mean that, by the time the compliance proceeding was completed, the WTO -inconsistent
reviews of a given anti-dumping or countervailing duty order would have been superseded by new
reviews using the same WTO-inconsistent methodologies with respect to the same order.
7.76. We are not persuaded that the European Union has demonstrated that the JCATI measure
shares sufficiently close links in terms of nature or effects, with the Washington State B&O tax rate
reduction, or with the NASA and DOD aeronautics R&D subsidies subject to the DSB
recommendations and rulings, to warrant its inclusion within the scope of this proceeding as an
"undeclared" measure taken to comply.
7.77. The Washington State B&O tax rate reduction, enacted under HB 2294, is a reduction in the
B&O tax rate for manufacturers of commercial airplanes or components of such airplanes, which
was to occur in two stages from October 2005 to July 2007, or at the commencement of final
assembly of a super -efficient airplane, whichever was later. 200 The B&O tax rate reduction was
considered in the original proceeding to be a "tied" subsidy as it applies to the production and sale
of each LCA manufactured in Washington State on a per -unit basis, increasing Boeing's after-tax
revenue and profitability.201 The JCATI measure, by contrast, is a joint industry-university research
programme that seeks to pursue focused research of relevance to the aerospace industry and
enhance the education of students in engineering departmen ts of educational institutions in the
State of Washington. The fact that both measures concern enterprises in the aerospace industry in
the State of Washington is insufficient, in our view, to demonstrate a close nexus in terms of
nature.
7.78. We also regard t he JCATI measure as being insufficiently closely linked to the NASA
procurement contracts and Space Act Agreements and DOD assistance instruments the subject of
the DSB recommendations and rulings. These measures are multi -year R&D instruments that
operated as collaborative research projects between NASA and DOD, respectively, funded through
specific NASA and DOD aeronautics R&D program mes.202 The JCATI measure will coordinate the
development of higher -education aerospace program mes at certain universities in the State of
Washington. As such, it appears to be significantly qualitatively different from the NASA and DOD
aeronautics R&D measures the subject of the DSB recommendations and rulings. There is nothing
before us to suggest that the JCATI will continue or develop R&D conducted under the NASA and
DOD aeronautics R&D programmes, or that the JCATI replaces or replicates the NASA and DOD
aeronautics R&D measures the subject of the DSB recommendations and rulings in a way that
requires that the measure be included within the scope of this proceeding in order to enable the
Panel to make a meaningful determination as to whether the United States has complied with the
DSB recommendations and rulings.
7.79. The JCATI measure is not a declared measure taken to comply, n or has it been
demonstrated to have a sufficiently close connection to a declared measure taken to comply, or to
the DSB recommendations and rulings, to fall within the scope of this proceeding as an
"undeclared" measure taken to comply. The Panel therefore grants the United States' request and
rules that the JCATI measure is outside the scope of this proceeding.
7.80. In this Section of the Report, the Panel therefore finds that the following
Washington tax measures, which were the subject of a request for prel iminary rulings
by the United States, are within the scope of this proceeding:
a. Washington State B&O tax credits for preproduction/aerospace product
development, as amended by section 7 of SSB 6828;

200 Assembly of the 787 commenced in Washington in the first half of 2007 and the reduced taxation
rate was set to continue until 2024.
201 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 1170 and 1252.
202 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1709 and 7.1746.

b. Washington State B&O tax credit for property taxes, as ame nded by HB 2466 to
include leasehold excise taxes;
c. Washington State sales and use tax exemptions for computer software,
hardware, and peripherals; and
d. City of Everett B&O tax rate reduction.
7.81. The Panel grants the United States' request for a preliminary ru ling that the JCATI
measure is outside the scope of this proceeding.203
7.3 DOD aeronautics R&D measures
7.3.1 Background
7.82. In this Section, we address the United States' scope obje ctions relating to the
European Union's challenge to the U.S. DOD's Research, Development , Test & Evaluation (RDT&E)
Program as involving specific subsidies to Boeing. By way of background, we recall that DOD's
budget has historically been divided into five broad budget categories: Military Personnel;
Operations & Maintenance; Procurement; Res earch, Development, Test & Evaluation, and Military
Construction.204 The RDT&E budget category funds research, development, test, and evaluation
spending by DOD, including the three military departments of DOD (United States Army, Navy,
and Air Force) and ot her DOD agencies, towards designing and developing military systems or
technology.205 The RDT&E budget category is a distinct category from "Procurement" which funds
the actual acquisition costs of military systems that are in production.206
7.83. RDT&E budget activities are subdivided into a number of program elements. DOD Financial
Management Regulation explain s that the "program element" is the major aggregation at which
RDT&E efforts are organized, budgeted, and reviewed.207 Each program element is divided into one
or more named and numbered projects, which may be further subdivided into activities. 208 Each
RDT&E program element has specific program objectives expressed in the "Mission Description"
statement contained in the program budgets. 209 Program elements are als o identified by a
particular "PE number" in the Future Years Defense Program (FYDP) budget estimates.210
7.84. In its panel request in this proceeding, the European Union alleges that U .S. DOD maintains
subsidies benefiting U.S. LCA producers through: (a) the RDT&E Program; as well as (b) through
contracts, assistance instruments , and other agreements (as modified) entered into under the

203 We recall that, in addition to the Washington tax measures listed in subparagraphs a through d
above, which we have ruled to be within the scope of this proceeding, the European Union also brings claims in
respect of the Washington State B&O tax rate reduction for the aerospace industry, which was a measure that
was successfully challenged by the European Communities in the original proceeding, and is the subject of DSB
recommendations and rulings.
204 Panel Report, US – Large Civil Aircraft (2nd complaint), fn 2786; and CRA International, U.S
Department of Defense (DOD) Research, Development, Test and Evaluation (RDT&E) Funding Support to the
Boeing company for Dual-Use Aircraft R&D, (November 2006) (CRA Report), (Exhibit EU-29), p. 4.
205 All non-classified DOD funding activities can be identified and tracked to some degree through the
Future Years Defense Program (FYDP), which is the official DOD expression of historical and projected funding,
by program, and by fiscal year. The FYDP contains data on all spending by DOD including personnel,
acquisitions, operations and maintenance, and R&D activities. The FYDP information is contained in Budget
Estimates that are published annually and contain actual prior year expenditures, estimated current year
expenditures, and several projected budgeted years of program funding. (CRA Report, (Exhibit EU-29), pp. 4
and 5).
206 Panel Report, US – Large Civil Aircraft (2nd complaint), fn 2786; and CRA Report, (Exhibit EU-29),
p. 4.
207 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1195 (referring at fn 2785 to DOD
Financial Management Regulation, Vol. 2B, Chapter 5, June 2006, submitted in the original dispute as Exhibit
EC-1324, p. 5). The original panel referred to the 23 RDT&E program elements as "programmes", although
also explained that the 23 individual RDT&E programmes could be termed "programme elements", "project
elements", or "PEs". (Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1195). For purposes of
clarity, we refer to the individual RDT&E programmes under the RDT&E Program as "program elements".
208 CRA Report, (Exhibit EU-29), p. 5.
209 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1147.
210 CRA Report, (Exhibit EU-29), p. 5.

RDT&E Program; in addition to (c) specified U.S. Air Force, Navy, Army , and Defense -wide
program elements of the RDT&E Program; as well as (d) contracts, assistance instruments , and
other agreements (as modified) entered into under these RDT&E program elements ; and (e)
contracts and other agreements (as modified) with Boeing listed in annex B of the
United States' 23 September 2012 notification.211 The forms of the subsidies are described as : (a)
the provision to Boeing of funding and access to government facilities, equipment, and employees
for R&D applicable to the development, design , and production of LCA on terms more favourable
than would be available on the commercial market ; as well as (b) the provision to Boeing of
royalty-free use of the technologies developed with such funding and support or use of such
technologies on preferential terms.212
7.85. The European Union 's first written submission divides its discussion of the particular DOD
RDT&E program elements through which DOD is alleged to provide actionable subsidies to Boeing
into "original" RDT&E program elements (i.e. those that were also at issue in the original
proceeding), and "additional" RDT&E program elements (i.e. those which allegedly have begun to
fund what the European Union identifies as "dual-use LCA-relevant research" since 2007).213
7.86. The European Union explains that its identification and discussion of the RDT&E progr am
elements that it considers "contribute to Boeing 's LCA division " was assisted by experts,
Mr Richard Rumpf and Charles River Associates (CRA). 214 CRA had been engaged by the European
Communities in the original proceeding to estimate the amounts of RDT&E funding received by
Boeing that could be considered "dual-use" RDT&E, in the sense of R&D that was "relevant" to
both military and commercial aircraft. 215 Mr Rumpf was similarly engaged by the European Union
in this compliance proceeding to estimate the amou nts of fun ding provided by the DOD RDT&E
Program to Boeing f or fiscal years (FY) 2007 through FY 2012 "which support the development of
technologies or methods that could benefit Boeing's commercial airplane division".216
7.87. Using a similar methodology to that employed by CRA in its 2006 Report, Mr Rumpf
reviewed DOD 's FYDP budget estimate statements for FY 2007 through FY 2013 to determine
which RDT&E program elements, and which projects and activities within those program elements,
funded "general aircraft " or "science and technology " R&D "that appeared to be dual -use to
LCA".217 On the basis of this analysis, Mr Rumpf identified 15 "general aircraft" RDT&E program
elements, under 16 di fferent program element numbers.218 Eight of those "general aircraft "
program e lements had been identified by CRA in its 2006 Report and were challenged by the
European Communities in the original proceeding. 219 The Rumpf Report does not identify six
program elements that were identified by CRA in 2006 and which were the subject of the
European Communities' claims in the original proceeding and are also being challenged by the
European Union in this proceeding.220

211 European Union's request for the establishment of a panel, paras. 11-13. The panel request indicates
that "Annex B of the 23 September 2012 notification is attached to this request, and the contracts listed
therein are incorporated into this request". (Ibid. para. 13, p. 5, and annex B).
212 European Union's request for the establishment of a panel, paras. 11 and 12.
213 European Union's first written submission, sections V.D.2.a and V.D.2.b., respectively.
214 European Union's first written submission, para. 245 (referring to CRA Report, (Exhibit EU-29); and
R. L. Rumpf and R. J. Levinson, United States Department of Defense Research, Development, Test &
Evaluation (RDT&E) Funding for the Boeing Company Applicable to Large Civil Aircraft: 2007-2012 Estimates,
(12 March 2013) (Rumpf Report), (Exhibit EU-23)).
219 Defense Research Sciences (PE 0601102F), Materials (PE 0602102F), Aerospace Vehicle
Technologies (PE 0602201F), Aerospace Sensors (PE 0602204F), Advanced Materials for Weapon Systems (PE
0603112F), Aerospace Technology Dev/Demo (PE 0603211F), Aerospace Propulsion and Power Technology (PE
0603216F), and RDT&E for Aging Aircraft (PE 0605011F). (See Rumpf Report, (Exhibit EU-23), para. 3.2).
220 These are: Aerospace Propulsion (PE 0602203F), Dual-Use Science & Technology (PE 0602805F),
Flight Vehicle Technology (PE 0603205F), Flight Vehicle Technology Integration (PE 0603245F), and two
Manufacturing Technology/Industrial Preparedness program elements, Navy (PE 0708011N) and Air Force (PE
6603771F/0708011F). (See Rumpf Report, (Exhibit EU-23), para. 3.2, p. 8). In response to questioning by the
Panel, the European Union explains that the fact that DOD has not continued, after 2006, to provide additional
appropriated funding under a particular RDT&E program element does not mean that the subsidy associated
with that program element has been withdrawn. In the absence of meaningful action by the United States, the
benefit that Boeing receives from the intellectual property developed with DOD funding continues for a

7.88. In the original proceeding, the European Communities also challenged payments and access
to DOD facilities provided by DOD to Boeing through procurement contracts and assistance
instruments funded under 15 "military aircraft " or "systems acquisition " program elements in
relation to 10 military aircraft. CRA had included "military aircraft" program elements related to
four military aircraft in its estimate of the amount of RDT&E funding received by Boeing from DOD
that could be considered "relevant" to both military and commercial aircraft (so -called "dual-use"
RDT&E).221 For this compliance proceeding, Mr Rumpf undertook a similar e xercise to that
conducted by CRA with respect to the "military aircraft" or "systems acquisition" program elements
in the original proceeding. He first identified the military aircraft program elements in which Boeing
is known or believed to have been invo lved during the 2007-2012 period, to determine the RDT&E
program elements that, in his professional opinion, funded the development of technologies,
processes, and other knowledge that were applicable to the design, development, production, and
maintenance of LCA. 222 He identified five military aircraft program elements , only one of which
(the C -17) had been the subject of claims by the European Communities in the original
proceeding. The other four military aircraft program elements are: the Airborne Warning and
Control System (AWACS), the KC -46, Next Genera tion Aerial Refueling Aircraft, the Multi-Mission
Maritime Aircraft (P-8A), and the Long Range Strike Bomber.223
7.89. Based on the foregoing, the European Union identifies the following "original" RDT&E
program elements in its first written submission:
a. Defense Research Sciences (PE 0601102F).
b. Materials (PE 0602102F).
c. Aerospace Flight Dynamics/Aerospace Vehicle Technologies (PE 0602201F).
d. Aerospace Propulsion (PE 0602203F).
e. Aerospace Avionics/Aerospace Sensors (PE 0602204F).
f. Dual-Use Science & Technology (PE 0602805F).
g. Advanced Materials for Weapons Systems (PE 0603112F).
h. Flight Vehicle Technology (PE 0603025F).
i. Aerospace Structures/Aerospace Technology Dev/Demo (PE 0603211F).
j. Aerospace Propulsion and Power Technology (PE 0603216F).
k. Flight Vehicle Technology Integration (PE 0603245F).
l. RDT&E for Aging Aircraft (PE 0605011F).
m. Manufacturing Technology/Industrial Preparedness.
i. Air Force (PE 0603771F/0603680F/0708011F).224

significant period beyond the end point of the funding. (European Union's response to Panel questions No. 58,
para. 15, and 60, para. 20). See also European Union's second written submission, paras. 429-430.
221 CRA Report, (Exhibit EU-29), para. 1.1, p. 1. CRA considered RDT&E program elements funding the
V-22/CV-22, the F/A-18, the Joint Strike Fighter and the C-17. (See CRA Report, (Exhibit EU-29), p. 13).
224 The United States indicated at paragraph 6 of its Compliance Communication that it had ceased
funding this program element. (See United States' Compliance Communication, para. 6). The European Union
in its first written submission explains that the Air Force Manufacturing Technology/Industrial Preparedness
program element was PE 0708011F in DOD budgets for FY 1993 and FY 1997 through FY 2008, and PE
0603771F in FY 1996. In FY 2009, the Airforce Manufacturing Technology (ManTech) program element
transferred to PE 0603680F from PE 0708011F. (European Union's first written submission, para. 275 and

ii. Navy (PE 0708011N).225
iii. Defense Logistics Agency (PE 0708011S).226
iv. Defense Wide Manufacturing Science and Technology (PE 0603860D8Z).227
n. V-22/CV-22 (PE 0604262N/0401318F).228
o. F/A-18 Squadrons (PE 0204136N).
p. Joint Strike Fighter (PE 0603800F/0603800N/0603800E229/0604800F/0604800N).
q. C-17 (PE 0401130F/0604231F).
r. F-22 (PE 0604239F).
s. B-2 Advanced Technology Bomber (PE 0604240F).230
t. Comanche (PE 0604223A).231
u. A-6 Squadrons (PE 0204134N).232
v. AV-8B Aircraft (PE 0604214N).
7.90. The European Union identifies a further eight program elements that had not been
challenged in the original proceeding233:
a. Materials and Biological Technology (PE 0602715E).
b. Sustainment Science & Technology (PE 0603199F).
c. Technology Transfer (PE 0604317F).
d. Aviation Safety Technologies (PE 0606301D8Z).

fn 643). See also Air Force Industrial Preparedness/Manufacturing Technologies Budgets for FY 1993,
FY1996-2013, (Exhibit EU-65), Manufacturing Technologies (PE 0603680F) FY 2011 Budget, p. 1.
225 The United States indicated at paragraph 6 of its Compliance Communication that it had ceased
funding this program element. (See United States' Compliance Communication, para. 6). See also
United States' response to the Panel's request for information pursuant to Article 13 of the DSU, dated
28 February 2013, response to question No.24, para. 49 (correcting the program element number for this
program element).
226 The European Communities only challenged the Air Force and Navy ManTech program elements in
the original proceeding. It did not challenge the Defense Logistic Agency's Industrial Preparedness
Manufacturing Technology program element.
227 The European Communities only challenged the Air Force and Navy ManTech program elements in
the original proceeding. It did not challenge the Defense Wide Manufacturing Science and Technology program
element.
228 Although presented together in its submissions in this proceeding, the European Communities in the
original proceeding had presented these as two distinct program element challenges. (See Panel Report, US –
229 The United States indicated at paragraph 6 of its Compliance Communication that it had ceased
funding this program element. (See United States' Compliance Communication, para. 6).
230 The United States indicated at paragraph 6 of its Compliance Communication that it had ceased
funding this program element. (See United States' Compliance Communication, para. 6).
231 The United States indicated at paragraph 6 of its Compliance Communication that it had ceased
funding this program element. (See United States' Compliance Communication, para. 6).
232 The United States indicated at paragraph 6 of its Compliance Communication that it had ceased
funding this program element. (See United States' Compliance Communication, para. 6).
233 European Union's first written submission, paras. 291 and 301. The list of program elements in the
European Union's first written submission includes all of the program elements identified in the
European Union's request for the establishment of a panel, except for the following three program elements:
Aviation Survivability (PE 0603216N), KC-105 (PE 0401219F), and Technology Transition (PE 0604858F).

e. Airborne Warning and Control System (AWACS) (PE 0207417F).
f. KC-46, Next Generation Aerial Refueling Aircraft (PE 0605221F).
g. Multi-Mission Maritime Aircraft (P-8A) (PE 0605500N).
h. Long Range Strike Bomber (PE 060415F).
7.91. According to the European Union, these further eight RDT&E program elements had begun
to fund Boeing's "dual-use LCA-relevant research since 2007".234
7.92. We also recall that the "funding" and "support" provided to Boeing for its R&D activities on
behalf of DOD under the RDT&E program elements occurs through two different types of legal
instruments. The first are procurement contracts, which DOD is required to use when contracting
for the performance of R&D services the principal purpose of which is for the direct benefit or use
of the U.S. Government .235 The second are assistance instruments, which include cooperat ive
agreements, technology investment agreements , and certain other transactions. Assistance
instruments are used when the purpose of the R&D activity is to transfer a thing or value to the
recipient instead of acquiring property or services for the direct benefit or use of the U.S.
Government.236
7.93. The United States objects to the inclusion of some of the original DOD aeronautics R&D
measures within the scope of this compliance proceeding on the basis that those measures were
not subject to the DSB recommendations and rulings in the original proceeding. It also objects to
the inclusion of some other "additional" DOD aeronautics R&D measures on the basis that they
could have been challenged in the original proceeding and were not, and thus are not properly
within the scope of the compliance proceeding. Specifically, the United States requests the Panel
to make the following rulings:
a. The DOD procurement contracts funded under the original 23 RDT&E program elements
that were at issue in the original proceeding, are outside the scope of this proceeding,
because they were unsuccessfully challenged by the European Communities in the
original proceeding.237
b. The DOD procurement contracts and assistance instruments funded under certain
"additional" RDT&E program elements are outside the scope of this proceeding because
they were either in existence at the time of the European Communities ' panel request in
the original proceeding, or continued work previously conducted under program
elements then in existence, but were not c hallenged by the European Communities in
the original proceeding.238
c. The provision of DOD "equipment and employees " is not within the scope of this
proceeding because this measure was found to be outside the original panel's terms of
reference and thus it is also outside the scope of this proceeding.239
7.94. We consider each of the above requests in this Section of the Report. We also address, of
our own accord, whether it is necessary for the Panel to determine whether each of the RDT&E
program elements identifie d by the European Union in its panel request in fact funds "dual-use"

234 European Union's first written submission, paras. 291 and 301.
235 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1115 and 7.1140-7.1142.
236 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1115 and 7.1140-7.1142.
237 United States' request for preliminary rulings, dated 13 November 2012, paras. 5, 8, and 9; reply to
the European Union's response to the United States' request for preliminary rulings, dated 3 December 2012,
paras. 26 and 34; and first written submission, paras. 61 and 64-66.
238 United States' request for preliminary rulings, dated 13 November 2012, paras. 10, 13, and 14; reply
to the European Union's response to the United States' request for preliminary rulings, dated
3 December 2012, para. 42; and first written submission, paras. 62 and 63.
239 United States' request for preliminary rulings, dated 13 November 2012, paras. 10-12; reply to the
European Union's response to the United States' request for preliminary rulings, dated 3 December 2012,
para. 41; and first written submission, paras. 61, 67, and 68.

RDT&E (however defined), in order to determine which of the DOD aeronautics R&D measures
identified by the European Union in its panel request are properly within our terms of reference.
7.3.2 Whether the pre-2007 DOD procurement contracts funded under the original 23
RDT&E program elements are outside the scope of this compliance proceeding
7.95. The United States requests a ruling that the DOD procurement contracts funded under the
original 23 RDT&E program elements are outside the scope of this compliance proceeding because
the DOD procurement contracts were challenged in the original proceeding, were not found to be
WTO-inconsistent in that proceeding, and the European Union declined to pursue the issue on
appeal.240
7.3.2.1 Main arguments of the parties and third parties
7.96. The United States argues that Article 21.5 of the DSU does not allow re -litigation of claims
on which the complaining party did not prevail. It considers that the European Union did not
prevail on its claims in respect of the DOD procurement contracts in the original proceeding
because there was no finding of WTO -inconsistency against these measures at the conclusion of
the original proceeding.241
7.97. The United States asserts that, a lthough the European Union appealed the legal
interpretation on which the panel had based its finding that the DOD procurement contracts were
not financial contributions, within the meaning of Article 1.1(a)(1), that appeal did not result in a
finding against the DOD procurement contracts (and thus create a compliance obligation for the
United States).242 According to the United States, this is because the European Union specifically
asked that, in the event that the Appellate Body rejected the panel 's legal test, it not complete the
analysis with respect to the DOD procurement contracts.243
7.98. The United States acknowledges the existence of an "exception" to the principle that a party
may not re -litigate issues in compliance proceedings in which it did not prevail in the ori ginal
dispute. This is where the approach of the panel only partially resolved the matter at issue. 244
However, the difference in the present case is that the European Union bears responsibility for the
partial resolution of its claims concerning the DOD pro curement contracts because it declined to
seek completion of the analysis.
7.99. The United States distinguishes the case of US – Upland Cotton (Article 21.5 – Brazil), in
which Brazil was permitted to pursue claims against measures that it had pursued in the o riginal
proceeding but which had not resulted in a finding of WTO -inconsistency, owing to insufficient
factual findings and undisputed evidence to enable the Appellate Body to complete the analysis.
According to the United States, the present situation is different because "the EU took the issue of
DOD procurement contracts out of contention, and the Appellate Body never had the opportunity
to evaluate whether it was possible to complete the analysis. "245 Indeed, the Appellate Body 's
findings underscore that the European Union did not appeal the panel 's findings that the DOD
procurement contracts were not inconsistent with the SCM Agreement. 246 According to the
United States, the fact that the Appellate Body declined to address the European Union 's appeal
because it was "unnecessary for purposes of resolving this dispute " indicates that the Appellate
Body viewed the panel 's finding that the DOD procurement contracts were not financial

240 United States' request for preliminary rulings, dated 13 November 2012, paras. 8, 9, and 60.
241 United States' reply to the European Union's response to the United States' request for preliminary
rulings, dated 3 December 2012, para. 27; request for preliminary rulings, dated 13 November 2012, para. 9;
242 United States' reply to the European Union's response to the United States' request for preliminary
rulings, dated 3 December 2012, para. 28; response to Panel question No. 10, paras. 22 and 23.
243 United States' reply to the European Union's response to the United States' request for preliminary
rulings, dated 3 December 2012, para. 28; request for preliminary rulings, dated 13 November 2012, para. 8;
244 United States' reply to the European Union's response to the United States' request for preliminary
rulings, dated 3 December 2012, para. 28 (referring to Appellate Body Reports, EC – Bed Linen (Article 21.5 –
India), fn 115; and US – Oil Tubular Goods Sunset Reviews (Article 21.5 – Argentina), para. 148 and fn 322).
245 United States' reply to the European Union's response to the United States' request for preliminary
rulings, dated 3 December 2012, para. 33; opening statement at the meeting of the Panel, para. 62.
246 United States' opening statement at the meeting of the Panel, para. 62.

contributions to be a finding that the European Union did not appeal, and th erefore, addressing
that issue on appeal was unnecessary for purposes of resolving the dispute.247
7.100. Finally, the United States submits that the systemic implica tion of permitting the
European Union to reassert its claims against the DOD procurement contracts in the circumstances
would be to enable complaining parties that are displeased with the outcome of a panel finding in
an original proceeding to make limited appeals of legal issues and decline to request completion of
the analysis, in order to prevent the Ap pellate Body from evaluating whether the party had made
out its case. If the appeal on the limited issue is successful, it then has a "second chance" to make
out its case in a compliance proceeding. This outcome is contrary to the limited scope of
Article 21.5 of the DSU, and imposes an unfair burden on the responding party , which would be
deprived a reasonable period of time in which to comply with any findings of breach.248
7.101. The European Union argues that it has the right to pursue claims in this compliance
proceeding against any funding or support provided to Boeing through the RDT&E program
elements at issue, regardless of the type of contracts or agreements pursuant to which that
funding and support is provided.249
7.102. The European Union notes that it appealed the legal finding upon which the panel had
based its decision that the DOD procurement contracts were not subsidies. However, given the
lack of factual findings and uncontested facts related to benefit and adverse effects, it would have
been impossible for the Appellate Body to complete the analysis of whether the DOD procurement
contracts constitute specific subsidies that cause adverse effects. Consequently, the
European Union did not request completion of the analysis that it knew the Appellate Body cou ld
not grant.250
7.103. The European Union notes that the Appellate Body declared "moot and without legal effect"
the panel 's interpretation that transactions properly characterized as purchases of services are
excluded from Article 1.1(a)(1) and likewise declared "moot" the panel 's finding that DOD
procurement contracts were properly characterized as purchases of services and thus were not
financial contributions.251 The European Union argues that, because it had already succeeded in
the original proceeding in demon strating that the NASA aeronautics R&D measures and DOD
assistance instruments were specific subsidies, the only practical reason it had to appeal the
panel's finding that purchases of services are excluded from Article 1.1(a)(1) of the SCM
Agreement was t o "bring the DOD procurement contracts back into the scope of this dispute ".252
The European Union considers that it pursued the matter before the Appellate Body to the greatest
extent possible, and the panel's findings were declared moot.253
7.104. The European Unio n argues that the United States ' position regarding the
European Union's failure to request completion of the analysis amounts to saying that if the
Appellate Body is requested to complete the analysis but cannot, the claim and measure may be
within the scope of the compliance proceeding, while failure to request completion of the analysis
is "similar to a party not appealing " and triggers the obligation to accept unconditionally the
finding left unappealed. 254 This amounts to a false distinction between the Appellate Body 's
inability to complete the analysis, on the one hand, and a party 's recognition that there are
insufficient factual findings or undisputed facts on the record to allow the Appellate Body to

247 United States' opening statement at the meeting of the Panel, para. 63.
248 United States' reply to the European Union's response to the United States' request for preliminary
249 European Union's response to the United States' request for preliminary rulings, dated
23 November 2012, para. 16.
250 European Union's response to the United States' request for preliminary rulings, dated
251 Indeed, the European Union submits that the United States' preliminary objection depends entirely
on a distinction between DOD procurement contracts and assistance instruments that the Appellate Body had
declared to be moot. To allow the United States to prevail would mean that such an erroneous distinction
would be anything but moot. (See European Union's supplemental submission on the United States' request for
preliminary rulings, para. 10; and opening statement at the meeting of the Panel, para. 15).
252 European Union's response to the United States' request for preliminary rulings, dated
23 November 2012, para. 20. (emphasis original)
253 European Union's opening statement at the meeting with the Panel, para. 15.
254 European Union's second written submission, para. 41.

complete the analysis.255 In the present case, the original panel had not even begun an analysis of
the highly fact -intensive issues of benefit or adverse effects regarding the DOD procurement
contracts, limiting that analysis exclusively to DOD assistance instruments. The European Union
submits that, if th e United States is correct that the European Union is at fault for failing to
request completion of the analysis, the result will be that appellants will have to ask for completion
of the analysis on every issue under appeal, in order to preserve their opt ions before any
compliance panel. This would lead to huge inefficiencies, creating new burdens on and delays in
Appellate Body proceedings.256
7.105. Finally, the European Union asks the Panel to consider the practical result of excluding the
DOD procurement contra cts funded under the 23 original RDT&E program elements from this
compliance proceeding: A new original panel would need to be constituted to consider claims
against procurement contracts funded under the 23 original RDT&E program elements while the
Panel in this compliance proceeding would be considering "identical" claims against procurement
contracts funded under the other "additional" RDT&E program elements, as well as assistance
instruments funded under all DOD RDT&E program elements. This would be "incredibly
inefficient".257
7.106. Brazil argues that the DOD procurement contracts funded under the original 23 RDT&E
program elements challenged in the original proceedings are outside the scope of this compliance
proceeding, on the basis that the European Union c ould have chosen to pursue the DOD
procurement contracts before the Appellate Body, but chose not to. 258 Brazil considers that it may
be necessary to draw a distinction between claims for which the Appellate Body was asked to fully
consider the issues but was unable to complete its analysis, and matters for which the complaining
Member did not seek full consideration. 259 Without a substantial change in the facts, the latter
measures cannot constitute a measure taken to comply, and are therefore outside the scop e of
compliance proceedings.260 Brazil also emphasizes that compliance proceedings should not be used
to give complainants a "second bite of the apple" and that to do so would compromise the dispute
settlement system's "functioning and predictability".261
7.107. Certain of the third parties (Brazil, Canada, Japan, and Korea) make general arguments as
to the situations in which a complaining party may be precluded from challenging a measure in a
compliance proceeding that it had not successfully challenged in the orig inal proceeding . Th ese
arguments are summarized at Section 7.2.1.1 of this Report.
7.3.2.2 Evaluation by the Panel
7.108. The question before us is whether the European Union can assert claims concerning DOD
procurement contracts funded unde r the 23 original RDT&E program elements in this compliance
proceeding, notwithstanding that there were no DSB recommendations and rulings with respect to
the DOD procurement contracts in the original proceeding, and moreover, that the original panel 's
finding that the DOD procurement contracts did not involve financial contributions , within the
meaning of Article 1.1(a)(1), was declared moot.
7.109. In Section 7.2.1.2 of this Report, we discuss the situations in which complaining par ties
have been permitted to reassert claims in compliance proceedings that they had unsuccessfully
raised in the original proceeding. In that discussion, we conclude that the prior cases addressing

255 European Union's supplemental submission on the United States' request for preliminary rulings,
para. 13; second written submission, paras. 44 and 46.
256 European Union's supplemental submission on the United States' request for preliminary rulings,
para. 14.
257 European Union's response to the United States' request for preliminary rulings, dated
23 November 2012, paras. 22-25.
258 Brazil's third-party submission, paras. 37 and 38; third-party statement, paras. 5 and 6; and
third-party response to Panel question No. 4, paras. 1 and 2.
259 Brazil's third-party response to Panel question No. 1, para. 6.
260 Brazil's third-party submission, paras. 37 and 38.
261 Brazil's third-party submission, para. 36; third-party response to Panel question No. 1, paras. 4
and 5.

this issue suggest that the key issue is whether the reass ertion of claims in the particular
circumstances would compromise the finality of the DSB recommendations and rulings.262
7.110. We will therefore determine the status of the European Union 's claims in respect of the
DOD procurement contracts at the conclusion of the original proceeding. This includes a close
examination of the European Union 's appeal as it pertained to the DOD procurement contracts, as
well as the way in which the Appellate Body dealt with that aspect of the European Union's appeal.
7.3.2.2.1 The European Union's appeal regarding the pre -2007 DOD procurement
contracts
7.111. In the original proceeding, the panel found, at paragraph 7.970 of the panel report, that
transactions properly characterized as purchases of services are excluded from the scope of
Article 1.1(a)(1)(i) of the SCM Agreement. In a separate section of the panel report entitled
"Department of Defense (DOD) aeronautics R&D ", the panel concluded, at paragraph 7.1171, that
the work that Boeing performed for DOD under the procurement contracts was pro perly
characterized as a "purchase of services " and therefore found that the payments and access to
facilities provided to Boeing under the DOD procurement contracts were not financial contributions,
within the meaning of Article 1.1(a)(1).
7.112. In its notice o f appeal, the European Union requested the Appellate Body to "reverse,
modify or declare moot and of no legal effect the findings, conclusions and recommendations of
the Panel" with respect to various enumerated errors of law and legal interpretations cont ained in
the panel report.263 The third such alleged error enumerated by the European Union was that the
panel erred in its interpretation of Article 1.1(a)(1) of the SCM Agreement when it found that
transactions properly characterized as purchases of servic es are excluded from the scope of
Article 1.1(a)(1) of the SCM Agreement. 264 The footnote to this ground of appeal refers to the
There is no reference to paragrap h 7.1171, which contained the panel 's finding that the DOD
procurement contracts were not financial contributions. 266 In other words, the European Union in
its third appeal point appealed only the panel 's interpretation of Article 1.1(a)(1), not the
application of that interpretation to any specific measures.
7.113. The European Union states in the portion of its appellant submission concerning the panel's
allegedly erroneous interpretation of Article 1.1(a)(1) of the SCM Agreement:
As a direct consequence of this error of law, the Panel came to the erroneous
conclusion that much of the provision of funding and other support to Boeing pursuant
to the DOD RDT&E Program is excluded from the scope of the SCM Agreement.267
It concludes this portion of its appellant submission as follows:
In conclusion, the Appellate Body should reverse or modify the Panel 's finding that
transactions properly characterised as purchases of services are excluded from the
scope of Article 1.1(a)(1) of the SCM Agreement. Because there are a num ber of
contested facts related to the DOD RDT&E Program measures that were found to
constitute purchases of services, the European Union does not request that the
Appellate Body complete the analysis.268
7.114. This suggests that, although the European Union 's appeal of the panel 's interpretation of
Article 1.1(a)(1) did not explicitly refer to the panel 's findings concerning the DOD procurement

262 See para. 7.42 above.
263 European Union's notice of appeal, dated 4 April 2011, WT/DS353/8, second introductory para.
264 European Union's notice of appeal, dated 4 April 2011, WT/DS353/8, para. 3.
265 European Union's notice of appeal, dated 4 April 2011, WT/DS353/8, fn 4.
266 The formulation of the third appeal point concerning the interpretation of Article 1.1(a)(1) can be
contrasted with the other grounds of appeal, in which the European Union alleged that the panel erred in its
interpretation and application of various provisions of the SCM Agreement (such as Article 7.4 and Annex V,
Article 2.1, Article 3.1(a) and fn 4, and Articles 5 and 6.3).
267 European Union's appellant submission, (Exhibit EU-1280), para. 93.
268 European Union's appellant submission, (Exhibit EU-1280), para. 127.

contracts as purchases of services that are not covered by Article 1.1(a)(1)(i), the European Union
considered that the Ap pellate Body 's reversal of the panel 's legal interpretation would have
implications for the panel's finding regarding the DOD procurement contracts. The European Union
also appears to have considered that it was entitled, on the basis of its appeal, to req uest the
Appellate Body to complete the analysis concerning the DOD procurement contracts, even though
the European Union ultimately elected not to do so on the grounds that there were insufficient
factual findings by the panel or undisputed facts to make this feasible.
7.115. The United States appealed the panel 's findings that the NASA procurement contracts and
DOD assistance instruments were not properly characterized as purchases of services, and
constituted financial contributions , within the meaning of Arti cle 1.1(a)(1).269 The United States
also appealed the panel 's findings that the NASA procurement contracts and DOD assistance
instruments conferred a benefit , within the meaning of Article 1.1(b). 270 The European Union
correctly observed in its appellee submission that, if the Appellate Body were to uphold the
European Union's appeal regarding the interpretation of Article 1.1(a)(1), this would render moot
the United States ' appeal concerning the application of that interpretation to the NASA
procurement contracts and DOD assistance instruments.271
7.3.2.2.2 The Appellate Body 's approach to the European Union 's appeal of the panel 's
interpretation of Article 1.1(a)(1)
7.116. There are several aspects of the Appellate Body Report that suggest that the Appellate
Body did not consider that the DOD procurement contracts were on appeal before it. The Appellate
Body acknowledged that the European Union 's appeal raised the issue of "{w}hether the Panel
erred in finding that transactions that are properly characterized as 'purchases of ser vices' are
excluded from the scope of Article 1.1(a)(1)(i) of the SCM Agreement ".272 However, the section of
the Appellate Body Report in which this issue is discussed is entitled "NASA Procurement Contracts
and USDOD Assistance Instruments ". Indeed, after s ummarizing the panel 's findings and general
approach (at paragraphs 550-591 of the Appellate Body Report), the Appellate Body stated:
We turn to the measures before us on appeal , namely the NASA procurement
contracts and USDOD assistance instruments.273
7.117. The Appellate Body faulted the panel for not first characterizing the various aeronautics
R&D measures based on an analysis of their "relevant characteristics " and then determining
whether those measures, properly characterized, fell within any of the categori es of "financial
contribution" in Article 1.1(a)(1). 274 The Appellate Body said that it would proceed by first
undertaking an examination of the relevant characteristics of the "measures before us on appeal –
that is, the NASA procurement and USDOD assistanc e instruments".275 It would then "consider the
terms and scope of Article 1.1(a)(1) " before determining whether, in light of their relevant
characteristics, the NASA procurement contracts and DOD assistance instruments fell within any of
the four categories of financial contribution covered by Article 1.1(a)(1).
7.118. At paragraph 590 of its Report, the Appellate Body set forth the implications of this
approach for the appeal points of both the European Union and the United States, foreshadowing
that, if it were to find that the measures that the United States had appealed (NASA procurement
contracts and DOD assistance instruments) were of a type that fall within Article 1 of the SCM
Agreement, the European Union's appeal of the panel's interpretation of Article 1.1(a)(1) would be
rendered moot:

269 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 553.
270 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 626. The United States did not
appeal the panel's findings that the NASA Space Act Agreements were financial contributions. The Appellate
Body stated at footnote 1300 of its Report that its discussion of benefit concerning the NASA measures was
thus limited to NASA procurement contracts.
271 European Union's appellee submission, para. 112.
272 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 425(b).
273 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 592. (emphasis added)
274 The Appellate Body found it odd that the panel had instead considered that transactions properly
characterized as "purchases of services" are excluded from the scope of Article 1.1(a)(1), then sought to
determine whether the DOD procurement contracts were properly characterized as "purchases of services".
(See Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 585).
275 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 589.

We note that the conclusion as to the proper characterization of the measures may
have consequences for the scope of our inquiry. For instance, if we were to find that
the measures are of a type that fall within the scope of Article 1.1, there would be no
reason for us to examine whether purchases of services fall within the scope of
Article 1.1(a)(1) of the SCM Agreement. Whether or not purchases of services are
covered by Article 1.1(a)(1) would be irrelevant to the questio n of whether the
measures before us – the NASA procurement contracts and USDOD assistance
instruments – constitute financial contributions. This would render moot the
European Union's appeal of the Panel 's interpretation that purchases of services are
excluded from the scope of Article 1.1(a)(1)(i). It would also render moot the
United States' appeal of the Panel's application of the test it developed for determining
whether the measures could properly be characterized as purchases of services.276
7.119. We read thi s statement to say that, if the Appellate Body were to find that the NASA
procurement contracts and DOD assistance instruments, properly characterized, fall within
Article 1.1(a)(1) of the SCM Agreement (which it found), there would be no reason to examine
whether transactions properly characterized as purchases of services are excluded from the scope
of Article 1.1(a)(1)(i) because the answer to that interpretive question would be irrelevant to the
disposition of the matter before it.
7.120. Moreover, at paragra ph 620 of its Report, the Appellate Body reiterated its position that,
given the approach it had taken to the characterization of the NASA procurement contracts and
DOD assistance instruments, the interpretive question as to whether Article 1.1(a)(1)(i) ex cludes
transactions properly characterized as purchases of services is "not relevant " to resolving the
dispute before it. The Appellate Body stated:
This interpretive issue does not need to be resolved by us because it is not relevant
for purposes of resol ving the dispute before us, that is, whether the NASA
procurement contracts and USDOD assistance instruments, which we have found to
resemble joint ventures, constitute financial contributions within the meaning of
Article 1.1(a)(1) of the SCM Agreement. {*} We therefore declare the Panel 's
interpretation that "transactions properly characterized as purchases of services are
excluded from the scope of Article 1.1(a)(1)(i) of the SCM Agreement "{*} to be moot
and of no legal effect.277

{*fn original}1297 The Appellate Body proceeded in a similar manner in US – Upland Cotton with
respect to the interpretation of Article 6.3(d) of the SCM Agreement.
{*fn original} 1298 Panel Report, para. 9.970. (emphasis omitted) Our findings of financial
contributions regarding t he payments and other support provided under the NASA procurement
contracts and USDOD assistance instruments are based on the particular characteristics of those
measures. We also declare moot the Panel's finding, in paragraph 7.1171 of its Report, that th e
USDOD procurement contracts are properly characterized as "purchases of services" and thus are
not financial contributions under Article 1.1(a)(1) . However, as neither participant has requested
us to do so, we do not complete the analysis regarding the U SDOD procurement contracts at
issue in this dispute.

7.121. The first sentence of the quotation from paragraph 620 of the Appellate Body Report
extracted above suggests that the Appellate Body regarded the "dispute" before it as being limited
to the United State s' appeal; namely, whether the NASA procurement contracts and DOD
assistance instruments constitute financial contributions. The implications of the first sentence of
the quotation from paragraph 620 extracted above are that the Appellate Body 's approach to that
issue had rendered the European Union 's appeal of the panel 's interpretation of Article 1.1(a)(1)
(as well as the United States ' appeal of the panel 's application of that interpretation to the NASA
procurement contracts and DOD assistance instrument s), moot. This result was foreshadowed by
the Appellate Body in paragraph 590 of its Report, as discussed above.
7.122. In footnote 1297, immediately following the first sentence of the quotation from
paragraph 620 extracted above, the Appellate Body asserts that it "proceeded in a similar manner"
in US – Upland Cotton. In the relevant part of the Appellate Body Report in US – Upland Cotton,

276 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 590.
277 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 620. (italics original,
underlining added)

Brazil had : (a) appealed the panel 's legal interpretation of the phrase "world market share " in
Article 6.3(d) of the SCM A greement; and (b) requested the Appellate Body to complete the
analysis of its serious prejudice claim under Article 6.3(d) and find that the effect of certain United
States subsidies is an increase in the world market share of the United States in upland cotton.
This second element of Brazil 's appeal was expressed as being conditional on the Appellate Body
reversing the panel's findings that the United States' price-contingent subsidies caused significant
price suppression, within the meaning of Article 6. 3(c) of the SCM Agreement. 278 The Appellate
Body had upheld the panel 's finding regarding price suppression under Article 6.3(c), so the
condition upon which Brazil's request for completion of the analysis was not fulfilled. However, the
Appellate Body also said that it was "not necessary " to make a finding on the first element of
Brazil's appeal – the interpretation of the phrase "world market share" in Article 6.3(d) – although
Brazil had stressed that this first element of its appeal was not conditional. T he Appellate Body
said that, although an interpretation in the abstract of the phrase "world market share" in Article
6.3(d) of the SCM Agreement might offer at best some degree of guidance on that issue, it would
not affect the resolution of this particul ar dispute (presumably because the Appellate Body would
not complete the analysis under Article 6.3(d) since the condition specified by Brazil for doing so
had not been fulfilled). Thus, even if the Appellate Body were to reverse the panel 's finding on the
interpretation of Article 6.3(d), upon adoption of the recommendations and rulings by the DSB, the
United States would have been under no additional obligation regarding implementation. The
Appellate Body concluded by reiterating that an interpretation of the phrase "world market share"
in Article 6.3(d) was unnecessary for the purpose of resolving the dispute before it. It clarified "we
neither uphold nor reverse the Panel 's findings on the interpretation of the phrase 'world market
share' in Article 6.3(d) of the SCM Agreement."279
7.123. In saying in footnote 1297 to the first sentence of the quotation from paragraph 620 of the
Appellate Body Report extracted in paragraph 7.120. above that it proceeded in a "similar
manner" in US – Upland Cotton with respect to the interpretation of Article 6.3(d) of the SCM
Agreement as it was proceeding with the European Union's appeal regarding the interpretation of
Article 1.1(a)(1), the Appellate Body suggests that it did not address the European Union's appeal
for the same reason that it declined to address Brazil 's appeal; namely, that a reversal of the
interpretation would not affect the resolution of the dispute. This also seems to suggest that the
Appellate Body considered that the DOD procurement contracts were not before it on appeal.
7.124. In the second sentence of the quotation from paragraph 620 of the Appellate Body Report,
extracted in paragraph 7.120. above, the Appellate Body states that it "therefore" declares the
panel's interpretation of Article 1.1(a)(1)(i) to be "moot and of no legal effect ". In our view, the
panel's interpretation of Article 1.1(a)(1)(i) could only be considered moot if : (a) the Appellate
Body had likewise characterized the DOD procurement contracts as falling within Article 1.1(a)(1)
independently of whether they involved purchases of services (which it did not do ); or (b) the
Appellate Body did not regard the DOD procurement contracts as being before it.
7.125. However, in footnote 1298 to the second sentence of the quotation from paragraph 620 of
the Appellate Body Report extracted in paragraph 7.120. above, the Appellate Body "also"
declared moot the panel 's finding, at paragraph 7.1171 of the panel report, that t he DOD
procurement contracts were properly characterized as "purchases of services " and thus were not
financial contributions. Footnote 1298 concludes with a statement that the Appellate Body did not
complete the analysis as to whether the DOD procurement contracts were financial contributions
because neither participant requested it to do so. Neither party could be expected to request
completion of the analysis with respect to a claim that was not the subject of appeal. This
declaration that the panel's finding at paragraph 7.1171 of the panel report is moot suggests that
the DOD procurement contracts were regarded by the Appellate Body as being before it on appeal.
7.126. If we were to consider that the Appellate Body did not regard the DOD procurement
contracts to be before it on appeal, this would imply that the Appellate Body considered that the
European Union had not pursued its claims concerning the DOD procurement contracts on appeal.
In these circumstances, we would be minded to conclude that the European U nion is not able to
reassert claims concerning the DOD procurement contracts at the compliance stage, when it had
inadequately pursued them on appeal. To conclude otherwise would, in our view, compromise the

278 Appellate Body Report, US – Upland Cotton, paras. 501 and 506.
279 Appellate Body Report, US – Upland Cotton, para. 511.

finality of the DSB recommendations and rulings and provide the European Union an "unfair
second chance".
7.127. However, we note that, although the European Union did not appeal the application of the
panel's allegedly erroneous interpretation of Article 1.1(a)(1) to the DOD procurement contracts,
the Appell ate Bo dy nevertheless declared moot the panel 's finding that the DOD procurement
contracts are not financial contributions. After some reflection, we have concluded that t his could
only be because the Appellate Body did in fact regard the DOD procurement contracts to be before
it on appeal. Thus, we have ultimately arrived at the conclusion that the application of the pa nel's
interpretation of Article 1.1(a)(1) to the DOD procurement measures was before the Appellate
Body.
7.128. We are also mindful of the fact that the panel's analysis of the DOD procurement contracts
had stopped at the stage of financial contribution. The panel did not analyse whether the DOD
procurement contracts conferred a benefit or caused adverse effects. We therefore agree with the
European Union that it would have been impossible for the Appellate Body to complete the analysis
regarding the DOD procurement contracts. Under these circumstances, we do not consider that the
European Union's failure to request completion of the analysis should preclude our consideration of
these measures in this compliance proceeding.
7.129. Additionally, given the time and resources that have been expended in this dispute in
order to arrive at a resolution of the fundamental disagreement between the European Union a nd
United States as to whether the U.S. Government subsidizes Boeing through the procurement of
military research, and given that the aim of the dispute settlement system, as expressed in
Article 3.7 of the DSU, is to secure a positive resolution to a disp ute, we have concluded that it
would simply not be a reasonable outcome for u s to rule that the European Union is precluded
from pursuing in this compliance proceeding claims regarding the DOD procurement contracts at
issue in the original proceeding.
7.130. In l ight of the foregoing, we conclude that the European Union would not be "unfairly"
getting a second chance to make a case that it failed to make out in the original proceeding if it
were to reassert claims in this proceeding in respect of DOD procurement c ontracts funded under
the original 23 RDT&E program elements. In Section 7.2.1.2 we explain that we are unable to
agree with the argument that an original measure is, by definition, outside the scope of a
compliance proceeding.280 We conclude that the DOD procurement contracts funded through the
original 23 RDT&E program elements are within the scope of this compliance proceeding.
7.131. We reject the United States' request for a ruling that the DOD procurement
contracts funded through the original 23 RDT&E program elements are outside the scope
of this compliance proceeding and conclude that these measures are within the scope of
this proceeding.
7.3.3 Whether the seven "additional" RDT&E program elements are outside the scope of
this proceeding
7.132. The United States requests a ruling that the seven "additional" RDT&E program elements
are outside the scope of this proceeding on the basis that those program elements either were in
existence at the time of the European Communities ' panel request in the original proceeding, or
continue work that was previously conducted under a program element that was in existence at
that time. According to the United States, because the European Communities could have brought
challenges regarding those program eleme nts in the original proce eding and did not, the
European Union is precluded from challenging them now in this compliance proceeding.281

280 See paras. 7.38-7.40 above.
281 United States' request for preliminary rulings, dated 13 November 2012, paras. 10, 13, and 14.
Although the United States sometimes describes its request for a preliminary ruling on this issue as being
limited to the European Union's claims concerning DOD assistance instruments or "agreements" funded under
the additional program elements, it is clear in other contexts that the United States' objections cover both
assistance instruments and procurement contracts funded under those additional program elements, or the
program elements as measures themselves. (See United States' request for preliminary rulings, dated

7.3.3.1 Background
7.133. We recall from paragraphs 7.89 and 7.90 above that the European Union's DOD -related
claims cover a number of "original" RDT&E program elements (i.e. those that were also at issue in
the original proceeding), and "additional" RDT&E program elements (i.e. those which allegedly
have begun to fund what the European Union identifies as "dual -use LCA-relevant research" since
2007).
7.134. The United States' formulation of its objection to the inclusion of certain of the "additional"
RDT&E program elements within the scope of this proceeding could be read to suggest that the
United States considers the DOD aeronautics R&D measures to be the RDT&E program elements
themselves, rather than the payments and access to facilities, equipment, and employees provided
to Boeing through procurement contracts and assistance instrumen ts funded under various RDT&E
program elements .282 We understand that in making this request for preliminary rulings, the
United States objects to the inclusion within the scope of this pr oceeding of payments and access
to DOD facilities, equipment, and empl oyees, whether prior to or after the date of the original
panel request, provided to Boeing through procurement contracts and assistance instruments
funded under the seven "additional" RDT&E program elements.
7.135. The United States first raised this objection i n a request for pre liminary rulings on
13 November 2012, some time prior to the European Union 's first written submission , which was
filed on 28 March 2013. The United States ' request was at that time based on the
European Union's panel request, dated 11 O ctober 2012.283 The European Union responded to the
United States' request for preliminary rulings on 23 November 2012, and the United States replied
to that response on 3 December 2012. Pursuant to a communica tion from the Panel dated
6 May 2013 and subsequ ent to the filing of its first written submissio n, the European Union on
13 May 2013 provided a supplemental submission on the United States ' request for preliminary
rulings, including the United States ' objection to the inclusion of certain "additional" RDT&E
program elements within the scope of this proceeding. The United States filed its first written
submission on 27 June 2013, reiterating its objections, but only as regards seven of the nine
"additional" RDT&E program elements to which it had objected in its original request for
preliminary rulings.284
7.136. The seven "additional" RDT&E program elements the subject of the United States ' request
for preliminary rulings are as follows:
a. Materials and Biological Technology (PE 0602715E).
b. Technology Transfer (PE 0604317F).285
c. Manufacturing Technology/Industrial Preparedness Program: Defense Logistics Agency
(PE 0708011S).
d. Airborne Warning and Control System (AWACS) (PE 0207417F).
e. KC-46, Next Generation Aerial Refueling Aircraft (PE 0605221F).286

13 November 2012, para. 14; reply to the European Union's response to the United States' request for
282 The relationship between the RDT&E program elements and the legal instruments through which the
payments and access to facilities, equipment, and employees are provided is discussed in Section 7.3.1 of this
Report. The measures at issue are discussed in Section 8.2.3.2 of this Report.
283 European Union's request for the establishment of a panel. The Panel was established by the DSB on
23 October 2012.
284 The United States had also originally challenged the inclusion of the Aviation Survivability
(PE 0603216N) and KC-10S (PE 0401219F) program elements on the basis of the inclusion of these program
elements in the European Union's panel request, however, as the European Union did not pursue claims
regarding those program elements in its first written submission, the United States' request in relation to these
two program elements is rendered moot. (See European Union's supplemental submission on the
United States' request for preliminary rulings, para. 18).
285 This program element continues work that was previously conducted under a program element
entitled "Technology Link (PE 0603942D8Z)".

f. Multi-Mission Maritime Aircraft (P-8A) (PE 0605500N).
g. Long Range Strike Bomber (PE 0604015F).
7.137. We note that the United States does not object to the inclusion within the scope of this
proceeding of the "Sustainment Science & Technology " or the "Aviation Safety Technologies "
program elements, both of which were identified by the European Union in its first written
submission as "additional" RDT&E program elements. The United States does, however, object to
the inclusion of the "Manufacturing Technology/Industrial Preparedness Progra m: Defense
Logistics Agency (PE 0708011S) " program element as an "additional" program element. This
program element was presented by the European Union as an "original" RDT&E program element
in its first written submission.287
7.3.3.2 Main arguments of the parties and third parties
7.138. The United States argues that the European Union has failed to provide a valid reason that
would permit it to raise claims relating to the seven "additional" RDT&E program elements for the
first time in this compliance proceeding, when i t had omitted to make claims regarding those
program elements in the original proceeding.288
7.139. Each of the seven "additional" RDT&E program elements, as measures that existed at the
time of the original panel request, or measures that continue work that was p reviously conducted
under a different program element number which was in existence at the time of the original panel
request, but were not challenged in the original proceeding, cannot also be measures taken to
comply with the DSB recommendations and ruli ngs. According to the United States, a measure
that existed at the time of the panel request cannot logically also be a measure taken to comply
with DSB recommendations and rulings subject to the proceeding. There is thus no basis for their
inclusion in the scope of this proceeding.289 Because the European Union could have challenged the
seven RDT&E program elements at the time of its original panel request but did not, it cannot now
raise claims related to these measures for the first time in a compliance proceeding.290
7.140. The United States argues that the fact that particular projects or activities under the
RDT&E program elements may not have come into existence until after the date of the original
panel request does not demonstrate that the European Union "could not have challenged the
measures during the original proceeding, or that there is any legally relevant discontinuity
between the programmes as they existed at the time of the original EU panel request and as they
exist today".291 Article 21.5 does not acc ord the complaining party the latitude to manipulate the
compliance panel's terms of reference by "sculpting the temporal scope of its claims".292
7.141. The United States considers that the fact that a particular contract funded under any of the
seven "additional" RDT&E program elements may have been awarded after the date of the original
panel request is irrelevant if the measures being challenged by the European Union are payments,
facilities, equipment, and employees under the program elements, without regard to the contract
that made them available. Rather, if the European Union acknowledges that DOD only makes
payments or provides facilities, equipment, and employees pursuant to contracts or agreements,
and that those contracts and agreements are the relevant m easures, the analysis "might be

286 This program element continues work that was previously conducted under a program element
entitled "KC-135 Tanker Replacement (PE 0401221F)" which was not challenged in the original proceeding.
287 Compare European Union's first written submission, para. 246, with European Union's supplemental
submission on the United States' request for preliminary rulings, para. 20. On the other hand, the
United States does not object to the inclusion of the Defense Wide Manufacturing Science and Technology
(PE 0603860D8Z) program element in this proceeding although it was also listed by the European Union in its
first written submission as an "original" RDT&E program element when it had not been challenged in the
original proceeding.
288 United States' reply to the European Union's response to the United States' request for preliminary
rulings, dated 3 December 2012, para. 42.
289 United States' second written submission, paras. 59 and 60.
290 United States' request for preliminary rulings, dated 13 November 2012, para. 14; reply to the
European Union's response to the United States' request for preliminary rulings, dated 3 December 2012,
291 United States' first written submission, para. 63.
292 United States' second written submission, para. 61.

different". In any case, the United States notes that the largest contract funded through the
"additional" RDT&E program elements (the P-8A) was awarded in 2004.293
7.142. Furthermore, the United States rejects the suggestion that th e RDT&E program elements
changed after establishment of the original panel in ways that led the European Union to consider
that they subsequently involved technology applicable to LCA. According to the United States, it
was obvious in the beginning of 2006 that the P -8A, the aerial refueling tanker and the AWACS
were or would be military aircraft produced by militarizing civilian airframes.294
7.143. Finally, the United States argues that the European Union has failed to substantiate any
allegation that the United S tates is withdrawing the subsidies provided under the 23 RDT&E
program elements and now channelling them through the seven "new" program elements.295
7.144. The European Union rejects the United States ' contention that it is precluded from
challenging the "additional" RDT&E program elements in this proceeding because it could have
challenged them in the original proceeding and did not. According to the European Union, while a
particular RDT&E program element may have existed at the time of the original panel request , it
could not have brought successful challenges against those program elements at the time of its
original panel request because, on the basis of the information then available, they did not appear
to be supporting LCA-related R&D at that time.296
7.145. The Euro pean Union argues that there are new or changed aspects of the "additional"
RDT&E program elements such that the European Union now considers them to be providing
subsidies to Boeing. The European Union notes that for six of the seven RDT&E program elements
at issue, its claims are limited to aspects of those program elements that began in FY 2007 or later
and thus could not have been challenged in the original proceeding. For the other, the
Multi-Mission Maritime Aircraft (P -8A), the design and testing con tinued well after the date of the
original panel request and the R&D had not progressed sufficiently prior to that time to allow the
European Union to conclude that it was "LCA-relevant".297
7.146. The European Union states that it has never challenged "DOD PEs per se, but only to the
extent that each PE provides subsidies that benefit U.S. LCA producers."298 The inclusion of each of
the seven "additional" RDT&E program elements in the panel request in this compliance
proceeding indicates that the European Union now h as reason to believe that, since
20 January 2006 (the date of the European Union 's panel request in the original proceeding) or
sometime thereafter, those "additional" RDT&E program elements have been providing subsidies
to benefit Boeing's LCA division.299
7.147. Finally, the European Union argues that the exclusion of the seven RDT&E program
elements from the scope of this proceeding "could potentially ope n a huge loophole in the
United States' compliance obligations".300 This is because of the potential for the Un ited States to
seek to show that it is "withdrawing" subsidies from the original 23 RDT&E program elements,
while in reality it is shifting those subsidies to the seven RDT&E program elements.
7.3.3.3 Evaluation by the Panel
7.148. The issue before the Panel is whether t he payments and access to facilities, equipment,
and employees provided to Boeing through procurement contracts and assistance instruments

293 United States' second written submission, para. 63.
294 United States' second written submission, para. 62.
295 United States' reply to the European Union's response to the United States' request for preliminary
rulings, dated 3 December 2012, para. 44.
296 European Union's second written submission, para. 115; response to the United States' request for
297 European Union's second written submission, para. 114 and fn 120.
298 European Union's supplemental submission on the United States' request for preliminary rulings,
para. 19; response to the United States' request for preliminary rulings, dated 23 November 2012, para. 37.
299 European Union's response to the United States' request for preliminary rulings, dated
23 November 2012, para. 37; supplemental submission on the United States' request for preliminary rulings,
para. 19.
300 European Union's response to the United States' request for preliminary rulings, dated
23 November 2012, para. 38.

funded under seven "additional" RDT&E program elements, which were not program elements
challenged in the original proceeding, are within the scope of this compliance proceeding.301
7.149. The Appellate Body has explained that the subject matter of compliance proceedings is
determined not just by the Panel's terms of reference, but also by Article 21.5 of the DSU.302 Thus,
a measure will not be within the scope of a compliance proceeding simply because it has been duly
identified in a complaining party 's request for the establishment of a panel. It must additionally
relate to the issue of compliance with the DSB recommendations and rulings in the original
proceeding, including the existence or non -existence of measures taken to comply with such
recommendations and rulings.
7.150. In Section 7.3.2 of this Report, concerning the United States ' objections to the inclusion
within the scope of this proceeding of the DOD procurement contracts that were before the original
panel, we conclude that a compliance panel may properly consider measures that were challenged
in the original proceeding where the claims against those measures were not definitively resolved
in the original proceeding, in situations where the assertion of claims against those measures at
the compliance stage would not compromise the finality of the DSB recommendations and
rulings.303 The DOD aeronaut ics R&D measures the focus of this particular ruling request do not,
however, concern such "original measures ". Rather, the measures the focus of this objection
concern measures that were not part of the original proceeding.
7.151. The European Union asserts that the measures in question all came into existence after the
original panel request; in other words, the measures are post-2006 procurement contracts and
assistance instruments, albeit funded through RDT&E program elements other than the 23 RDT&E
program elements at issue in the original proceeding.
7.152. For purposes of evaluating the United States' request for preliminary rulings regarding the
DOD aeronautics R&D measures, it is helpful to categorize these measures in the following
manner:
a. pre-2007 procurement contracts or assistance instruments funded under the original 23
RDT&E program elements (i.e. the procurement contracts and assistance instruments
that were before the panel in the original proceeding);
b. post-2006 procurement contracts or assistance instruments funded under the original 23
RDT&E program elements (i.e. procurement contracts and assistance instruments that
were entered into after the date of the original panel request in January 2006 but funded
through the same program elements that were the f ocus of the European
Communities' claims in that proceeding); and
c. post-2006 procurement contracts or assistance instruments funded under other
"additional" RDT&E program elements that are different from the original 23 RDT&E
program elements, or their succ essor programmes (i.e. procurement contracts and
assistance instruments entered into after the date of the original panel request in
January 2006 but funded through different program elements from those that were the
focus of the European Communities' claims in that proceeding).
7.153. The United States ' request currently before us concerns certain measures in category (c)
above.304 The United States objects to our consideration of these measures because the
"additional" RDT&E program elements that funded the releva nt instruments (procurement
contracts and assistance instruments) existed at the time of the panel request in the original

301 We address the overlapping challenge to the provision of access to DOD "equipment and employees"
provided to Boeing through procurement contracts and assistance instruments funded under all of the
challenged RDT&E program elements in Section 7.3.4.
302 "{p}roceedings under Article 21.5 do not concern just any measure of a Member of the WTO". (See
Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil), para. 36). See also Appellate Body Report, EC
303 See paras. 7.108 to 7.110 above.
304 The United States does not allege that the post-2006 procurement contracts funded under the
original 23 RDT&E program elements (i.e. the measures in category (b) above), are outside the scope of this
proceeding.

proceeding, and therefore, could have been challenged by the European Communities at that time.
According to the United States, t he European Union cannot retroactively attempt to enlarge the
scope of its original case by seeking to bring these measures within the scope of the compliance
proceeding.305
7.154. The European Union justifies the inclusion of these measures within the scope of this
compliance proceeding by arguing that the particular RDT&E program elements were not a defining
aspect of the European Communities ' claims in the original proceeding. Rather, the original
challenge involved any DOD RDT&E program element that subsidized Boeing LCA at that time.
7.155. The European Union's characterization of the DOD -related measures in the original
proceeding does not accord with our understanding of those measures, as expressed by the
original panel. We note that t he panel in the original proceedi ng considered the nature of the
European Communities' challenges to the DOD-related measures to be narrowly defined:
The scope of the European Communities ' claim relating to DOD R&D measures is
clear: it challenges the payments (and access to facilities) p rovided to Boeing through
R&D contracts and agreements entered into under the 23 programmes identified in
the European Communities ' panel request. The scope of the European Communities '
claim is relatively narrow in several respects.
First, the European Co mmunities does not challenge the RDT&E Program as a whole.
Rather, it challenges only certain funding provided to Boeing under the 23 RDT&E
programmes at issue. In addition, the European Communities does not challenge all of
the funding that Boeing receive d under these 23 programmes. Rather, it challenges
only the subset of funding that is, in the European Communities' view, related to "dual
use" technologies.306
7.156. The original panel's formulation makes clear that the DOD-related measures before it were
particular forms of funding and support provided to Boeing under specific RDT&E program
elements. It was within those program elements that the European Communities challenged a
narrower subset of "funding" and "support" that it considered to relate to "dual-use" technologies.
7.157. Therefore, we do not agree that, regardless of the RDT&E program element, any payments
or provision of access to DOD facilities, equipment or employees provided by DOD to Boeing for
any activities that the European Union may now consider to relate to "dual-use" technologies,
regardless of the program element under which it is budgeted and funded, is within the scope of
this compliance proceeding. This would be contrary to our understanding of the scope of the
European Communities ' DOD-related claims in the original proceeding and an impermissible
enlargement of the scope of this compliance proceeding.
7.158. The United States argues that the European Union is precluded from raising claims
concerning the "additional" RDT&E program elements in this p roceeding because those program
elements existed at the time of its original panel request and could have been challenged in the
original proceeding. We are also unable to endorse this argument , insofar as it concerns
procurement contracts and assistance i nstruments entered into after the date of the European
Communities' original panel request (i.e. post -2006 procurement contracts and assistance
instruments), albeit funded through program elements that already existed at that time. In this
situation, the i ssue of "preclusion" does not arise because, even if the RDT&E program elements
(or their antecedent program elements) were in existence at the time of the European
Communities' original panel request, the legal instruments were not. It would not have been
possible for the European Communities to have challenged the program elements independently of
the legal instruments because the only way that Boeing receives payments or access to DOD
facilities, equipment, and employees under the RDT&E program elements is through specific legal
instruments, whether procurement contracts or assistance instruments.

305 We recall that for the reasons explained in Section 7.3.2 of this Report, we have ruled that the
procurement contracts in categories (a) and (b) above are within the scope of this proceeding.
306 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1116 and 7.1117. (italics and
underlining added)

7.159. We will therefore examine the United States' objections to the inclusion within the scope of
this proceeding of procurement contracts and assistance instrument s funded under "additional"
RDT&E program elements by determining whether the procurement contract or assistance
instrument existed at the time of the European Communities ' original panel request. If it did, and
we consider that the European Union could ha ve challenged that measure in the original
proceeding, we will find that the European Union is precluded from bringing claims against that
measure in this proceeding.
7.160. If the procurement contract or assistance instrument came into existence after the date of
the panel request in the original proceeding, or we otherwise conclude that the European
Communities could not have challenged the measure in the original proceeding, we will examine
whether there are sufficiently close links, in terms of nature, effect s, and timing, between that
measure and the aeronautics R&D measures the subject of the DSB recommendations and rulings,
and any declared compliance actions by the United States, as to warrant inclusion of the measure
within the scope of this proceeding.
7.161. In the Sections that follow, we evaluate the United States ' objections according to each of
the challenged "additional" RDT&E program elements.
Materials and Biological Technology (PE 0602715E)
7.162. The Materials and Biological Technology (PE 0602715E) program element is administered
by the Defense Advanced Research Project Agency (DARPA) and develops novel metallic and
non-metallic materials, material processing techniques, mathematical models , and fabrication
strategies for advanced structural materials, functional materials, and components.307
7.163. The United States notes that this program element existed at the time of the European
Communities' panel request in the original proceeding. 308 The European Union does not dispute
that the program element itself existed at the time of the original panel request. Rather, it
responds that its claims with respect to this program element are limited to the specific
LCA-relevant R&D activities identified by Mr Rumpf, and that these activities did not exist, or at
least were not publicly disclosed, prior to 2007.309 The Rumpf Report refers to six general activities
undertaken pursuant to a Materials Processing Technology Project between FY 2007 and
FY 2012.310 The United States acknowledges that during the 2007 -2012 period, DARPA fund ed
three procurement contracts and four assistance instruments under the "Materials Processing
Technology" Project of this program element for a total of somewhat less than USD 24 million.311
7.164. Of the procurement contracts and assistance instruments identifie d by the United States,
one procurement contact (HR0011 -05-C-0068) and one cooperative agreement
(MDA972-03-2-0003), are dated prior to the date of the European Communities ' panel request in
the original proceeding. 312 As these two instruments existed at the time of the European

307 Materials and Biological Technology Budgets for FY 2007-FY 2013 (PE 0602715E), (Exhibit EU-73),
p. 1.
308 United States' request for preliminary rulings, dated 13 November 2012, para. 13. See also U.S.
DOD Budget, Fiscal Year 2006, RDT&E Programs (R-1), February 2005, (Exhibit USA-2), at p. D-4 which shows
budget allocations for this program element for FY 2005 and FY 2006.
309 European Union's supplemental submission on the United States' request for preliminary rulings,
para. 20.
310 Rumpf Report, (Exhibit EU-23), annex A, pp. 11-15. Although the Rumpf Report itself lists the
Project number MBT-01 as the "Structures" project, the European Union subsequently explained that this was a
clerical error in Annex A of the Rumpf Report, and that the correct title of Project number MBT-01 is "Materials
Processing Technology" (European Union's comments on the United States' response to Panel question
Nos. 72-74, para. 85). See also European Union's first written submission, para. 292, which refers to the
"Materials Processing Technology" Project.
311 United States' first written submission, para. 438; response to Panel question No. 72, para. 48. The
procurement contracts are: DARPA Contract HR001-05-C-0068, (Exhibit USA-160) (HSBI); DOD Contract List,
(Exhibit USA-161), p. 16: Contract HR0011-06-C-0073, dated 28 September 2006, (Exhibit USA-415) (HSBI);
and DARPA Contract HR0011-08-C-0044, (Exhibit USA-162) (HSBI). The assistance instruments are: DARPA
Agreement MDA972-03-2-0003, (Exhibit USA-163) (HSBI); DARPA Agreement HR0011-06-2-0008, (Exhibit
USA-164) (HSBI); DOD Contract FA8650-07-2-7716, (Exhibit USA-165) (HSBI); and DARPA Cooperative
Agreement HR0011-10-2-0001, (Exhibit USA-166) (HSBI).
312 The effective date of DARPA Contract HR0011-05-C-0068 is 1 May 2005. The effective date of DARPA
Agreement MDA972-03-2-0003 is 29 September 2003.

Communities' original panel request and were not challenged in the original proceeding, the
European Union cannot challenge these measures in this compliance proceeding.
7.165. The remaining procurement contracts and assistance instr uments i dentified by the
United States bear effective dates subsequent to the date of the European Communities' panel
request in the original proceeding. These post -2006 procurement contracts and assistance
instruments were funded under RDT&E program elements that were in existence at the time of the
original panel request, but not challenged by the European Communities in the original proceeding.
As we explain in paragraph 7.160, in order to find these instruments within the scope of t his
proceeding, the Panel must be satisfied that there are sufficiently close links in terms of nature,
effects, and timing between those measures and the aeronautics R&D measures the subject of the
DSB recommendations and rulings.
7.166. In undertaking this clos e nexus analysis, we recall that in the original proceeding, the
panel found that the R&D performed under the NASA and certain of the DOD measures at issue
focused on the development of particular technologies that were considered to be the most crucial
to the LCA industry, in that they carried the greatest prospect of creating significant competitive
advantage by promising airline customers lower direct operating costs and reducing the time to
market.313 The key technology areas involved composites technologies, open systems architecture,
enhanced aerodynamics and structural design, noise reduction technologies , and health
management systems. 314 In concluding that the aeronautics R&D subsidies were designed to
develop and validate new technologies for Boeing to commercialize, and that they contributed in a
genuine and substantial way to Boeing 's development of technologies for the 787, thereby
conferring a competitive advantage on Boeing, the panel characterized the aeronautics R&D
subsidies in the following manner:
{W}e would characterize the NASA R&D subsidies as strategically -focused R&D
programmes with a significant and pervasive commercial dimension, undertaken in
collaboration with U.S. industry to provide competitive advantages to U.S. industry by
funding research into high risk, high pay -off research of the sort that individual
companies are unlikely to fund on their own. The DOD R&D subsidies funded through
the ManTech and DUS&T programmes under DOD 's RDT&E Program are focused on
pursuing "dual use" technologies through collaborative efforts with U.S. industry.315
7.167. We have reviewed these procurement contracts and assistance instruments, all of which
are HSBI, and certain of which contain International Traffic in Arms Regulations ( ITAR) controls
regarding the objectives of the efforts 316, as well as the parties ' submissions regarding them,
which are also HSBI. While we note that, unlike the aeronautics R&D subsidies before the original
panel, the measures before us clearly have solely military objectives, it nev ertheless appears to us
that the nature of the technologies is closely related to certain of the key technologies that were
the focus of the research efforts under the original aeronautics R&D subsidies, particularly as
regards non-autoclave manufacturing technologies and [[HSBI]]. On the basis of this
technological link, we consider that in order for the Panel to undertake a meaningful review of
whether the United States has complied with the DSB recommendations and rulings, it is
appropriate to include th e European Union 's claims regarding payments and access to DOD
facilities, equipment, and employees provided through the procurement contracts HR0011 -06-C-
0073 and HR-0011-08-C-0044 statement of work ( SOW) and assistance instruments HR0011 -06-
2-0008, FA865 0-07-2-7716, and HR0011 -10-2-0001 funded through the Materials Processing
Technology Project of the Materials and Biological Technology program element as within the
scope of this proceeding.317

313 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1742 and 7.1745.
314 These technologies and the parties' arguments as to the relationship between the R&D measures and
Boeing's development of 787 technologies in specific technology areas is discussed in appendix VII.F.1 of the
Panel Report, US – Large Civil Aircraft (2nd complaint).
315 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1764.
316 The instruments subject to ITAR restrictions are those submitted as: DARPA Contract HR001-05-C-
0068, (Exhibit USA-160) (HSBI); DARPA Contract HR0011-08-C-0044, (Exhibit USA-162) (HSBI); and DARPA
Cooperative Agreement HR0011-10-2-0001, (Exhibit USA-166) (HSBI).
317 For the sake of completeness, we note that while the European Union at paragraph 292 of its first
written submission refers also to a "Disruptive Manufacturing Technology Initiative" in relation to the Materials
and Biological Technology program element, the United States has indicated that none of the procurement

7.168. The Panel finds that procurement contracts HR0011 -06-C-0073 and HR-0011-08-C-0044
SOW and assistance instruments HR0011 -06-2-0008, FA8650-07-2-7716, and HR0011-10-2-0001
funded through the Materials Processing Technology Project of the Materials and Biological
Technology program element are within the scope of this proceeding.
Technology Transfer (PE 0604317F)
7.169. The Technology Transfer (PE 0604317F) program element is an Air Force program
element, the objectives of which are three -fold: (a) integrating advanced commercial -sector
technologies into DOD systems, particularly from non-traditional defense contractors; (b) spinning
off DOD -developed technologies to industry to make these technologies available for military
acquisition; and (c) establishing collaborative R&D projects with the private sector for cost -sharing
of new dual-use technology development.318
7.170. The European Union asserts in its first written submission that this RDT&E program
element was initiated in FY 2012 319, however, it responds in its supplemental submission 320 (filed
after its first written submission but before its second written submission) that its claims with
respect to this program element are limited to the Partnership Intermediary Agreement(s) Project,
which began in 2012.321 The Partnership Intermediary Agreement(s) Project is described in the FY
2012 budget estimates as an effort to enhance and expand transfer of technologies between DOD
and the commercial sector. The 2012 base plans indicate that this would be done by promoting
and brokering cooperative research and development agreements between DOD laboratories and
industry for development of technology with both commercial and military applications with the
intention that this activity will help lower the expense of new defense -related technology
development through cost -sharing with industry and t o help DOD benefit from private -sector
technology investments and innovations.322
7.171. The United States notes that the Technology Transfer (PE 0604317F) program element
continues work that was previously undertaken under the Technology Link (PE 0603942D8Z)
program element.323 Moreover, it indicates in response to questioning by the Panel that there were
no assistance instruments or procurement contracts with Boeing funded through the Technology
Transfer program element.324
7.172. The situation before us therefore appears to be that: (a) the European Union makes claims
in respect of certain measures under the Technology Transfer program element ; (b) the
United States requests preliminary rulings that such claims are outside the scope of this
proceeding because the program el ement in question existed at the time of the original panel
request and was not challenged in the original proceeding; (c) the European Union clarifies that its

contracts or assistance instruments it has identified as being funded under the Materials and Biological
Technology program element were part of the Disruptive Manufacturing Technology Initiative. (United States'
response to Panel question No. 72, para. 48).
318 Technology Transfer Budgets for FY 2012-FY 2013 (PE 0604317F), (Exhibit EU-75), FY 2012, pp. 1
and 2, and FY 2013, p. 1.
319 European Union's first written submission, para. 298.
320 See para. 7.135 above.
321 European Union's supplemental submission on the United States' request for preliminary rulings,
para. 20. The Rumpf Report refers to a project entitled "Partnership Intermediary Agreement(s)" (646003)
from FY 2012. (See Rumpf Report, (Exhibit EU-23), annex A, p. 25).
322 Technology Transfer Budgets for FY 2012-FY 2013 (PE 0604317F), (Exhibit EU-75), FY 2012, p. 2.
323 United States' request for preliminary rulings, dated 13 November 2012, para. 14. See also U.S.
DOD Fiscal Year (FY) 2012 Budget Estimates: Research, Development, Test & Evaluation, Air Force, Vol. 2,
February 2011, (Exhibit USA-4), p. 255 (which indicates that the Technology Transfer program element was
called Defense Technology Transfer in previous Office of Secretary of Defense budgets and prior to that,
Defense Technology Link (TechLink)); U.S. DOD Budget, Fiscal Year 2011 RDT&E Programs (R-1),
February 2010, (Exhibit USA-5), p. D-7; and U.S. DOD Budget, Fiscal Year 2006, RDT&E Programs (R-1),
February 2005, (Exhibit USA-2), p. D-6 (which shows the funding allocated to the Technology Link program
element for FY 2004, FY 2005, and FY 2006).
324 United States' response to Panel question No. 75, para. 51. The United States explains that its
previous assertion, at paragraph 440 of its first written submission, that the Technology Transfer program
element funded one procurement contract during the 2007-2012 period (a contract to develop, test, and
demonstrate a multi-shot and multi-target aerial high power microwave demonstrator that is capable of
degrading, damaging or destroying electronic systems) was mistaken. This procurement contract was in fact
funded through the Technology Transition (PE 0604858F) program element which has not been challenged by
the European Union in this proceeding. The European Union makes no comment on this response.

claims in respect of this program element in fact concern a project under that program element
that began in 2012 and therefore could not have been challenged in the original proceeding ; and
(d) it emerges from the European Union 's clarification and the evidence provided by the
United States that Boeing is not a party to any instruments (procurement contracts or assistance
instruments) funded through either the 2012 pro ject identified by the European Union or the
Technology Transfer program element.
7.173. The end result, at least from a practical perspective, is that the European Union has not
demonstrated that the requisite measures exist in relation to its claims concerning this program
element.
7.174. Given that there are no procurement contracts or assistance instruments with Boeing
funded through the relevant project under the Technology Transfer program elem ent, the Panel is
not satisfied that there is a measure in existence involving this RDT&E program element.
Manufacturing Technology/Industrial Preparedness (IP ManTech) (PE 0708011S)
7.175. The Manufacturing Technology/Industrial Preparedness (IP ManTech) (PE 07 08011S)
program element is the Defense Logistics Agency ManTech Program. The European Union presents
this program element as being part of a collection of Manufacturing Technology/Industrial
Preparedness program elements administered individually by the De fense Logistics Agency, Air
Force, Navy , and Office of Secretary of Defense, respectively. 325 The European
Communities' claims in the original proceeding covered only the Air Force and Navy ManTech
program elements.326 In other words, the European Communities did not challenge the Defense
Logistics Agency's IP ManTech (PE 0708011S) program element in the original proceeding.
7.176. The DOD Budget for RDT&E programmes for FY 2006, however, show s allocations for this
program element for FY 2004, FY 2005 , and FY 2006. T his supports the United States ' position
that the Defense Logistics Agency 's IP ManTech program element was in existence prior to
2006.327
7.177. The European Union argues that its claims with respect to this RDT&E program element
are limited to the Procurement Rea diness Optimization-Advanced Casting Technology (PRO-ACT)
Project, which began in 2011. 328 According to the European Union, this project aims to develop
digital radiography for non -destructive evaluation of castings, and builds on a related Air Force
ManTech Project.329 As the PRO-ACT Project (which is the subject of the European Union 's claims
in respect of the Defense Logistics Agency 's IP ManTech program element ) commenced in 2011,
we do not consider that the European Union can be faulted for not challenging this program
element in the original proceeding.
7.178. The United States argues, however, that the PRO -ACT Project was a USD 350,000 effort
involving six other "participants" and that DOD did not make any payments to Boeing. 330 In
response to further questioning by the Panel, the United States explains that Boeing was not given
a contract or a subcontract on any Defense Logistics Agency casting research and development
project.331 Rather, the relevant contracts were awarded to an entity now called "Advanced
Technology International", doing business as "SCRA Applied R&D".332 While Boeing is listed as one

325 European Union's first written submission, paras. 270, 275, 277, 280, and 281.
326 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1114 (listing the challenged program
elements as "Manufacturing Technology/Industrial Preparedness (PE 0603771F/0708011F/0708011N)").
327 U.S. DOD Budget, Fiscal Year 2006, RDT&E Programs (R-1), February 2005, (Exhibit USA-2),
pp. D-14 and D-39.
328 European Union's supplemental submission on the United States' request for preliminary rulings,
para. 20; Rumpf Report, (Exhibit EU-23), annex A, p. 27.
329 European Union's first written submission, para. 280 (referring to Use of Digital Radiography for Final
Part Acceptance of Aerospace Castings project). See also U.S. DOD, Manufacturing Technology Program, "Use
of Digital Radiography for Final Part Acceptance of Aerospace Castings", available at
<https://www.dodmantech.com/ManTechPrograms/Files/AirForce/AF_Digital%20Radiography_Sept11_Final.pd
f>, accessed 29 August 2016, (Exhibit EU-297).
330 United States' first written submission, para. 443.
331 United States' response to Panel question No. 77, para. 60.
332 "SCRA" is an abbreviation for South Carolina Research Authority. United States' response to Panel
question No. 77, para. 60.

of the "participants" in the project, the United States speculates that this could reflect some
involvement by Boeing with a subcommittee of the American Society for T esting and Materials,
which is a broad -based association dedicated to the generation of standards for industrial use. 333
In any case, the fact that the Defense Logistics Agency cannot find any information recording the
nature of Boeing's involvement in the p roject indicates that any role it had as a "participant" was
insignificant.334
7.179. The European Union responds by alleging that Boeing does not receive any contracts or
subcontracts directly from DOD because DOD "funnels its funds " through the American
Metalcasting Consortium (AMC), which is managed and operated by the South Carolina Research
Authority.335 The European Union notes that the S outh Carolina Research Authority is a "quasi-
public economic development agency ", which is located adjacent to Boeing 's South Carolina
facilities. The Chairman of the Board of Trustees of the S outh Carolina Research Authority is a
Boeing executive.336
7.180. We see nothing in the evidence before us to suggest that the AMC and S outh Carolina
Research Authority operate as organizations th at act as conduits for providing payments and
access to DOD facilities, equipment, and employees to Boeing that would otherwise be provided by
DOD directly through procurement contracts and assistance instruments. We have no re ason to
suspect that the Unit ed States' assertions that, whatever the nature of Boeing 's apparent
"participation" in the USD 350,000 PRO-ACT Project, it did not involve the receipt of payments or
access to DOD facilities, equipment , or employees though procurement contracts or assista nce
instruments, have not been made in good faith. The Panel therefore is not satisfied that there are
any procurement contracts or assistance instruments with Boeing funded through the PRO -ACT
Project within the Defense Logistics Agency's IP ManTech program element.
7.181. The Panel considers this situation to be similar to that of the Technology Transfer program
element, described above. As a result of the European Union 's clarification of the limited nature of
its challenge to this program element, and the absence of evidence demonstrating that Boeing was
in fact party to any procurement contracts or assistance instruments funded under the identified
project, we conclude that the European Union has not demonstrated that the requisite measures
exist in relation to this program element.
7.182. Given that there are no procurement contracts or assistance instruments with Boeing that
are funded through the PRO -ACT Project (which is the subject of the European Union 's claims
concerning the IP ManTech program element ), the Panel is not satisfied that there is a measure in
existence involving this RDT&E program element.
Airborne Warning and Control System (AWACS) (PE 0207417F)
7.183. The Airborne Warning and Control System (AWACS) (PE 0207417F) program element is an
early warning and c ontrol system based on a variant of the Boeing 707 (the E -3 Sentry), which
first entered service in 1977. 337 The United States points to DOD budget documentation showing
allocations for this program element in FY 2004, FY 2005 , and FY 2006, indicating that this project
element was in existence (and could have been challenged by the European Communities) at the
time of the original panel request. 338 The European Union responds that its claims with respect to
this RDT&E program element are limited to the Diminishing Manufacturing Sources Replacement of

333 The United States refers more specifically to the ASTM Committee E07.02 on Reference Radiological
Images, under the ASTM Committee E07 on Non-destructive Testing.
334 United States' response to Panel question No. 77, para. 61.
335 European Union's comments on the United States' response to Panel question No. 77, para. 92.
336 European Union's comments on the United States' response to Panel question No. 77, para. 92. The
material to which the European Union refers indicates that this Boeing executive "has become a high profile
member of the Charleston community" who has also served on the Medical University of South Carolina Board
of Visitors and as 2nd Vice Chairman of the South Carolina Manufacturers Alliance. (B. Kearney, "Boeing S.C.
executive to oversee supply chain in Italy", The Post and Courier, 6 September 2012, (Exhibit EU-1408)).
337 Boeing Backgrounder, E-3 Airborne Warning and Control System (AWACS), (June 2012), (Exhibit
EU-338), p. 1.
338 U.S. DOD Budget, Fiscal Year 2006, RDT&E Programs (R-1), February 2005, (Exhibit USA-2), p. F-9.

Avionics for Global Operations and Navigation (DRAGON) Project, in which Boeing has been
involved since 2010.339
7.184. Throughout its history, AWACS has undergone extensive enhancements, with fleets from
the United States, North Atlantic Treaty Organization ( NATO), United Kingdom, and France
upgrading their communications, computers, and navigation.340 The DRAGON Project aims to equip
the E-3 fleet with flight deck and other avionics capabilities that will allow AWACS to comp ly with
mandated global Required Navigation Performance, surveillance , and communication standards.341
DRAGON seeks to achieve these upgrades using commercial off -the-shelf components supplied by
companies such as Rockwell Collins, Telephonics, Raytheon, Thales, and EMS.342
7.185. The United States explains that the DRAGON Project is a joint effort between the
United States and NATO, with NATO contributing 34% of the total cost.343 Under Air Force Contract
F10628-01-D-0016 between the U.S. Air Force and Boeing, Boeing w as awarded Delivery Order
(D.O) 73 to perform Engineering, Manufacturing and Development (EMD) – Phase I of the
DRAGON Project.344 In this initial phase, which commenced on 18 July 2011, Boeing conducted a
Subcontractor System Readiness Review and began work ing with subcontractors Rockwell Collins
and Telephonics on their subsystem requirements effort.345 The United States asserts that Boeing's
work under Phase I consisted in essence of evaluating the capabilities of certain subcontractors to
provide the requir ed flight deck and avionics subsystems intended for installation in AWACS
aircraft, as well as beginning the subcontracting process. 346 Phase I ended upon the award of
Phase II on 14 November 2011 under modification 2 to D .O. 73.347 Under DRAGON EMD Phase II,
Boeing is to : (a) incorporate the new commercial off -the-shelf avionics and communications
systems from other suppliers into the existing systems ; (b) develop a design to install the new
equipment; (c) upgrade one aircraft for each AWACS fleet ; (d) flight test the new systems ; (e)
develop logistics support data; and (f) train flight crews and maintenance personnel.348
7.186. The United States argues that it was "obvious" at the beginning of 2006 that the AWACS
involved military aircraft produced by "militarizing" civilian airframes. As this fact lies at the heart
of all of the European Union 's arguments regarding this program element, the United States
considers it difficult to see how the European Union discovered something about the dual -use
potential of this program element in 2007 that changed its views.349
7.187. We note that the AWACS budget estimates for FY 2007 refer to the Avionics Modernization
Program which would complete the FAA/ICAO/EUROCONTROL mandated air traffic control system

339 European Union's supplemental submission on the United States' request for preliminary rulings,
para. 20; and Rumpf Report, (Exhibit EU-23), para. 4.2. Mr Rumpf expresses the opinion, at paragraph 4.3.1
of the Rumpf Report, that the DRAGON Avionics Project is the only effort under the AWACS program element
to involve "dual-use" R&D.
340 Boeing Backgrounder, E-3 Airborne Warning and Control System (AWACS), (June 2012), (Exhibit
EU-338), p. 1.
341 Rumpf Report, (Exhibit EU-23), para. 4.2. See also Airborne Warning and Control System (AWACS)
Budgets for FY 2007-FY 2013 (PE 0207417F), (Exhibit EU-76), exhibit R-2, item 148, p. 1, frame 86/98.
342 "Enter the DRAGON – NATO & USSA Upgrading E-3 AWACS Cockpits", Defense Industry Daily,
14 June 1012, (Exhibit USA-506).
343 United States' second written submission, para. 405, fn 550. This means that the amount obligated
under Air Force Contract F19628-01-D-0016, D.O. 73 are 66% funded by DOD and 34% funded by NATO.
344 United States' first written submission, para. 450; response to Panel question No. 78, para. 66; and
Air Force Contract F19628-01-D-0016, D.O. 73, (Exhibit USA-170) (HSBI).
345 United States' response to Panel question No. 78, para. 66; and Air Force Contract
F19628-01-D-0016, D.O. 73, (Exhibit USA-170) (HSBI), p. 2.
346 United States' response to Panel question No. 78, para. 66.
347 United States' response to Panel question No. 82, para. 79.
348 United States' response to Panel question No. 82, para. 80; and Boeing Press Release, "Boeing to
Modernize Flight Deck and Avionics for US and NATO AWACS Fleets", 23 May 2013, (Exhibit EU-1334).
349 United States' second written submission, para. 62. United States notes that the statement of work
for Delivery Order 73 is subject to Distribution F limitations, which restrict distribution of the contents to DOD
and NAPMO/NATO. According to the United States, this restriction clearly indicates that any technology and
related technological data/computer software developed under this Delivery Order has little application in the
civilian sphere. (See United States' first written submission, para. 450). The European Union requested the
Panel to require the United States to remove the Distribution F limitations on the statement of work for
Delivery Order 73 under DOD contract F10628-01-D-0016 in a communication to the Panel date
9 September 2013. In a communication dated 23 October 2013, the Panel said that it had decided not to grant
the request at that time. See Section 1.3.3.3 of this Report and Annex F-1.

upgrades and equip the E -3 fleet w ith flight deck and other avionics capabilities that will allow
AWACS to comply with mandated global Required Navigation Performance, surveillance , and
communication standards.350 While the project cost analysis in the budget estimates indicate s that
Boeing would be involved in the Avionics Modernization Program, the schedule profile envisages
that the core work under the Avionics Modernization Program would not commence until
FY 2008.351 In these circumstances, it is difficult to imagine how the European Commu nities could
feasibly have challenged any activities related to the DRAGON Project of the AWACS RDT&E
program element in its original panel request in 2006. The work had clearly not commenced until
much later in the process. 352 We therefore do not agree with the United States that the
European Union is precluded from bringing claims in relation to the DRAGON Project under the
AWACS program element in this compliance proceeding.
7.188. The further question, however, is whether the Air Force Contract F19628-01-D-0016, D.O.
73 awarded to Boeing under the DRAGON Project is sufficiently closely connected, in terms of its
nature, effects , and timing, to the aeronautics R&D subsidies the subject of the DSB
recommendations and rulings so as to be within the scope of this pr oceeding as an "undeclared"
measure taken to comply.
7.189. Mr Rumpf considers that DRAGON upgrades the E -3 flight deck in ways that give rise to
the development of an improved system engineering and open systems architecture that can be
applied by Boeing to LCA.353 The United States responds that: (a) the DRAGON Project is remedial
in nature, aiming to update systems to enable the E-3 to transit civil airspace in the same way that
commercial aircraft already do; (b) elements of the DRAGON system upgrades are strict ly military
in nature, therefore it is incorrect to consider that the project 's avionics have "100%" relevance to
LCA development; and (c) the project addresses problems with the E -3 that are not shared by
Boeing's LCA. Indeed, the DRAGON Project's use of commercial off-the-shelf avionics from other
suppliers underscores that the project is focused on leveraging existing civil technology to improve
outdated military equipment.354
7.190. We refer to our discussion in Section 8.2.3.2.3 of this Report of the nature of R&D
conducted under systems acquisition/military aircraft program elements such as the AWACS
program element. RDT&E activities conducted under these program elements are specifically
directed to the development of a new weapon system or upgrading or enhancing of an existing
weapon system, and more particularly, addressing particular problems with respect to a particular
product. In this context, we are not satisfied that a gen eral allegation by the European Union that
upgrading the flight deck and avionics subsystems for a particular military aircraft could give rise
to improved systems engineering and open systems architecture of more general applicability is
sufficient, without more, to demonstrate the required close nexus bet ween the Air Force Contract
F19628-01-D-0016, D.O. 73, and the NASA and DOD aeronautics R&D subsidies subject to the
DSB recommendations and rulings . In particular, there is nothing before us to suggest that our
failure to consider the European Union 's claims concerning the relevant instrument funded under
the AWACS DRAGON Project as part of this compliance proceeding would undermine our ability to
undertake a meaningful assessment of whether the United States has complied with the DSB
recommendations and r ulings in the original proceeding. We are therefore not satisfied that the
European Union has demonstrated that this measure is within the scope of this proceeding as an
"undeclared" measure taken to comply.

350 Airborne Warning and Control System (AWACS) Budgets for FY 2007-FY 2013 (PE 0207417F),
(Exhibit EU-76), exhibit R-2, p. 1428.
351 Airborne Warning and Control System (AWACS) Budgets for FY 2007-FY 2013 (PE 0207417F),
(Exhibit EU-76), exhibits R-3, p. 1433 and R-4, p. 1434.
352 The United States explains that the AWACS DRAGON cockpit upgrade was defined in EMD Project
Arrangement 3 pursuant to the six-party memorandum of understanding concerning project for the E-3 fleets.
(United States' response to Panel question No. 82, para. 78; and Memorandum of Agreement Between the
United States of America and the NATO AEW&C Programme Management Organization signed at Washington
and Brunssum, 10 and 30 August 1999, (Exhibit USA-459)). However, while the United States refers to the
DRAGON EMD Project Arrangement 3 (which would have listed the scope of the work envisaged for the
DRAGON cockpit upgrade and potentially therefore, have provided a basis for the European Communities to
have challenged the work in the original proceeding as potentially involving "dual-use" R&D), it does not
provide this instrument or indicate when it was signed.
353 Rumpf Report, (Exhibit EU-23), para. 4.2; and European Union's first written submission, para. 302.
354 United States' response to Panel question No. 78, para. 72.

7.191. The Panel grants the United States ' request and finds that Air Force C ontract
F19628-01-D-0016 funded under the DRAGON Project of the AWACS (PE 0207417F) program
element is outside the scope of this proceeding.
KC-46, Next Generation Aerial Refueling Aircraft (PE 0605221F)
7.192. The KC-46, Next Generation Ae rial Refueling Aircraft (PE 0605221F) program element is
the initial increment of the Air Force 's tanker modernization programme, involving conversion of a
commercial derivative aircraft into an aerial refueling tanker. The existing KC -135 Stratotanker
fleet is over 50 years old on average and is increasingly costly to maintain and support. The U.S.
Air Force plans to develop, test and field 18 KC -46 tankers by August 2017 and eventually have a
total of 179 aircraft in operation by 2027.355
7.193. The United States objects to the inclusion of this program element within the scope of this
proceeding on the basis that the KC-46, Next Generation Aerial Refueling Aircraft program element
continues work that was previously conducted under the KC -135 Replacement Tanker (PE
0401221F) program element, which existed at the time of the original panel request and was not
challenged in the original proceeding.356
7.194. The European Union responds that the EMD Contract for the KC-46 aerial refueling tanker
was awarded to Boeing in Febru ary 2011, which is clearly after the date of the original panel
request.357
7.195. The United States notes that the EMD Contract was awarded to Boeing in 2011 after a
process which had involved cancellation in 2005 of an initial effort to acquire use of new tanker s, a
second procurement effort commenced by the Air Force in 2006, in which Northrop Grumman was
successful in 2008, but which decision was subsequently overturned by the U.S. Comptroller
General in 2008 after a protest by Boeing, and a third procurement e ffort in which Boeing was
successful in 2011.358 The United States argues that it was obvious in 2006 that the KC -46 aerial
refueling tanker would be a military aircraft produced by militarizing civilian airframes. It is thus
difficult to see how the Europea n Union discovered something about the dual -use potential of this
program element in 2007 that changed its view.359
7.196. Although the KC-46, Next Generation Aerial Refueling Aircraft program element continues
work previously conducted under the KC -135 Replacement Tanker program element, it seems
clear to the Panel that, at the time of the European Communities ' panel request in the original
proceeding (January 2006), the request for proposal for the KC -X tanker had not been issued by
the Air Force, let alone had a successful proposal been selected. Indeed, Northrup Grumman was
the successful tenderer in the previous procurement effort in 2008, with a derivative Airbus
aircraft. In these circumstances, it is not unreasonable that the European Communities did not
include claims regarding the KC -135 Replacement Tanker program element in the original
proceeding.

355 U.S. Government Accountability Office, KC-46 TANKER AIRCRAFT: Program Generally Stable but
Improvements in Managing Schedule Are Needed, Report 13-258, (February 2013), (Exhibit USA-237), p. 1.
356 United States' request for preliminary rulings, dated 13 November 2012, para. 14. See also KC-46,
Next Generation Aerial Refueling Aircraft, Budgets for FY 2009-FY 2013, (PE 0605221F), (Exhibit EU-1072),
budget for FY 2009, p. 1, which indicate that RDT&E funds for FY 2009 and beyond were transferred from the
KC-135 Replacement Tanker (PE 401221F) program element; and U.S. DOD Budget, Fiscal Year 2006, RDT&E
Programs (R-1), February 2005, (Exhibit USA-2), p. F-13, which shows a budget allocation for the KC-135
Replacement Tanker (PE 0401221F) program element for FY 2006.
357 European Union's supplemental submission on the United States' request for preliminary rulings,
Contract FA8625-11-C-6600 (KC-46 Contract), (Exhibit USA-365) (HSBI). In its Annual Report on Form 10-K
for the year ended 31 December 2014, Boeing disclosed that in the second quarter of 2014 it declared a
reach-forward loss of USD 425 million on the KC-46A tanker contract, which was a fixed-price development
contract, owing to higher estimated costs. Boeing's Commercial Airplanes segment recorded USD 238 million of
this loss. (Subsidies to Boeing's LCA Division (2013-2014 Update), (Exhibit EU-1451), annex A, "Annual Report
on Form 10-K for the year ended 31 December 2014", pp. 79 and 80).
358 United States' first written submission, paras. 451 and 452; and C. Drew, "Boeing Wins Contract to
Build Air Force Tankers", New York Times, 24 February 2011, (Exhibit USA-236).
359 United States' second written submission, para. 62.

7.197. We have reviewed Mr Rumpf 's assessment of the R&D involved in this program element
that is potentially dual -use to LCA. 360 This assessment refers in a very genera lized way to
technological areas such as the use of performance based logistics incorporating micro -sensors in
the KC -46 airframe, avionics R&D related to communications, navigation and adverse weather
capabilities, physics-based modelling and simulation a ctivities for improved design of the test and
evaluation flight and ground tests, and multiple systems management technologies and processes.
7.198. We refer to our discussion in Section 8.2.3.2.3 of this Report of the nature of R&D
conducted under systems acquisition/military aircraft program elements such as the KC -46, Next
Generation Aerial Refueling Aircraft program element. RDT&E activities conducted under these
program elements are specifically directed to the development of a n ew weapon system or
upgrading or enhancing of an existing weapon system, and more particularly, addressing particular
problems with respect to a particular product. 361 We are not satisfied that generalized allegations
regarding the potential applicability to LCA of certain broad technology areas, without an
explanation of how those technology areas overlap with the technology areas that were the focus
of the NASA and DOD aeronautics R&D subsidies the subject of the DSB recommendations and
rulings362, are suffic ient to demonstrate the required close nexus, in terms of nature or effect,
between the measures identified with respect to the KC -46, Next Generation Aerial Refueling
Aircraft program element and the NASA and DOD aeronautics R&D subsidies the subject of t he
DSB recommendations and rulings.
7.199. The Panel grants the United States ' request and finds that Air Force C ontract
FA8625-11-C-6600 funded through the KC -46, Next Generation Aerial Refueling Aircraft
(PE 0605221F) program element is outside the scope of this proceeding.
Multi-Mission Maritime Aircraft (P-8A) (PE 0605500N)
7.200. The Multi-Mission Maritime Aircraft (P-8A) (PE 0605500N) program element provides the
replacement systems for the P -3 and EP -3 aircraft. In 2002, the U.S. Navy decided on an
acquisition st rategy for the concept and design phase of a multi -mission maritime aircraft to
replace the ageing P -3 and EP -3 submarine-chasing aircraft. Boeing, as one of the two "concept
and design" contractors, subsequently competed in the engineering and manufacturi ng
development phase, proposing a modified version of Boeing 737 aircraft. 363 In June 2004, the
Navy awarded Boeing contract N00019 -04-C-3146 to develop and demonstrate the system, with
plans to enter production and deployment in 2010. 364 Following a critical design review in 2007,
Boeing received approval to fabricate the flight test aircraft in 2007. The program me then moved
into low rate initial production (LRIP) as part of the production and deployment phase in 2010. 365
The Navy issued separate contracts N000 19-09-C-0022 and N00019 -12-C-0112 for the
subsequent LRIP lots.366
7.201. The United States asserts that "by far" the largest contract funded through the "additional"
RDT&E program elements is the System Development and Design contract for the P-8A, which was
awarded in 2004. The United States considers that, if the European Union is recognizing that DOD
only makes payments or provides facilities, equipment, and employees pursuant to a contract or
agreement, and that those are the relevant measures, the P -8A Contract is clearly outside the
scope of this proceeding. 367 On the other hand, if the European Union is challenging design and
testing without regard to the contract, those activities took place both before and after 2006, and
the "measure" was in place at the tim e of the original panel request, and therefore cannot be

361 See Sections 8.2.3.2.3 and 8.2.3.2.4 below.
362 See para. 7.166 above.
363 United States' first written submission, para. 458. The other contractor, Lockheed Martin, had
proposed a P-3 derivative known as Orion 21.
364 United States' first written submission, para. 458; and Navy Contract N00019-04-C-3146 (submitted
on 16 January 2014), (Exhibit USA-367) (BCI). The contract is described as a system development and
demonstration contract. The primary objectives of system development and demonstration are to perform the
system detailed design, develop and produce Systems Integration Labs and develop and build ground and
flight test articles and prepare for "Milestone C" which is production and deployment. See e.g. MMA 2006
Budget, Exhibit R-2, February 2005, (Exhibit USA-172), p. 1
365 United States' first written submission, para. 458.
366 United States' first written submission, para. 458.
367 United States' second written submission, para. 63.

treated as a measure taken to comply in this proceeding. 368 In any case, the United States
considers it was obvious in the beginning of 2006 that the P-8A would be military aircraft produced
by militar izing civilian airframes, so it is difficult to see how the European Union discovered
something about the dual-use potential of this programme in 2007 that changed its view.369
7.202. The European Union acknowledges that the Multi -Mission Maritime Aircraft (P-8A) program
element existed at the time of the original panel request. The European Union makes a number of
arguments to justify why it was not possible to have identified activities conducted by Boeing that
were funded under this program element as potentially having "dual-use" application at the time of
the original panel request in January 2006. First, the project had not in early 2006 progressed to
the point at which the European Communities and its experts believed it was funding R&D relevant
to Boeing 's LC A division. According to the European Union, significant steps in the system
development and demonstration process occurred after the date of the European Communities '
original panel request. 370 Second, the DOD budget estimates gave no indication that "dual-use"
R&D was being carried out. Indeed, the European Union argues that in this proceeding, it relied
not on the RDT&E budget estimates in describing the "LCA-relevance" of work under the P -8A
Program, but on the expert opinion of Mr Rumpf.371 In this regard, the European Union submits a
supplemental statement from Mr Rumpf, indicating that the conclusions he had reached in the
Rumpf Report regarding the developments in the Multi-Mission Maritime Aircraft (P -8A) program
element since 2006 were based on his "knowledge of developments with the P -8A Program since
2006, gained from press reports, defense -community and industry events, and conversations (to
the extent permissible) with government and industry personnel (including former DOD
colleagues)", viewed in l ight of his background knowledge and experience. 372 In short, the
European Union argues that "almost all" of the information upon which it and its experts rely in
concluding that the P-8A Program funds R&D that is "dual-use" to LCA, was first made public onl y
after 20 January 2006 (this being the date of the European Communities ' original panel
request).373
7.203. We are not persuaded by the European Union's argument that it was unable to identify the
relevant aspects of this RDT&E program element in January 2006 that would have enabled it to
include it within the scope of its challenge in the original proceeding. Mr Rumpf states that the
budget estimates for the P -8A program element since FY 2005 do not of themselves provide
sufficient information to conclude that the R&D carried out under the P -8A program element is
"dual-use" to LCA. We have no doubt that is correct, not only for the budget estimates for the
P-8A program element, but for the budget estimates for all of the RDT&E program elements. It is
not the purpose of the FYDP budget estimates to describe the particular research or to explain the
specific technologies that are being developed under program elements at any time. For example,
the budget estimates for the KC -46, Next Generation Aerial Refueling Aircra ft program element,
which like the P -8A, involves a derivative Boeing commercial aircraft (the 767), similarly do not
provide information that points to the specific technologies that are being developed for application
to the KC-46. The information on the "dual-use" potential of the KC -46 R&D work allegedly being
conducted by Boeing, which is stated in the Rumpf Report is, as Mr Rumpf explains in his report,
based on a combination of publicly available information such as the RDT&E budget estimates,
along with his specific expertise in aerospace engineering, RDT&E budgeting and the markets for
aerospace and defense products. 374 We note that Mr Rumpf purports to provide an "expert
opinion" on the "dual-use" proportion of funding in the budget categories of "airframe",
"propulsion", "avionics", "integration assembly & test", "armament", "test & evaluation", "systems
engineering", and "data training and support equipment", under the KC-46 program element when
Boeing was not awarded the EMD Contract for the KC -46 until February 2011. We do not find it
credible that the European Communities ' experts in the original proceeding, CRA , were unable in
late 2005, based on what appears to be the same methodology later employed by Mr Rumpf, to

368 United States' second written submission, para. 63.
369 United States' second written submission, para. 62.
370 European Union's supplemental submission on the United States' request for preliminary rulings,
para. 20; response to Panel question No. 63, para. 28, fn 66. Moreover, while Boeing was awarded the
contract in 2004, the European Union did not have access to that contract until this compliance proceeding was
under way. (European Union's response to Panel question No. 63, para. 28, fn 65).
371 European Union's response to Panel question No. 63, para. 29.
372 European Union's response to Panel question No. 63, para. 30 (referring to Supplemental Statement
of R. L. Rumpf, M.S.A.E., November 2014, (Exhibit EU-1348) (HSBI), paras. 11 and 12).
373 European Union's response to Panel question No. 63, para. 37.

identify potential "dual-use" technologies likely to be involved in Boeing 's work under the
Multi-Mission Maritime Aircraft (P-8A) program element, when Boeing had been awarded the EMD
Contract for that project in June 2004.375
7.204. This is especially so, since it was widely known in 2004 th at the P-8A would be developed
as a derivative of the existing Boeing 737. The 2006 CRA Report noted that similarities between
the C-17 aircraft and large civil aircraft justified the allocation of a larger proportion of RDT&E for
the C -17 as potentially "dual-use".376 It would seem logical for CRA to have considered the
possibility at least, that Boeing 's development of the P -8A as a derivative 737 would involve
technologies with a similar potential relevance to large civil aircraft as it surmised to be the case
with respect to the RDT&E for the C-17.
7.205. We conclude that, given that the Multi -Mission Maritime Aircraft (P -8A) program element
had been in existence at the time of the European Communities ' original panel request, and
moreover, in light of the fact t hat the system development and demonstration Contract under the
Multi-Mission Maritime Aircraft (P-8A) program element had already been awarded to Boeing in
June 2004, the European Communities could have challenged payments and the access to
facilities, equipment, and employees provided to Boeing through this instrument. We consider that
it would be an inappropriate and unjustified enlargement of the scope of this proceeding to include
measures in respect of the 2004 system development and demonstration Contract, as well as the
subsequent contracts for low -rate initial production arising out of the work conducted under the
2004 system development and demonstration Contract, within the scope of this proceeding.
7.206. The Panel grants the United States ' request and finds that the measures related to the
Multi-Mission Mari time Aircraft (P -8A) RDT&E program element are outside the scope of this
proceeding.
Long Range Strike Bomber (PE 0604015F)
7.207. The Long Range Strike Bomber (PE 0604015F) program element is a highly clas sified
programme to develop a new large stealth bomber. The Long Range Strike Bomber program
element was initially funded in FY 2011 and followed an earlier effort, which ended in 2009, to
develop a "Next Generation Bomber".377
7.208. The United States argues that the Long Range Strike Bomber program element is the
continuation of the "Next Generation Bomber " program element, which was in existence at the
time of the original panel request and also carried the same program element number
(PE 0604015F) in DOD budget documents.378 The United States submits that, "although the
budget request for 2011 refers to the effort in that year as a 'new start effort', there is a striking
degree of overlap in the description s of the work conducted in 2008 and 2011. "379 The
United States also asserts that "industry observers " share the perception that the current work

375 In this respect, we note the backgrounds of the CRA principals responsible for preparing the 2006
CRA Report. One had previously worked as an industrial and financial analyst in the Office of the Secretary of
Defense. The other had a 14 year career in engineering, design, and management with Lockheed Martin
Corporation (CRA Report, (Exhibit EU-29), appendix L: CRA Staff Qualifications, L.1 and L.2). Lockheed Martin,
along with Boeing, was one of the contractors awarded a CAD contract in 2002 prior to Boeing's selection as
the contractor for the System Development and Design phase of the project in June 2004. In light of these
connections, we find it difficult to believe that in 2005, the experts at CRA were unable to draw any conclusions
as to whether Boeing's work under the Multi-Mission Maritime Aircraft (P-8A) program element at least
potentially involved "dual-use" R&D.
376 "The C-17 aircraft much more closely resembles an LCA than the other military aircraft programmes
examined above. For example, it is very similar to LCA in size, weight and operating envelope (cruise speed,
altitude, etc). In addition, it shares many configuration similarities with LCA … Finally it shares many internal
system similarities with LCA … Consequently, solutions to the design and engineering challenges of the C-17
are logically more transferable to LCA." (CRA Report, (Exhibit EU-29), pp. 23 and 24).
377 European Union's first written submission, para. 314; and Rumpf Report, (Exhibit EU-23), para. 4.2.
378 United States' request for preliminary rulings, dated 13 November 2012, para. 13; response to Panel
question No. 80, para. 74. See also U.S. DOD Budget, Fiscal Year 2006, RDT&E Programs (R-1),
February 2005, (Exhibit USA-2), p. F-4; and Long Range Strike Bomber Budgets for FY 2007-FY 2013
(PE 0604015F), (Exhibit EU-78), p. 693.
379 United States' response to Panel question No. 80, para. 74.

under the Long Range Strike Bomber program element is part of an ongoing effort. 380 According to
the United States, DOD "cancelled" the Next Generation Bomber program element in order to allow
time to refine the program me objectives. The resulting Long Range Strike Bomber program
element is thus a "successor" to, and the work under that program element continues the work
that was undertaken under , the "Next Generation Bomber " program element of the same PE
number.381
7.209. The European Union notes that it is challenging the RDT&E conducted under the Long
Range Strike Bomber program element beginning in 2011.382 It refers to a DOD description of the
Long Range Strike Bomber program ele ment as a "new start " in 2011, thus implying that it is
distinct from, and not a continuation of, the "Next Generation Bomber " program element.383 The
European Union argues that the Next Generation Bomber and Long Range Strike Bomber program
elements were both intended to develop new bomber capabilities for the U.S. Air Force, however,
the fact that the two program elements may have similar "missions" does not make the latter a
continuation of the former.384
7.210. The United States indicates that the PE 0604015F pro gram element provided funding in
the 2007-2012 period for one assistance instrument and four procurement contracts. 385 The four
procurement contracts identified by the United States all have effective dates prior to 2011.
7.211. The European Union indicates that i nstruments that pre-date the 2011 Long Range Strike
Bomber (PE 0604015F) program element do not fall within the scope of its claims. 386 It explicitly
concedes that delivery orders for contracts F33615 -00-D-3052, D.O. 90, FA8650 -08-D-3857,
D.O. 1, and F33165-03-D-2358, D.O. 7 are outside the scope of its claims. It would appear that
for the same reasons, contract FA8650 -09-C-3902, which the United States indicates has an
effective date of 2009, as evidenced by the "09" in the seventh and eighth digits of its c ontract
number, is also outside the scope of its claims.387
7.212. The assistance agreement identified by the United States (FA8650 -04-2-3449), is a 2004
instrument that was also funded through the Advanced Materials for Weapons Systems
(PE 0603211F) program element, an original RDT&E program element. This assistance instrument
was therefore covered by the European Communities ' claims in the original proceeding and was
modified by the Supplemental Subject Invention and Patent License Agreement concluded between
DOD and Boeing on 21 September 2012 (DOD-Boeing Patent Licence Agreement) .388 It is clearly
within the scope of this proceeding as an original measure.
7.213. Based on the above exchange between the parties, we conclude that there is no evidence
before the Panel of any assistance instruments or procurement contracts with Boeing funded under
the Long Range Strike Bomber program element that have effective dates from 2011 or later that
would fall within the scope of the European Union 's claims concerning this RDT&E program
element, as delimited by the European Union.
7.214. The European Union notes that the Long Range Strike Bomber Program is highly classified.
It refers to public reports that Boeing and Lockheed Martin will team to compete on the program
element, which aims to deliver 80-100 long range stealth bombers to the Air Force, with an initial
operational capability in 2024 to 2026 389 as well as public reports of statements by Air Force

380 United States' response to Panel question No. 80, para. 75 (referring to L. B. Thompson, "America
Needs to Develop a New Bomber Now", Lexington Institute, 2013, (Exhibit USA-458), p. 9).
381 United States' response to Panel question No. 80, para. 75.
382 European Union's supplemental submission on the United States' request for preliminary rulings,
383 European Union's supplemental submission on the United States' request for preliminary rulings,
para. 20 (referring to Long Range Strike Bomber Budgets for FY 2007-FY 2013 (PE 0604015F), (Exhibit
EU-78), p. 1 which contains a note saying "PE0604015F is a new start effort in FY11").
384 European Union's comments on the United States' response to Panel question No. 80, para. 104.
385 United States' first written submission, paras. 467 and 468.
386 European Union's response to Panel question No. 64, para. 38.
387 See European Union's response to Panel question No. 64, para. 38; and United States' comments on
the European Union's response to Panel question No. 64, para. 58.
388 United States' first written submission, para. 467.
389 B. Sweetman, "Boeing, Lockheed Martin Team on New Bomber", Aviation Week, 25 October 2013,
(Exhibit EU-1360).

officials suggesting the Air Force may be planning to award a contract to build a lon g range strike
bomber by as early as the spring or summer of 2015. 390 The European Union also refers to a U.S.
Congressional Research Bulletin which speculates that significant development work for a long
range strike bomber may already have been completed, "presumably in classified budgets".391 The
European Union thus considers it to be "almost certain " that Boeing has received "significant
amounts of classified R&D funding " under the post -2011 Long Range Strike Bomber program
element that the United States has not acknowledged.392
7.215. The United States responds by noting that the Long Range Strike Bomber budget
documents state that the program element is reported in accordance with a provision of U.S. law
that restricts information to members of the defense committe es in Congress, and restricts even
that information to high -level summaries of what the program me is studying. According to the
United States, the only reasonable inference therefore is that any funding under this program
element does not produce technology that Boeing's military division would be able to share with its
civil aircraft division.393
7.216. Given that there is no evidence before the Panel of any procurement contracts or
assistance instruments with Boeing funded through the Long Range Strike Bomber prog ram
element that have effective dates from 2011 or later that would fall within the scope of the
European Union's claims concerning this program element, as delimited by the European Union,
the Panel is not satisfied that there is a measure in existence in volving this RDT&E program
element.
7.217. As a result of the conclusions we have reached in this Section, we make the following
rulings regarding the scope of th is proceeding as regards the seven "additional" RDT&E program
elements the subject of the United States' objections:
a. Materials Processing Technology Project of the Materials and Biological
Technology (PE 0602715E) program element : procurement contracts
HR0011-06-C-0073 and HR -0011-08-C-0044 SOW and assistance instruments
HR0011-06-2-0008, FA8650 -07-2-7716, and HR0011 -10-2-0001 funded
through this program element are within the scope of this proceeding;
b. DRAGON P roject of the Airborne Warning and Control System ( AWACS) (PE
0207417F) program element : Air Force C ontract F19628-01-D-0016 funded
under this program element is outside the scope of this proceeding;
c. KC-46, Next Generation Aerial Refueling Aircraft (PE 0605221F) program
element: Air Force C ontract FA8625 -11-C-6600 funded through this program
element is outside the scope of this proceeding;
d. Multi-Mission Mari time Aircraft (P -8A) (PE 0605500N) program element :
measures funded through this program element are outside the scope of this
proceeding; and
e. the Panel is not satisfied of the existence of any procurement contracts or
assistance instruments funded through the Technology Transfer (PE 0604317F)
program element , the PRO -ACT Project of the IP ManTech (PE 0708011S)
program element , or the Long Range Strike Bomber (PE 0604015F) program
element. It will therefore not further consider these alleged measures in its
analysis of whether the DOD aeronautics R&D measures involve specific
subsidies that cause adverse effects.

390 K. Osborn, "Air Force Plans Major Step in Long Range Strike Bomber Program", Defense Tech,
15 September 2014, (Exhibit EU-1361).
391 J. Gertler, "Budget Highlight: Air Force Long Range Strike Bomber", Congressional Research Service,
2 July 2014, (Exhibit EU-1363).
392 European Union's response to Panel question No. 64, para. 40.
393 United States' comments on the European Unions' response to Panel question No. 64, para. 59.

7.3.4 Whether DOD "equipment and employees " provided through procurement
contracts and assistance instruments funded under the challenged RDT&E pr ogram
elements are outside the scope of this compliance proceeding
7.218. We next consider the United States ' request for a ruling that DOD "equipment and
employees" provided through procurement contracts and assistance instruments funded under the
challenged RDT&E program elements are outside the scope of this proceeding because the DOD
aeronautics R&D measures challenged in the original proceeding were limited to payments and
access to DOD facilities provided through procurement contracts and assistance instrume nts
funded under the relevant RDT&E program elements.394
7.3.4.1 Main arguments of the parties
7.219. The United States notes that, unlike the corresponding challenges to NASA aeronautics
R&D measures, which covered "payments" and "access to NASA facilities, equipment an d
employees", the European Communities' challenges regarding the DOD aeronautics R&D measures
in the original proceeding were confined to "payments" and "access to DOD facilities".395 Although
the European Communities advanced arguments in the original proce eding regarding DOD
"facilities, equipment and employees ", the panel found that the panel request only identified DOD
"facilities" and not DOD "equipment" and/or "employees".396 The panel found that, to the extent
that a measure was not identified in the pan el request, it fell outside the scope of the panel 's
terms of reference. 397 The European Union did not appeal this finding of the panel. According to
the United States, although the European Communities could have made claims with respect to
DOD equipment an d employees in the original proceeding, it did not. It cannot do so in the
compliance proceeding.398
7.220. Further, the United States considers that the European Union 's argument that the
provision of equipment and employees is merely one of the ways that the Euro pean Union alleges
that the RDT&E program elements provide subsidies to Boeing , is essentially an argument that no
distinction can be drawn between equipment and employees, and other ways subsidies could be
provided. However, the panel in the original proc eeding already ruled that such a distinction was
appropriate and required in light of the European Communities ' panel request.399 According to the
United States, that finding cannot be reconciled with the European Union's position.
7.221. Moreover, the United States says that the European Union effectively admits that it has no
reason to believe that DOD has, with the compliance proceeding in mind, shifted the manner in
which it provides support to Boeing from payments and access to facilities, to access to equipmen t
and employees.400 Indeed, in light of the European Union 's failure in its supplemental submission
to support prior suggestions that DOD may have shifted the manner of supporting Boeing under
the RDT&E program elements, the European Union has abandoned its claim that the provision of
DOD equipment and employees is within the scope of the compliance proceeding.401
7.222. The European Union argues that the original proceeding, like the compliance proceeding,
involved challenges to the particular RDT&E program elements only to the extent they provide d
subsidies that benefit U.S. LCA producers by providing Boeing with funding and other support
applicable to the development, design , and production of LCA. What matters is whether DOD is

394 United States' request for preliminary rulings, dated 13 November 2012, paras. 11 and 60; reply to
the European Union's response to the United States' request for preliminary rulings, dated 3 December 2012,
para. 41.
395 United States' request for preliminary rulings, dated 13 November 2012, para. 11; reply to the
European Union's response to the United States' request for preliminary rulings, dated 3 December 2012,
para. 37; and Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1116-7.1120.
396 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1120.
397 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1120 and 7.1121.
398 United States' request for preliminary rulings, dated 13 November 2012, paras. 11 and 12.
399 United States' response to European Union's request for a preliminary ruling and request for the
Panel to request information pursuant to Article 13 of the DSU, dated 8 November 2012, paras. 36-38.
400 United States' reply to the European Union's response to the United States' request for preliminary
rulings, dated 3 December 2012, para. 40.
401 United States' first written submission, para. 67.

providing its equipment and employees to assist Boeing with R&D related to its LCA at the present
time.402
7.223. The European Union refers to its panel request in this proceeding , in which it challenges
DOD's provision of access to government facilities, equipment, and employees through the
relevant RDT&E program elements. According to the European Union, the provision of "equipment
and employees " is simply one of the ways that the European Union alleges that the RDT&E
program elements provide subsidies to Boeing , along with payments and provision of access to
government facilities.403
7.224. The European Union argues that, in relation to measures taken to comply , within the
meaning of Article 21.5 of the DSU, the European Union is not precluded from challenging
unchanged aspects of such measures so long as s uch aspects are integral to the measure. The
provision of equipment and employees is an "integral" part of the RDT&E measures.404
7.225. The European Union also suggests, in its initial response to the United States ' request for
preliminary rulings, that DOD may possibly have shifted the manner in which it transfers resources
to Boeing 's LCA division such that the payments and facility use ha ve decreased, while the
provision of equipment and employees has increased. The European Union refers to the fact that
DOD's operations and practices are not transparent from publicly available documents and recalls
that in the original proceeding, it had been relying on the Annex V process to provide the
necessary information.405
7.226. Finally, the European Union asserts that there is n o effic iency in requiring the
European Union to assert claims against the DOD RDT&E payments and the provision of access to
DOD facilities, and then requiring it to launch a new dispute where a separate panel would
consider the provision of equipment and employees under those same program elements.406
7.3.4.2 Evaluation by the Panel
7.227. The third issue raised by the United States ' objections is whether the "funding and
support" provided to Boeing under the procurement contracts and assistance instruments funded
through t he various RDT&E program elements, i.e. through the original 23 RDT&E program
elements as well as through those aspects of the "additional" program elements that we have
found to be within the scope of this proceeding, covers not just payments and access t o DOD
facilities, but also access to DOD equipment and employees.
7.228. The United States' position is that the measures properly before this Panel cannot include
access to DOD equipment and employees because the provision of access to DOD equipment and
employees was not challenged in the original proceeding. The European Union counters that the
original proceeding involved challenges to particular RDT&E program elements to the extent they
provided subsidies to benefit United States LCA producers. If DOD is, at the present time,
providing its equipment and employees to assist Boeing with R&D which benefits its LCA division,
then the European Union may validly challenge such measures in this proceeding.
7.229. The pertinent items of the European Communities' panel request in the original proceeding
are as follows:
a. allowing the US LCA industry to participate in DOD -funded research, making payments
to the US LCA industry for such research, or enabling the US LCA industry to exploit the
results of such research, by means i ncluding but not limited to the foregoing or waiving

402 European Union's response to the United States' request for preliminary rulings, dated
23 November 2012, para. 31.
403 European Union's response to the United States' request for preliminary rulings, dated
23 November 2012, para. 30.
404 European Union's supplemental submission on the United States' request for preliminary rulings,
para. 17.
405 European Union's response to the United States' request for preliminary rulings, dated
23 November 2012, paras. 31 and 32.
406 European Union's response to the United States' request for preliminary rulings, dated
23 November 2012, para. 34.

of valuable patent rights, and the granting of exclusive or early access to data, trade
secrets and other knowledge resulting from government funded research; and
b. allowing the US LCA industry to use research, test, and evaluation facilities owned by the
U.S. Government, including the Major Range Test Facility Bases.407
7.230. In the original proceeding, the panel explained that the European
Communities' DOD-related claims were narrower in various respects than it s NASA-related claims.
In particular, the panel noted:
{W}hereas the scope of the European Communities ' claim relating to NASA R&D
covers NASA "facilities, equipment and employees ", the scope of the European
Communities' claim relating to DOD only covers DOD "facilities".408
7.231. The panel also recalled that Article 6.2 of the DSU requires that a panel request identify
the specific measures at issue, and provide a brief summary of the legal basis of the complaint
sufficient to present the problem clearly. To the extent that a measure is not identified in the
complaining party 's panel request, that measure falls outside the panel 's terms of reference. 409
The panel thus proceeded to examine the European Communities ' claims regarding the payments
and provision of acce ss to DOD facilities (but not DOD equipment and employees) through the
procurement contracts and assistance instruments funded under the original 23 RDT&E program
elements.
7.232. Although the European Union's panel request in this proceeding refers more broadly to the
provision of access to DOD facilities, equipment, and employees, the issue is whether the provision
of access to DOD equipment and employees through the relevant procurement contracts and
assistance instruments is within the scope of this proceeding given that the European Communities
had not challenged such measures in the original proceeding.
7.233. In paragraph 7.152 above, we explain that the European Union 's asserted DOD -related
claims in this proceeding cover measures involving three categories of instruments:
a. pre-2007 procurement contracts or assistance instruments funded under the original 23
RDT&E program elements (i.e. the procurement contracts and assistance instruments
that were before the panel in the original proceeding);
b. post-2006 procurement contracts or assistance instruments funded under the original 23
RDT&E program elements (i.e. procurement contracts and assistance instruments that
were entered into after the date of the original panel request in January 2006 but funded
through the same program elements that were the focus of the European
Communities' claims in that proceeding); and
c. post-2006 procurement contracts or assistance instruments funded under other
"additional" RDT&E program elements that are differe nt from the original 23 RDT&E
program elements, or their successor programmes (i.e. procurement contracts and
assistance instruments entered into after the date of the original panel request in
January 2006 but funded through different program elements to those that were the
focus of the European Communities' claims in that proceeding).
7.234. We consider that the answer to the question whether the provision of access to DOD
equipment and employees through the relevant procurement contracts and assistance instrume nts
is within the scope of this proceeding will differ depending on the c ategory of the instrument
above.
7.235. In relation to the pre -2007 procurement contracts and assistance instruments at issue in
the original proceeding (i.e. those in category (a) above), w e see no basis on which the
European Union could seek to enlarge the scope of its claims regarding the pre -2007 procurement

407 European Union's request for the establishment of a panel, item 3(a) and 3(b), pp. 9 and 10.
408 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1118 and 7.1120. (emphasis added)
409 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1121.

contracts and assistance instruments at the compliance stage to also cover "access to DOD
equipment and employees". The European Communities could have challenged DOD 's provision of
access to DOD equipment and employees in connection with these procurement contracts and
assistance instruments in the original proceeding but did not. We do not consider that the
European Union can enlarge the scope of its original claims in this manner at the compliance
stage.
7.236. In relation to the claims concerning the post -2006 procurement contracts and assistance
instruments, funded under both the original 23 RDT&E program elements and the "additional"
RDT&E program elements (i.e. those in categories (b) and (c) above) we are of the view that it is
not an impermissible enlargement of the scope of the dispute for the European Union to more
broadly formulate its claims in respect of these "new" measures to e ncompass access to DOD
equipment and employees, as well as facilities.
7.237. In reaching these conclusions, we are mindful of the United States' assertion that access to
DOD equipment and employees is not significant in relation to general aircraft /science and
technology program elements and that DOD does not provide access to facilities or equipment, or
reference pooling of employees in relation to systems acquisition/military aircraft program
elements.410 We are mindful that our resolution of this issue may appe ar somewhat technical,
especially as there is nothing before us to suggest that the addition or exclusion of access to DOD
equipment and employees is of any great significance to the core issue of wh ether the
United States has complied with the DSB recommendations and rulings . However, the
United States' objection involves important systemic considerations such as the fairness of
permitting a complaining Member to retroactively enlarge the scope of the original dispute through
a compliance proceeding, and t he overall role of panels in promoting the prompt settlement of
disputes and assisting Members in achieving satisfactory resolution of their disputes. We have
attempted to strike an appropriate balance regarding these two important underlying values.
7.238. We grant the United States' request in relation to access to DOD equipment and
employees through pre-2007 procurement contracts and assistance instruments funded
under the 23 original RDT&E program elements and rule that the provision of access to
DOD equipment and employees through these instruments is outside the scope of this
proceeding.
7.239. We reject the United States' request in relation to access to DOD equipment and
employees through (a) post -2006 procurement contracts and assistance instruments
funded under the 23 original RDT&E program elements; and (b) post -2006 procurement
contracts and assistance instruments funded under "additional" RDT&E program
elements that we have found are within the scope of this proceeding and conclude that
the provision of acces s to DOD equipment and employees through these instruments is
within the scope of this proceeding.
7.3.5 Summary of the Panel 's rulings as to whether various certain DOD aeronautics
R&D measures are outside the scope of this proceeding
7.240. In this Section of the Rep ort, we ma ke a number of rulings as to whether certain of the
DOD aeronautics R&D measures identified by the European Union in its panel request are outside
the scope of this proceeding. In sum, we rule as follows:
a. We reject the United States ' request for a ruling that the DOD procurement contracts
funded through the original 23 RDT&E program elements are outside the scope of this
proceeding. The Panel finds that these measures are within the scope of this proceeding.
b. We reject the United States ' request in respect of the Materials and Biological
Technology (PE 0602715E) program element and rule that procurement contracts
HR0011-06-C-0073 and HR -0011-08-C-0044 SOW and assistance instruments
HR0011-06-2-0008, FA8650 -07-2-7716, and HR0011 -10-2-0001, funded t hrough the
Materials Processing Technology Project of the Materials and Biological Technology

410 United States' first written submission, paras. 388, 418, and 473.

program element are within the scope of this proceeding. The Panel finds that these
measures are within the scope of this proceeding.
c. We grant the United States ' request in respect of the Airborne Warning and Control
System (AWACS) (PE 0207417F) program element and rule, on the basis of the claims in
respect of that program element as identified by the European Union, that Air Force
Contract F19628-01-D-0016 funded under the DRAGON Project is outside the scope of
this proceeding.
d. We grant the United States ' request in respect of the KC -46, Next Generation Aerial
Refueling Aircraft (PE 0605221F) program element and rule, on the basis of the claims in
respect of that program element as identified by the European Union, that Air Force
Contract FA8625-11-C-6600 is outside the scope of this proceeding.
e. We grant the United States ' request in respect of the Multi -Mission Mari time Aircraft
(P-8A) (PE 0605500N) program elemen t and rule that measures funded under this
program element, including those funded through Navy contracts N00019 -04-C-3146,
N00019-09-C-0022, and N00019-12-C-0112 are outside the scope of this proceeding.
f. The Panel does not further consider measures funded under the Technology Transfer
(PE 0604317F) program element, the Defense Logistics Agency IP ManTech
(PE 0708011S) program element or the Long Range Strike Bomber (PE 0604015F)
program element, because the Panel is not satisfied of the existence of any pr ocurement
contracts or assistance instruments with Boeing which the European Union identifies as
relevant to its claims, and which are funded under these program elements.
g. We grant the United States ' request in relation to the provision of access to DOD
equipment and employees through pre -2007 procurement contracts and assistance
instruments funded under the original 23 RDT&E program elements and rule that the
provision of access to DOD equipment and employees to Boeing through these
instruments is outside the scope of this proceeding.
h. We reject the United States ' request in relation to the provision of access to DOD
equipment and employees through: (a) post-2006 procurement contracts and assistance
instruments funded through the 23 original RDT&E program e lements; and (b)
post-2006 procurement contracts and assistance instruments funded through
"additional" RDT&E program elements that we have found are within the scope of this
proceeding; we rule that the provision of access to DOD equipment and employees
through these instruments is within the scope of this proceeding.
7.3.6 Whether the alleged "dual-use" nature of research conducted under the
procurement contracts challenged by the European Union is relevant to the Panel 's
terms of reference
7.241. As explained in para graphs 7.86 through 7.87 above, the European Union has identified
the relevant RDT&E program elements the focus of its challenge according to whether, in its view,
those program elements "support the development of technologies or methods that could benefit
Boeing's commercial airplane division ".411 The Euro pean Union refers to R&D to develop
technologies that it regards as having potential civil applications, as "dual-use" RDT&E. In response
to a ques tion from the Panel asking how the alleged "dual-use" nature of research conducted
under the DOD procurement contracts is relevant to whether the procurement contracts constitute
specific subsidies, the European Union responded that "the dual -use nature of such
DOD-supported R&D is primarily relevant to the Panel 's terms of reference, as defined by the
European Union's panel request ".412 According to the European Union, once the Panel is satisfied
that the RDT&E program elements in question do in fact fund R& D that "leads to technologies and
knowledge with potential or actual civil, in addition to military applications ", the dual-use nature of

411 Rumpf Report, (Exhibit EU-23), para. 1.1. See also 2006 CRA Report, (Exhibit EU-29), para. 1.1:
"{o}n behalf of the European Communities, CRA International Inc. … has examined and estimated the amount
of {RDT&E} funding received by {Boeing} from {DOD} that can be considered relevant to both military and
commercial aircraft (i.e. 'dual-use' RDT&E)".
412 European Union's response to Panel question No. 30, para. 187.

the R&D conducted under the DOD procurement contracts is of limited relevance to the questions
of financial contribution or benefit, other than with respect to valuation of the subsidy.413
7.242. The European Union 's response seems to imply that the Panel should undertake a factual
analysis of whether the R&D conducted by Boeing pursuant to the procurement contracts and
assistance instruments funded under the RDT&E program elem ents identified by the
European Union gives rise to technologies with potential civil applications in order to identify the
DOD aeronautics R&D measures that are properly within its terms of reference . In re sponding to
the European Union's statement that the "dual-use" nature of the R&D is primarily relevant to the
Panel's terms of reference, the United States asserts that the European Union has effectively
"admitted" that any procurement contracts that invol ve research with military objectives (as
opposed to dual-use objectives) fall outside the Panel's terms of reference.414
7.243. The parties express significant disagreement as to whether the R&D conducted by Boeing
pursuant to the procurement contracts and assista nce instruments funded under the specific
RDT&E program elements identified by the European Union in fact results in technologies with civil
applications that assist Boeing's development of LCA.415 While they do not appear to disagree that
at least some of t he R&D may have "potential" civil applications, they dispute the extent of that
potential, and whether there is an "objective" way of assessing it. Although the United States has
not requested the Panel to rule that any of the DOD -related measures are outs ide the Panel's
terms of reference on the basis that they do not in fact fund so -called "dual-use" R&D, the parties'
exchange as recounted above suggests that the Panel should, of its own motion, identify and
properly delineate the DOD aeronautics R&D meas ures that are within its terms of reference
according to our own evaluation of the potential for the R&D to lead to civil applications.
7.244. Based on our understanding of the European Union 's panel request, the DOD aeronautics
R&D measures within our terms of reference are not measures that involve Boeing conducting R&D
that the Panel considers have the "potential to", or actually do, lead to civil applications. Therefore,
it is not necessary for us, as a jurisdictional matter, to make factual determinations as to whether
any particular DOD aeronautics R&D measure potentially or actually leads to development of
technologies applied to Boeing LCA.
7.245. We recall that in the original proceeding, the panel noted that the European Communities '
DOD-related claims were li mited in several respects. 416 One limitation was that it challenged only
that subset of funding received by Boeing under the original 23 RDT&E program elements that, in
the European Communities ' view, related to "dual-use" technologies.417 Similarly in this
proceeding, the European Union identifies a number of RDT&E program elements under which, in
its view, "DOD provides Boeing with funding and support for aeronautics R&D, as well as access to
technologies, applicable to Boeing LCA. "418 The United States argues that the European Union's
identification of the relevant RDT&E program elements is subjective to the Eur opean Union, noting
that neither CRA nor Mr Rumpf provide a definition of what, in their view, makes research
"dual-use", beyond their subjective opinion.419
7.246. The European Union describe s the DOD aeronautics R&D measures it challenges in this
proceeding by reference to certain RDT&E program elements set forth in its panel request. Those
RDT&E program elements have been identified based on the European Union 's view that the

413 European Union's response to Panel question No. 30, para. 188.
414 United States' comments on the European Union's response to Panel question No. 30, para. 171.
415 United States' first written submission, paras. 297, 448, and 461-465; response to Panel question
No. 30, paras. 132 and 133; and comments on the European Union's response to Panel question No. 29,
paras. 157, 162, and 163. European Union's second written submission, paras. 389-392; response to Panel
question No. 29, paras. 171-174; and comments on the United States' response to Panel question No. 30,
paras. 190 and 191. They also employ the term "dual-use" in different senses, as we explain in
paragraphs 8.339 to 8.347 of this Report.
416 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1116-7.1120.
417 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1117.
418 European Union's first written submission, para. 243. See also European Union's request for the
419 United States' first written submission, para. 297. Moreover, the United States largely disputes that
work conducted by Boeing under the RDT&E program elements identified by the European Union would
realistically have civil applications, and argues that any realistic civil use is implausible. See e.g.
United States' first written submission, paras. 334, 337, 355, 370, 374, and 375.

program elements fund Boeing's development of technologies applicable to LCA. In its first written
submission and in expert evaluations submitted with its first w ritten submission, the
European Union explains why and how it identified the DOD aeronautics R&D measures that it has
chosen to challenge in this proceeding. 420 Contrary to the suggestion in the European Union 's
response to Panel question No. 30, the Panel need not agree with the European Union that the
identified DOD aeronautics R&D measures potentially or actually give rise to technologies applied
to Boeing LCA in order to delimit the measures within our terms of reference. Nor does our
consideration of the DOD aeronautics R&D measures identified by the European Union in its panel
request imply that we consider such measures to potentially or actually give rise to "dual-use"
technologies applicable to Boeing LCA. Rather, the question of whether the identified measures in
fact support Boeing 's development of LCA goes to the merits of the European Union 's serious
prejudice claims.
7.4 FAA aeronautics R&D measure
7.247. In its panel request, the European Union alleges that the Federal Aviation Administration
(FAA), working in collaboration with NASA under the FAA CLEEN Program, maintains subsidies that
presently benefit U.S. LCA producers by: (a) "provid{ing} Boeing with funding and access to
government facilities, equipment, and employees for R&D applicable to the development, design,
and production of LCA "; or (b) "providing Boeing with royalty -free use of the technologies
developed with such funding and support, or use of such technologies on preferential terms ".421
The European Union's panel request states that : "{s}uch R&D support is authorized by 49 U.S.C.
§§ 44501-44517, 48102, and periodic reauthorization legislation".422
7.248. The United States requests a ruling that the "FAA CLEEN measure" is outside the scope of
this proceeding because this measure was not challenged in the original proceeding, there were no
DSB recommendations and rulings adopted i n relation to it, it is not a declared measure taken to
comply, and the European Union has not demonstrated that it can be characterized as an
"undeclared" measure taken to comply on the basis of any close nexus to the DSB
recommendations and rulings or to any declared measures taken to comply.423
7.249. FAA's R&D activities are focused on "civil aviation research and development ".424 The FAA
inaugurated the FAA CLEEN Program in early 2008 in furtherance of the National Aeronautics
Research and Development Plan, with the objective to develop aeronautics R&D program mes
focused on inter -agency environmental and performance goals for the "N+1 generation" of LCA
designed to enter service in the 2015 to 2018 time -frame.425 The FAA created the FAA CLEEN
Program, while NASA cre ated the Environmentally Responsible Aviation (ERA) Project under its
Integrated Systems Research Program, to "guid{e} coordinated efforts to bring to maturity new
technologies to reduce fuel burn, emissions, and noise ".426 In 2009 the FAA solicited research
proposals for the FAA CLEEN Program from industry.427 In June 2010, it entered into five-year R&D
agreements with, respectively, Boeing and four propulsion -focused companies428, in each case on

420 See paras. 7.85 to 7.91 above.
421 European Union's request for the establishment of a panel, para. 15.
422 European Union's request for the establishment of a panel, para. 15.
423 United States' request for preliminary rulings, dated 13 November 2012, paras. 19-22, 36-44, and
60; first written submission, para. 480.
424 Airport and Airway Trust Fund Authorizations, United States Code, Title 49, chapter 481,
sections 48102 and 48103, (Exhibit EU-266), section 48102(a).
425 The FAA CLEEN Program focuses on the most well-developed, near-term commercializable
technologies. (R. Jefferies, FAA, "CLEEN (Continuous Lower Energy, Emissions and Noise) Program
Technologies Development" Presentation at the NASA ERA Bidder's Conference, 19 February 2010, (Exhibit
EU-253), pp. 5, 6 and 8; Executive Office of the President, National Science and Technology Council, National
Aeronautics Research and Development Plan, (December 2011), (Exhibit EU-254), pp. 27-30 and 50-53; and J.
Wolfe, NASA, "Aeronautics Research Mission Directorate Update with Emphasis on Integrated Systems
Research", Presentation at the 48th AIAA Aerospace Sciences Meeting, 4 January 2010, (Exhibit EU-255),
p. 10).
426 Executive Office of the President, National Science and Technology Council, National Aeronautics
Research and Development Plan, (2 February 2010), (Exhibit EU-16), p. 11.
427 FAA CLEEN Request for Offer – Amended SIR, DTFAWA-09-R-03293, (12 May 2009) (CLEEN
Solicitation), (Exhibit EU-20); and R. Jefferies, FAA, "Continuous Lower Energy, Emissions, and Noise (CLEEN)
Program Technologies Development", Presentation, 27 October 2010, (Exhibit EU-256), p. 6.
428 General Electric, Honeywell, Pratt & Whitney, and Rolls-Royce North America.

a 50 % cost-sharing basis . The total FAA contribution under all of the agreements was set at
USD 125 million.429
7.250. Boeing's work under the FAA CLEEN Program is governed by the CLEEN Other Transaction
Agreement DTFAWA -10-C-0030 (the Boeing CLEEN Agreement), which entered into effect on
22 June 2010.430 Under this agreement, th e FAA maintains the authority to determine the work
that will be undertaken 431, while Boeing manages the project, conducts the work and prepares
reports on that work for the FAA.432
7.251. Under the Boeing CLEEN Agreement, Boeing is responsible for integrated manage ment of
the FAA CLEEN Program as well as two categories of R&D activities433:
a. technology maturation (i.e. research to mature specified technologies through to the
prototype development stage) on three research projects: wing adaptive trailing edges ;
ceramic matrix composite acoustic exhaust nozzles; and the use of alternative fuels; and
b. flight testing and assessment, including flight testing of a broad suite of technologies
through Boeing's ecoDemonstrator programme.
7.252. Both parties agree that the issue of whet her the FAA aeronautics R&D measure is within
the scope of this compliance proceeding depends upon whether the Boeing CLEEN Agreement
meets the requirements of the close nexus test; i.e. whether, despite not having been part of the
original proceeding, or a declared implementation measure by the United States, the Boeing
CLEEN Agreement can nevertheless be characterized by the Panel as a so -called "undeclared"
measure taken to comply, if there is a sufficiently close connection between the Boeing CLEEN
Agreement, the DSB recommendations and rulings and any declared measures taken to comply.434
7.4.1 Main arguments of the parties and third parties
7.253. The United States argues that the European Union has failed to meet its burden of
demonstrating the existence of a close nexus between the Boeing CLEEN Agreement, the DSB
recommendations and rulings and the U.S. declared measures taken to comply, such that the
Boeing CLEEN Agreement should be characterized as a measure taken to comply within the scope
of this proceeding.435

429 FAA Fact Sheet, "Continuous Lower Energy, Emissions, and Noise (CLEEN) Program", 24 June 2010,
(Exhibit EU-257). Below, paras. 8.64 and 8.69.
430 Contract between Boeing and FAA, "Other Transaction Agreement", DTFAWA-10-C-00030
(21 June 2012) (Boeing CLEEN Agreement), (Exhibit EU-17), p. 1. Note that the period of performance
commenced to run on 21 June 2010.
431 Boeing CLEEN Agreement, (Exhibit EU-17), parts B.3 and F.2.
432 Boeing CLEEN Agreement, (Exhibit EU-17), parts C and E.3. In its first written submission, the
European Union's financial contribution arguments refer to the proper characterization of the Boeing CLEEN
Agreement, an Other Transaction Agreement which governs Boeing's work under the FAA CLEEN Program.
(European Union's first written submission, para. 218; and Boeing CLEEN Agreement, (Exhibit EU-17)). In
response to a question from the Panel, the European Union explained that its challenge is directed at the
Boeing CLEEN Agreement, as this "is the only contract or agreement with Boeing under the FAA CLEEN
Program". (European Union's response to Panel question No. 11, para. 77).
433 Boeing CLEEN Agreement, (Exhibit EU-17), part I, sections C.1.2 and C.3.
434 European Union's response to Panel question No. 66, paras. 58-68; second written submission,
para. 119; United States' request for preliminary rulings, dated 13 November 2012, para. 19; and first written
submission, paras. 72, 73, and 474-480.
435 United States' request for preliminary rulings, dated 13 November 2012, paras. 20, 21, 36, 37, and
44; reply to th e European Union's response to the United States' request for preliminary rulings, dated
3 December 2012, para. 65; first written submission, paras. 202, 475, 476, and 480; and second written
submission, para. 69. The United States notes that while the Eur opean Union refers, in its response to the
United States' request for preliminary rulings, to a close nexus to NASA and DOD measures that were subject
to the DSB recommendations and rulings, the European Union's subsequent submissions narrow the close
nexus assertion to the NASA aeronautics R&D measures subject to the DSB recommendations and rulings.
(United States' first written submission, fns 766 and 767). The European Union does not argue that a close
nexus exists between the FAA CLEEN Program and any W ashington, Wichi ta, or FSC/ETI measure.
(United States' reply to the European Union's response to the United States' request for preliminary rulings,
dated 3 December 2012, para. 65).

7.254. The United States argues that the European Union has failed to demonstrate that the FAA
CLEEN Program bears a close nexus in terms of nature with any of the measures that were subject
to the DSB recommendations and rulings, or to the United States ' declared measures taken to
comply.436 The United States disputes the European Union 's contention that there is technological
continuity between the FAA CLEEN Program and NASA aeronautics R&D programmes.437 While the
FAA CLEEN Program and the original NASA aeronautics R&D programmes might share common
environmental or technological goals of "making LCA more efficient, quieter, and less polluting "438,
it is not sufficient to establish that the program mes share common goals, particularly as
environmental goals are common to most governmental agencies and are government -wide
objectives for most WTO Members.439 Rather, the European Union must show that the measure at
issue shares enough features with a particular measure covered by the DSB recommendations and
rulings, such that a close nexus in terms of nature exists between the two measures. 440 The
United States argues that the two NASA aeronautics R&D programmes that the European Union
identified as having been covered by the DSB recommendations and rulings (i.e. the Advanced
Subsonic Technology and Quiet Aircraft Technology program mes) only dealt with noise reduction;
while the subject matter of the FAA CLEEN Program is broader than noise reduction; including also
aircraft emissions and energy use. 441 The United States acknowledges that the NASA ERA Project
under the Integrated Systems Research Program deals with aircraft emissions and energy use.
However, this is not relevant as the Environmentally Responsible Aviation Project was not
challenged in the original proceeding and is not challenged in the compliance proceeding.442
7.255. In response to the European Union 's claim that there is organizational continuity between
the FAA CLEEN Program and the NASA aeronautics R&D measures, the United States argues that
establishing a link between the FAA CLEEN Program and NASA is not sufficient to meet the close
nexus test.443 In any case, to the extent that there is such a link, it has been misstated by the
European Union.444 According to the United States, there is no substantial NASA involvement in
the FAA's administration of the FAA CLEEN Program.445 The FAA CLEEN Program is solely
administered by the FAA on the basis of agreements entered into with companies. NASA is not a
party to, nor does it have a role under, the Boeing CLEEN Agreement entered into between the
FAA and Boeing. 446 The United States confirms that the FAA consulted NASA experts as it
developed the CLEEN solicitation, but adds that the FAA also consulted various other experts inside
and outside of government. 447 The NASA support alleged "is simply the unremarkable and routine
consultations by government agencies that are conducted as part of responsible government ".448
The United States also disputes the contention that, under the FAA CLEEN Program, Boeing 's

436 United States' first written submission, paras. 477 and 478; second written submission, para. 70;
and reply to the European Union's response to the United States' request for preliminary rulings, dated
3 December 2012, paras. 66, 68, and 71.
437 United States' second written submission, para. 70.
438 United States' reply to the European Union's response to the United States' request for preliminary
rulings, dated 3 December 2012, para. 67; first written submission, fn 766, paras. 470 and 477; and second
written submission, para. 120.
439 United States' reply to the European Union's response to the United States' request for preliminary
rulings, dated 3 December 2012, para. 67; first written submission, para. 477; second written submission,
440 United States' reply to the European Union's response to the United States' request for preliminary
rulings, dated 3 December 2012, paras. 67 and 68.
441 United States' reply to the European Union's response to the United States' request for preliminary
rulings, dated 3 December 2012, para. 67.
442 United States' reply to the European Union's response to the United States' request for preliminary
443 United States' reply to the European Union's response to the United States' request for preliminary
444 United States' second written submission, para. 71 (referring to European Union's second written
submission, para. 120).
445 United States' response to Panel question No. 12, para. 28.
446 United States' response to Panel question No. 12, paras. 25 and 27.
447 United States' first written submission, para. 477; second written submission, para. 71; opening
statement to the meeting of the Panel, para. 87; and response to Panel question No. 12, para. 26.
448 United States' response to Panel question No. 12, para. 26.

research involves NASA facilities 449 and denies that the FAA provides Boeing with access to
employees.450
7.256. The United States submits that the structure of the measure in question is an important
consideration when determining whether it shares a close nexus in terms of nature with a measure
that w as subject to the DSB recommendations and rulings. 451 The FAA CLEEN Program has a
different structure and operation to the NASA aeronautics R&D programmes that were subject to
the DSB recommendations and rulings in two important respects. 452 First, the agreements entered
into under the FAA CLEEN Program are cost-sharing arrangements only.453 The United States notes
that the DOD assistance instruments considered by the Appellate Body in the original proceeding
involved 50:50 cost -sharing arrangements, and argues that the European Union cannot point to
any NASA contracts that share this characteristic. 454 Furthermore, the European Union must show
that the measure at issue shares enough features with a particular original measure such that a
close nexus in terms of nat ure exists between the two measures; the European Union cannot
establish a close nexus by demonstrating that the FAA CLEEN Program shares one feature with one
original measure and another feature with a different original measure. 455 Second, foreign
companies were equally welcome to submit proposals to participate in the FAA CLEEN Program, as
evidenced by the fact that Rolls -Royce is one of the five participating companies. 456 The
United States argues that these two structural differences between the FAA CLEEN Program and
the NASA aeronautics R&D programmes distinguish this situation from previous disputes where
measures were considered to share a close nexus with respect to the nature of the measures.457
7.257. The United States also argues that the European Union has failed to establish a close
nexus in terms of the effects of the measure. 458 The United States notes the legal standard for
"effects" set out by the European Union in its submissions: "a compliance panel may consider
whether the alleged undeclared measure ta ken to comply has the effect of undermining
compliance (if any) that is achieved through the declared measures taken to comply. As the

449 United States' first written submission, para. 482; second written submission, para. 71 (referring to
European Union's second written submission, para. 120).
450 United States' first written submission, para. 483.
451 The United States notes, for example, that in Australia – Salmon (Article 21.5 – Canada), both
measures were quarantine measures applicable to imports of Canadian salmon, and in US – Zeroing (EC)
(Article 21.5 – EC), both measures consisted of the United States' Department of Commerce's use of its
zeroing methodology in anti-dumping proceedings.
452 United States' request for preliminary rulings, dated 13 November 2012, para. 40; first written
submission, para. 478.
453 United States' request for preliminary rulings, dated 13 November 2012, para. 40; first written
454 United States' reply to the European Union's response to the United States' request for preliminary
rulings, dated 3 December 2012, para. 67 (referring to Appellate Body Report, US – Large Civil Aircraft (2nd
United States notes that the European Union has not argued that there is a close nexus in terms of nature
between the FAA CLEEN Program and the DOD measures subject to the DSB recommendations and rulings.
The United States notes that while the European Union refers, in its response to the United States' request for
preliminary rulings, to a close nexus to NASA and DOD measures that were subject to the DSB
recommendations and rulings, the European Union's subsequent submissions narrow the close-nexus assertion
to the NASA measures subject to the DSB recommendations and rulings. (United States' first written
submission, fns 766 and 767; reply to the European Union's response to the United States' request for
455 United States' reply to the European Union's response to the United States' request for preliminary
rulings, dated 3 December 2012, para. 68.
456 United States' request for preliminary rulings, dated 13 November 2012, para. 40. The United States
asserts that the European engine maker Rolls-Royce is participating in the programme in order to demonstrate
increased engine efficiency and reduced engine weight, as well as to test advanced sustainable alternative jet
fuels that could be approved for commercial use. (Rolls-Royce, "FAA Continuous Lower Energy, Emissions &
Noise (CLEEN) Technologies: Rolls-Royce Program Overview", 2 November 2011, (Exhibit USA-8), p. 9). The
United States asserts that Rolls-Royce is using this participation to deliver on 2020 ACARE goals, the purpose
of the European Union's equivalent Clean Sky Program through which it budgeted 800 million euros for 50/50
cost-sharing arrangements with industry (including Airbus). (Clean Sky, "Innovating together, flying greener:
About us", available at <http://www.cleansky.eu/content/homepage/about-us>, accessed 29 August 2016,
(Exhibit USA-7); and United States' response to the Panel question No. 12, para. 27).
457 United States' request for preliminary rulings, dated 13 November 2012, para. 39.
458 United States' reply to the European Union's response to the United States' request for preliminary
rulings, dated 3 December 2012, para. 69; opening statement at the meeting of the Panel, para. 88; and
response to Panel question No. 12, para. 28.

Appellate Body emphasized in US – Zeroing (21.5 – EC), the test requires a showing of potential
rather than actual effects".459 The United States argues that the European Union makes no
allegations about how the potential effects of the FAA CLEEN Program would undermine
compliance achieved through the United States ' declared measures taken to comply and thus has
failed to establish any close nexus in terms of effect concerning the FAA CLEEN Program.460 The
United States argues that the European Union fails to meet that standard with its "single,
conclusory statement{s}" that the FAA CLEEN Program has the same effect as the NASA a nd DOD
aeronautics R&D programmes, which is to contribute to the development of Boeing LCA technology
(and lower prices) to the detriment of Airbus 461, and that if the declared measures did, in fact,
bring the measures into compliance, the European Union wou ld nevertheless consider the FAA
CLEEN Program to undermine such compliance.462
7.258. The United States asserts that it complied with the DSB recommendations and rulings
when, during the six -month compliance period in 2012, NASA modified the rights accorded to the
parties under the contracts and agreements covered by the DSB recommendations and rulings to
make them consistent with commercial practice, while at the same time also making modifications
to contracts and agreements entered into subsequent to the DSB rul ing.463 The United States
contends that the FAA did not begin an environmental program me, available to foreign as well as
domestic companies, to undermine or counteract the reallocation of patent rights taken in
response to the DSB recommendations and ruling s.464 Moreover, the existence of the FAA CLEEN
Program does not undermine the existence of the reallocation of patent rights.465
7.259. Finally, the United States argues that the timing element of the close nexus test has been
singled out by the Appellate Body as a non-dispositive factor.466 Nonetheless, the timing of the
FAA CLEEN Program is not analogous to disputes where timing was relevant to a finding of close
nexus.467
7.260. The European Union argues that there is a sufficiently close nexus, in terms of nature,
effects, and timing, between the Boeing CLEEN Agreement, the DSB recommendations and rulings
and the United States ' declared measures taken to comply, such that the Boeing CLEEN
Agreement should be characterized as a measure taken to comply within the scope of this
proceeding.468
7.261. With regard to the connections in terms of nature between the Boeing CLEEN Agreement
on the one hand, and the NASA aeronautics R&D measures that were subject to the DSB
recommendations and rulings, on the other hand, the European Union argues that the FAA CLEEN
Program represents a continuation of the NASA aeronautics R&D subsidies that are the subject of
the DSB recommendations and rulings, merely under a new name and shifted to a different
agency.469 The European Union considers this is eviden t from the technological and organizational
continuities between the Boeing CLEEN Agreement and the NASA aeronautics R&D subsidies and
the structural similarities between the measures.
7.262. As to technological continuity, the European Union argues that the Boe ing CLEEN
Agreement, under the FAA CLEEN Program, and the NASA aeronautics R&D subsidies, under the
NASA aeronautics R&D programmes , are part of a coordinated U.S. Government aeronautics R&D

459 United States' reply to the European Union's response to the United States' request for preliminary
rulings, dated 3 December 2012, para. 70 (citing European Union's response to the United States' request for
preliminary rulings, dated 23 November 2012, para. 67). (emphasis original)
460 United States' reply to the European Union's response to the United States' request for preliminary
rulings, dated 3 December 2012, para. 70; first written submission, para. 479; and second written submission,
para. 73.
461 United States' reply to the European Union's response to the United States' request for preliminary
rulings, dated 3 December 2012, para. 69.
462 United States' second written submission, para. 73.
463 United States' request for preliminary rulings, dated 13 November 2012, para. 43.
464 United States' request for preliminary rulings, dated 13 November 2012, para. 43; first written
submission, para. 479.
465 United States' request for preliminary rulings, dated 13 November 2012, para. 43.
466 United States' request for preliminary rulings, dated 13 November 2012, para. 41.
467 United States' request for preliminary rulings, dated 13 November 2012, para. 41.
468 European Union's response to the United States' request for preliminary rulings, dated
23 November 2012, para. 82.
469 European Union's first written submission, para. 230; response to Panel question No. 12, para. 85.

strategy "to guide efforts to mature technologies that have alrea dy shown promise to the point
where they can be adopted by the current and future aircraft fleet ".470 The FAA CLEEN Program
complements NASA (and DOD) aeronautics R&D program mes by focusing on the most
well-developed, near-term commercializable technologies.471
7.263. According to the European Union, the subject matter of the FAA CLEEN Program research –
aircraft emissions, energy use, and noise – is identical to the subject matter of research conducted
under certain of the NASA aeronautics R&D program mes; notably, NA SA Advanced Subsonic
Technology and Quiet Aircraft Technology program mes (which were noise reduction program mes
that were considered by the panel in the original proceeding) 472; and the E RA Project under the
Integrated Systems Research Program (which is focu sed on technologies to reduce fuel burn,
emissions, and noise).473 Moreover, under the FAA CLEEN Program, Boeing is continuing research
that has been transitioned from NASA aeronautics R&D program mes.474 The European Union
argues that Boeing 's R&D on the adapt ive trailing edge and ceramic matrix composite acoustic
exhaust nozzle, undertaken pursuant to the Boeing CLEEN Agreement, builds on technologies that
were previously developed under the NASA aeronautics R&D program mes and that the Boeing
ecoDemonstrator programme builds on NASA 's earlier Quiet Technology Demonstrator
programmes.475 In addition, the European Union notes that the companies participating in the FAA
CLEEN Program also conduct R&D under the NASA aeronautics R&D programmes.476 The European
Union argues, therefore, that the technologies being developed under the NASA and FAA CLEEN
programmes should be "appropriately regarded as being part of a single process of iterative
learning and advancement in pursuit of a common technological goal".477
7.264. The Europea n Union also argues that the respective measures are closely connected in
terms of their nature on the basis of alleged organizational continuity between the FAA CLEEN
Program and NASA, because NASA helped to establish the FAA CLEEN Program and collaborates on
the programme's operation.478 The European Union notes that NASA officials have described the
relationship between NASA and the FAA CLEEN Program as a partnership. 479 The FAA CLEEN
Program solicitation discussed how research results would be built upon an d used by both the FAA
and NASA, and required that reports and other documentation be submitted to both the FAA and
to the head of NASA 's ERA Project.480 NASA has assisted the FAA in setting the technical direction
of the program me: creating the solicitation s; reviewing proposals; and monitoring technical
progress.481 The European Union further asserts that under the FAA CLEEN Program, Boeing 's
research makes use of NASA facilities482, and NASA personnel.483
7.265. The European Union points to the United States ' admission, in its first written submission,
that the Boeing CLEEN Agreement is the same sort of "collaborative relationship 'akin to a species
of joint venture'" as the NASA procurement contracts and DOD assistance instruments which were

470 European Union's response to the United States' request for preliminary rulings, dated
23 November 2012, para. 86; first written submission, para. 201 (both quoting Statement of J. Shin, NASA
Associate Administrator for Aeronautics Research Mission Directorate, Hearing before the U.S House of
Representatives Committee on Science, Subcommittee on Space and Aeronautics, 1 May 2008, (Exhibit
EU-21)).
471 European Union's first written submission, para. 201.
472 European Union's response to the United States' request for preliminary rulings, dated
23 November 2012, para. 83.
473 European Union's response to the United States' request for preliminary rulings, dated
23 November 2012, para. 83 and fn 88.
474 European Union's first written submission, paras. 201 and 203; second written submission,
475 European Union's response to Panel question No. 12, para. 81.
476 European Union's response to Panel question No. 12, para. 84.
477 European Union's first written submission, para. 230 (quoting Panel Report, US – Large Civil Aircraft
(2nd complaint), para. 7.1750).
478 European Union's response to the United States' request for preliminary rulings, dated
479 European Union's first written submission, para. 201; second written submission, para. 120.
480 European Union's response to Panel question No. 12, para. 80.
481 European Union's first written submission, para. 231.
482 European Union's second written submission, para. 120; response to Panel question No. 12,
para. 82.
483 European Union's first written submission, para. 231; second written submission, para. 120; and
response to Panel question No. 12, para. 82 (referring to second written submission, para. 338).

subject to the DSB recommendations and rulings.484 In this regard, the European Union notes that
the Appellate Body recognized that a principal characteristic of the NASA procurement contracts
and DOD assistance instruments was the contribution of financial and non -financial resources by
both parties.485 The Boeing CLEEN Agreement similarly involves both monetary and non -monetary
contributions from the parties.486
7.266. As to the connections in terms of effects, the European Union argues that the FAA CLEEN
Program has the same effects as the N ASA and DOD aeronautics R&D programmes: it contributes
to the development of Boeing LCA technology (and lower prices), to the detriment of Airbus.487 The
European Union considers its argument that the FAA CLEEN Program is a continuation of the NASA
aeronautics R&D programmes also demonstrates a close nexus between the FAA and NASA
measures in terms of effects. 488 Finally, although the European Union does not consider that the
United States ' declared measures taken to comply have brought the United States ' aeronautics
R&D subsidies into compliance, the Boeing CLEEN Agreement would have the effect of
undermining any such compliance.489
7.267. With respect to the timing of the Boeing CLEEN Agreement, the European Union submits
that the Boeing CLEEN Agreement was awarded in June 2010490, and funding for Boeing under the
FAA CLEEN Program is ongoing.491
7.268. Certain of the third parties (Brazil, Canada, and Japan) make general arguments as to the
proper application of the close nexus test to determine when so called "new measures" may be
considered within the scope of a compliance proceeding as "undeclared" measures taken to
comply. These arguments are summarized at Section 7.2.2.1 of this Report.
7.4.2 Evaluation by the Panel
7.269. The issue before us is whether the E uropean Union has demonstrated that there is a
sufficiently close connection, in terms of nature, effects , and timing, between the Boeing CLEEN
Agreement, on the one hand, and the aeronautics R&D measures that were subject to the DSB
recommendations and ru lings, on the other, such that the payments and access to facilities,
equipment, and employees provided through the Boeing CLEEN Agreement can be considered to
be within the scope of this compliance proceeding as an "undeclared" measure taken to comply.
7.270. We explain in paragraphs 7.66 through 7.75 of Section 7.2.2.2 of this Report our
understanding of the close nexus text applied by panels and the Appellate Body in order t o
determine whether "undeclared" measures with a particularly close relationship to declared
measures taken to comply, and to the DSB recommendations and rulings, are susceptible to
review by a compliance panel.
7.271. There is no dispute that there are some connections between the Boeing CLEEN Agreement
and at least some of the NASA aeronautics R&D measures at issue in the original proceeding. The
European Union 's position is that these connections satisfy the clo se nexus test, while the
United States' is that the connections are superficial and inadequate to justify bringing the Boeing
CLEEN Agreement within the scope of this proceeding.
7.272. The parties' arguments concerning the application of the separate elements of the close
nexus test to the Boeing CLEEN Agreement and the particular NASA aeronautics R&D measures set
forth the general range of possibilities in determining whether there are sufficiently close
connections between these two sets of measures in terms of nature, effects, and timing.

484 European Union's second written submission, para. 121.
485 European Union's response to Panel question No. 13, para. 87.
486 European Union's first written submission, para. 218.
487 European Union's response to the United States' request for preliminary rulings, dated 3 December
2012para. 87.
488 European Union's response to Panel question No. 12, para. 85.
489 European Union's second written submission, para. 121.
490 European Union's response to Panel question No. 12, para. 89.
491 European Union's first written submission, para. 219.

7.273. On nature, the Euro pean Union says that the Boeing CLEEN Agreement continues the
subject areas of research that the United States had originally subsidized under various NASA
aeronautics R&D program mes and in a sense, represents the "next stage " of that subsidized
research, i.e. subsidizing research related to commercialization and testing of the technologies
developed from that earlier research. Although the government agency is no longer NASA but FAA,
the involvement of NASA in the FAA CLEEN Program is further evidence of t his continuity. The
measures themselves have the same "joint venture" structure as the aeronautics R&D measures
found to have caused adverse effects in the original proceeding. The United States says that the
European Union's allegations are not sufficient ly specific. Similarities in the goals of programmes
or overlapping areas of research pursued by particular program mes are insufficient to satisfy the
close nexus test. The measures themselves must be shown to be closely connected. According to
the United States, this requires the European Union to demonstrate the links between the Boeing
CLEEN Agreement and particular NASA procurement contracts and Space Act Agreements (and
DOD assistance instruments), which it has not done. Moreover, NASA is not significa ntly involved
in the FAA CLEEN Program and has no involvement in the Boeing CLEEN Agreement. Even if NASA
were involved in the FAA CLEEN Program, this would not be sufficient to satisfy the close nexus
test on nature. Finally, the cost sharing feature of t he Boeing CLEEN Agreement is only relevant if
it is possible to point to a specific aeronautics R&D measure from the original proceeding that
covers the same research and technologies and employs cost sharing. It is insufficient to argue
that the close nex us is established merely because some instruments such as DOD assistance
instruments used cost sharing, in the absence of any other link.
7.274. On effects, the European Union argues that the FAA CLEEN Program has the same effects
as the NASA and DOD aeronautics R&D program mes: contributing to Boeing developing
technologies, being able to lower its prices and adverse effects on Airbus. The United States says
that this is insufficient to demonstrate close nexus in terms of effects. The European Union should
show how the Boeing CLEEN Agreement could potentially undermine any purported compliance by
the United States, which the United States reminds the Panel, involves a reallocation of the
intellectual property rights between NASA, DOD , and Boeing under the NASA pro curement
contracts and DOD assistance instruments.
7.275. The timing aspect does not appear to give rise to an issue.492
7.276. We begin our evaluation by recalling that, in the original proceeding, the panel found, inter
alia, that the "payments" and "access to facilities, equipment and employees" provided by NASA to
Boeing through the NASA procurement contracts and Space Act Agreements constituted specific
subsidies to Boeing, that the effect of these subsidies was various forms of serious prejudice ,
within the meaning of Article 6.3 of the SCM Agreement , in the 200-300 seat LCA product market
and thus, that these subsidies caused adverse effects to the European Union 's interests, within the
meaning of Article 5(c) of the SCM Agreement. 493 This finding was upheld (albeit o n the basis of a
smaller selection of LCA sales campaigns in the 200-300 seat LCA product market).494
7.277. As we explain in Section 8.2.2.2.1, the European Union has directed its challenge to NASA
procurement contracts, cooperative a greements, and Space Act Agreements funded through eight
NASA aeronautics R&D programmes that were identified in the original proceeding, as well as
NASA procurement contracts, cooperative agreements, and Space Act Agreements funded under
additional NASA a eronautics R&D programmes that arose from a reorganization of NASA
Aeronautics Research Mission Directorate (ARMD).
7.278. Of particular relevance to the Boeing CLEEN Agreement 's links with the NASA aeronautics
R&D measures at issue are NASA 's Fundamental Aeronautics and Integrated Systems Research
programmes. Fundamental Aeronautics is carried out through four projects, the largest of which is
the Subsonic Fixed Wing Project.495 The Subsonic Fixed Wing Project develops tools, technologies,
and concepts to enable tr ansport aircraft to achieve significant improvements in emissions, noise,

492 Ordinarily, timing would be expected to become an issue if the "undeclared" measure precedes the
adoption of DSB recommendations and rulings (or even the panel request in the original proceeding), raising
the potential that the complaining party is in reality using compliance proceedings to retroactively enlarge the
scope of its original panel request.
493 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1797 and 8.3.
494 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 1350(d) (i) (4), (5), and (6).
495 NASA Fundamental Aeronautics Budget Estimates for FY 2007-FY 2013, (Exhibit EU-40), FY 2013,
p. AERO-20.

and performance, including fuel efficiency. 496 The focus of the S ubsonic Fixed Wing Project is
currently the development and assessment of concepts and technologies that enable the "N+3
generation" of civil transport aircraft. 497 Boeing's role in the Subsonic Fixed Wing Project has
included three significant research efforts: Pultruded Rod Stitched Efficient Unitized Structure
(PRSEUS) composite materials research; research related to a B lended Wing Body and Subsonic
Ultra Green Aircraft Research and related advanced concepts research. The PRSEUS and B lended
Wing Body research efforts were taken up by the ERA Project of the NASA Integrated Systems
Research Program in FY 2010.
7.279. The NASA Inte grated Systems Research Program was established in 2010 to take an
integrated system-level approach to mature and integrate technologies in major vehicle systems
and subsystems for accelerated transition to practical application. 498 The goal of the Integrated
Systems Research Program is to serve as a "technology transition bridge" between the more basic
research conducted in NASA 's other aeronautics R&D program mes and the higher levels of
technological development needed by potential commercial users. 499 Within the Integrated
Systems Research Program, the ERA Project targets research into technologies and integrated
aircraft systems for subsonic transport aircraft entering into service in 2025 or beyond (i.e. "N+2")
to achieve the goals of reduced noise, emissio ns and fuel burn simultaneously. 500 The ERA Project
complements the N+3 generation subsonic research being undertaken in the Subsonic Fixed Wing
Project under the Fundamental Aeronautics Program, focusing on more developed technologies for
commercial applica tion within a shorter period of time. 501 Phase I of the ERA Project ran from
FY 2010 through to the end of FY 2012. Many of the Phase I projects were transitioned from the
Fundamental Aeronautics Subsonic Fixed Wing Project, as technologies that are consider ed ready
to advance to technology readiness level (TRL) 6 (the stage before a technology is turned over to
industry for prototyping, commercialization , and certification).502 In particular, Boeing 's research
work under the Blended Wing Body and PRSEUS projects was shifted to the ERA Project.503 As part
of the ERA Project, NASA and Boeing also conduct research into noise, emissions, and
efficiency-related technological challenges and develop specific technologies necessary to enable
development of a full-sized, high-performance Blended Wing Body transport aircraft.504
7.280. We recall that the FAA CLEEN Program was created in conjunction with the ERA Project of
NASA's Integrated Systems Research Program to "guid{e} coordinated efforts to bring to maturity
new technologies to reduce fuel burn, emissions, and noise ".505 In a statement to U.S. Congress,
NASA Associate Administrator said:
To facilitate the transition of advanced ideas and technologies into the aircraft fleet,
NASA is partnering with the Federal Aviation Administ ration's (FAA) Continuous Low
Emissions, Energy and Noise (CLEEN) Program to guide efforts to mature technologies

496 R. del Rosario, R. Wahls, G. Follen, and N. Madavan, NASA, "Subsonic Fixed Wing Project",
Presentation at the Technical Conference of the NASA fundamental Aeronautics Program, 15-17 March 2011,
(Exhibit EU-92), pp. 4, 7, and 8.
497 NASA Fundamental Aeronautics Budget Estimates for FY 2007-FY 2013, (Exhibit EU-40), FY 2013,
p. AERO-21.
498 NASA Integrated Systems Research Budget Estimates for FY 2010-FY 2013, (Exhibit EU-41),
FY 2010, p. AERO-39.
499 NASA, Research Opportunities in Aeronautics – 2010 (ROA-2010), NASA Research Announcement
NNH10ZEA001N, (2 June 2010), (Exhibit EU-133), appendix D.2, p. D-1.
500 NASA Integrated Systems Research Budget Estimates for FY 2010-FY 2013, (Exhibit EU-41),
FY 2010, p. AERO-39.
501 ASA Integrated Systems Research Budget Estimates for FY 2010-FY 2013, (Exhibit 41), FY 2010,
p. AERO-40.
502 F. Collier, NASA, "Overview of NASA's Environmentally Responsible Aviation (ERA) Project"
Presentation at the 48th AIAA Aerospace Sciences Meeting, 4 January 2010, (Exhibit EU-154), p. 4.
503 R. Coppinger, "Blended wing body is NASA's green focus", Flight International, 16 March 2010,
(Exhibit EU-155).
504 R. Coppinger, "Blended wing body is NASA's green focus", Flight International, 16 March 2010,
(Exhibit EU-155).
505 Executive Office of the President, National Science and Technology Council, National Aeronautics
Research and Development Plan, (2 February 2010), (Exhibit EU-16), p. 11.

that have already shown promise to the point where they can be adopted by the
current and future aircraft fleet.506
7.281. There appears to be a clear connection between the FAA CLEEN Program and the noise
reduction and emissions reduction research carried out under the former NASA A dvanced Subsonic
Technology (AST) and Vehicle Systems programmes (which were carried over into specific projects
under NAS A's Fundamental Aeronautics Program and Integrated Systems Research Program).
Those NASA programmes focus on research for application to the N+3 and N+2 generation of LCA,
while the FAA CLEEN Program is focused closer to the commercialisation end of the R& D process,
targeting technologies for application to the N+1 generation of LCA. We can see that in many
senses, the FAA CLEEN Program represents a continuation of earlier stage R&D conducted under
NASA aeronautics R&D program mes, as is further borne out by NASA's involvement in the FAA
CLEEN Program.
7.282. However, the United States argues that the close nexus test focuses on the measures,
which in this case comprise the Boeing CLEEN Agreement (not the FAA CLEEN Program more
generally) and the NASA procurement co ntracts and Space Act Agreements as well as and DOD
assistance instruments507 funded under the various NASA and DOD program mes, rather than the
aeronautics R&D programmes under which they are funded.
7.283. The question whether a measure falls within the scope of a compliance proceeding on the
basis of its close nexus to the measures the subject of DSB recommendations and rulings, or
declared compliance measures, can only be answered against a careful consideration of the facts
and legal context, which in the parti cular circumstances of this case, includes the aeronautics R&D
programmes that fund the particular R&D instruments. While the challenged measure is the Boeing
CLEEN Agreement, and not the FAA CLEEN Program in general, the Boeing CLEEN Agreement is
funded under the FAA CLEEN Program. More generally, as is apparent from the approach taken by
the panel in the original proceeding, the NASA and DOD aeronautics R&D program mes themselves
play an important role in understanding the nature and operation of the procurement contracts,
cooperative agreements, Space Act Agreements , and assistance instruments funded under those
programmes. This is also the case with the FAA CLEEN Program in relation to the Boeing CLEEN
Agreement. In addition, under the Boeing CLEEN Agreem ent, Boeing is responsible for the
integrated management of the FAA CLEEN Program itself. Thus, we regard it as appropriate in this
specific factual and legal context, to treat the links between the FAA CLEEN Program and the
particular projects of NASA 's F undamental Aeronautics and Integrated Systems Research
programmes as being highly relevant to our assessment of the links, in terms of nature and
effects, between the Boeing CLEEN Agreement and the NASA procurement contracts and Space
Act Agreements the subject of the DSB recommendations and rulings.
7.284. Under the Boeing CLEEN Agreement, Boeing is responsible for two categories of R&D
activities as well as for the integrated management of the program me as a whole: (a) technology
maturation through to the protot ype development stage of : (i) wing adaptive trailing edges, (ii)
ceramic matrix composite acoustic exhaust nozzles, and (iii) the use of alternative fuels; and (b)
flight testing and assessment. In relation to its technology maturation R&D activities under the
Boeing CLEEN Agreement, Boeing has acknowledged that the multiple adaptive trailing edge
concepts it is studying, as well as technologies relating to the ceramic matrix composite acoustic
exhaust nozzle, could be transitioned for use on new and deriva tive LCA models. 508 Boeing was
working on these technologies prior to the FAA CLEEN Program.509 Moreover, the wing adaptive
trailing edges and ceramic matrix composite acoustic exhaust nozzle are technologies that were
previously developed by NASA 510, while Boeing had also previously worked with Rolls -Royce and
ATK on the ceramic matrix composite acoustic exhaust nozzle.511

506 Statement of J. Shin, NASA Associate Administrator for Aeronautics Research Mission Directorate,
Hearing before the U.S House of Representatives Committee on Science, Subcommittee on Space and
Aeronautics, 1 May 2008, (Exhibit EU-21), p. 7. (emphasis added)
507 Including those measures as amended by the respective Patent Licence Agreements.
508 Boeing, "Continuous Lower Energy, Emissions and Noise (CLEEN) Program Technologies
Development – Boeing Program Update", Presentation at the CLEEN Consortium Public Session,
2 November 2011 (Boeing CLEEN Program Update), (Exhibit EU-258), p. 8.
509 N. A. Hullings, "A CLEEN Future", Boeing Frontiers, May 2013, (Exhibit EU-1021), p. 27.
510 C. Wilsey and R. Stoker, "CLEEN Technologies Development, Boeing Program Overview", CLEEN
Consortium Public Session, 27 October 2010 (formerly Exhibit US-13-154), (Exhibit EU-1019), p. 15 (indicating

7.285. The flight testing under the Boeing CLEEN Agreement is to be conducted by Boeing using
its ecoDemonstrator programme.512 Boeing's ecoDemonstrator programme is a multi-year program
of flight testing suites of environmental technologies which Boeing uses to test technologies
additional to those it is required to test under the Boeing CLEEN Agreement. 513 Boeing describes
the FAA CLEEN Program as the "foundational element & enabler of Boeing 's ecoDemonstrator
strategy" which leverages synergies with government program mes, industry partners, suppliers ,
and internally -funded development. 514 Adaptive trailing edge concepts were among the
technologies included in the initial set of flight tests in August and September 2012.515 The ceramic
matrix composite acoustic exhaust nozzle was scheduled for testing in the 2013 ecoDemonstrator
flight test, which will use a 787-800 from Boeing's test fleet.516
7.286. Like the NASA proc urement contracts and Space Act Agreements funded under the NASA
aeronautics R&D program mes that were at issue in the original proceeding, the Boeing CLEEN
Agreement involves funding by FAA of research activities undertaken by Boeing on a contract basis
for activities directly relevant to LCA. There are some differences in the structure of the Boeing
CLEEN Agreement on the one hand, and the NASA procurement contracts and Space Act
Agreements: while both parties commit resources, the nature of those respecti ve contributions
differs somewhat from those under the NASA aeronautics R&D measures. Moreover, the parties
dispute whether, in addition to providing funding, FAA also provides Boeing with access to FAA
equipment, employees, and facilities.517
7.287. In any case, the differences in the structure of the various measures do not detract from
the closeness of the links that they share in other respects. Nor do we consider fatal to the
existence of sufficiently close links between the measures the differences in the gov ernmental
agencies funding the respective measures. While FAA and NASA are different government
agencies, they share overlapping objectives with respect to civil aviation. These commonalities are
expressly recognized with respect to environmental and energy efficiency goals.518 In any case, we
note that a close nexus has been found in instances where the respective measures have involved
different levels of government 519, so we see no reason why the fact that FAA funds the Boeing
CLEEN Agreement and NASA funds the NASA aeronautics R&D measures should be fatal to the
existence of a sufficiently close link in terms of nature between those two sets of measures.
7.288. While the FAA CLEEN Program was established in 2009 and the Boeing CLEEN Agreement
was awarded in 2010, the fact that the Boeing CLEEN Agreement precedes the adoption of the
DSB recommendations and rulings does not mean that the Boeing CLEEN Agreement cannot be
considered relevant to the question of the United States' compliance. The original proceeding w as
under way at the time that the FAA CLEEN Program was established and Boeing began its work.
The FAA CLEEN Program complements certain of the NASA aeronautics R&D measures the subject

NASA research in 2008 and 2010); M. C. Halbig, M. H. Jaskowiak, J. D. Kiser, and D. Zhu, "Evaluation of
Ceramic Matrix Composite Technology for Aircraft Turbine Engine Applications", NASA Glenn Research Center,
41st AIAA Aerospace Sciences Meeting, 7 January 2013, (Exhibit EU-1020), p. 10; and NASA Dryden Fact Sheet
"F/A-18 Active Aeroelastic Wing", 9 December 2009, (Exhibit EU-1281).
511 M. C. Halbig, M. H. Jaskowiak, J. D. Kiser, and D. Zhu, "Evaluation of Ceramic Matrix Composite
Technology for Aircraft Turbine Engine Applications", NASA Glenn Research Center, 41st AIAA Aerospace
Sciences Meeting, 7 January 2013, (Exhibit EU-1020), p. 10.
512 Boeing CLEEN Program Update, (Exhibit EU-258), p. 22; and Boeing CLEEN Agreement, (Exhibit
EU-17), section C.2, p. 10.
513 Boeing, Backgrounder, 2012 ecoDemonstrator Program Shows Boeing's Long Commitment to
Environmentally Progressive Technology, (June 2012), (Exhibit EU-261), pp. 1 and 2.
514 Boeing CLEEN Program Update, (Exhibit EU-258), p. 22.
515 FAA Fact Sheet, "Continuous Lower Energy, Emissions, and Noise (CLEEN) Program",
18 September 2012, (Exhibit EU-18).
516 FAA Fact Sheet, "Continuous Lower Energy, Emissions, and Noise (CLEEN) Program",
18 September 2012, (Exhibit EU-18); and Boeing CLEEN Program Update, (Exhibit EU-258), p. 26.
517 Our conclusion regarding this issue is set forth in paras. 8.516 to 8.522 below.
518 R. Jefferies, FAA, "CLEEN (Continuous Lower Energy, Emissions and Noise) Program Technologies
Development" Presentation at the NASA ERA Bidder's Conference, 19 February 2010, (Exhibit EU-253), pp. 4
and 8; Executive Office of the President, National Science and Technology Council, National Aeronautics
Research and Development Plan, (December 2011), (Exhibit EU-254), pp. 27-30 and 50-53; and J. Wolfe,
NASA, "Aeronautics Research Mission Directorate Update with Emphasis on Integrated Systems Research",
Presentation at the 48th AIAA Aerospace Sciences Meeting, 4 January 2010, (Exhibit EU-255), p. 10.
519 For example, in Australia – Salmon (Article 21.5 – Canada), the "undeclared" compliance measure
was an import ban adopted by the Australian State of Tasmania while the measure subject to the DSB
recommendations and rulings had been a national quarantine regulation.

of the DSB recommendations and rulings in the original proceeding and the re is a close degree of
technological continuity between research commissioned under the Boeing CLEEN Agreement and
under certain of the NASA procurement contracts and Space Act Agreements.
7.289. Indeed, the technological continuities between the research carri ed out under the FAA
CLEEN Program (including by Boeing in its management role under the FAA CLEEN Program) and
the research performed by Boeing under certain of the NASA aeronautics R&D measures at issue in
the original proceeding mean that, potentially at least, it would be possible for the United States to
have purported to comply with the DSB recommendations and rulings as regards the NASA
procurement contracts and Space Act Agreements, while continuing to assist Boeing in the
commercialization of the m ore mature technologies arising from those efforts through the Boeing
CLEEN Agreement. We therefore consider the links in terms of the effects of the measures to be
such that it would be difficult for this Panel to meaningfully assess whether there has bee n
compliance in respect of the NASA procurement contracts and Space Act Agreements without also
considering the Boeing CLEEN Agreement.520
7.290. The Panel is therefore satisfied that there are sufficiently close links in terms of nature,
effects, and timing, betw een the Boeing CLEEN Agreement and the NASA procurement contracts
and Space Act Agreements the subject of the DSB recommendations and rulings in the original
proceeding to warrant the conclusion that the payments and access to facilities, equipment, and
employees provided to Boeing through the Boeing CLEEN Agreement are within the scope of this
compliance proceeding.
7.291. We therefore dismiss the United States' request for a ruling that the FAA
aeronautics R&D measure is outside the scope of this compliance pro ceeding and
conclude that the Boeing CLEEN Agreement is within the scope of this proceeding.
7.5 South Carolina measures
7.292. In its panel request, the European Union claims that the State of South Carolina and its
political subdivisions maintain various specific subsidies for Boeing, related to the production of
LCA and LCA components at facilities in North Charleston, South Carolina, through two packages of
investment incentives, namely : (a) "Project Gemini " measures; and (b) "Project Emerald "
measures.521
7.293. The United States objects to the inclusion of the South Carolina measures within the scope
of this proceeding. It first raised this objection regarding the Project Gemini and Project Emerald
measures in its request for preliminary rulings made prior to the Europea n Union 's first written
submission, and has maintained that request in subsequent submissions. 522 It responded to the
European Union's inclusion of claims concerning the Phase II measures in the European Union 's
second written submission, requesting the Pane l to reject the European Union 's claims concerning
the Phase II measures on the basis that the European Union has failed to demonstrate that such
claims are "properly within this compliance Panel's terms of reference".523
7.294. The Project Gemini measures are the package of financial incentives offered by the State
of South Carolina in 2009, allegedly in order to induce Boeing to locate its second 787 final
assembly and delivery facility adjacent to the Vought -Global Aeronautica 787 fuselage fabrication
and integration complex at Charleston International Airport. The European Union 's panel request
describes the following eight measures that it challenges as part of the Project Gemini package524:

520 We note that our analysis of the links between the measures in terms of their effects is based on an
examination of how the FAA aeronautics R&D measure operates and its potential effects in terms of advancing
commercial application of technologies to LCA rather than its potential to cause adverse effects, within the
meaning of Articles 5(c) and 6.3 of the SCM Agreement. To focus on the latter at this preliminary stage would
be to confuse a preliminary scope issue with the substantive question of whether the measures are inconsistent
with Articles 5(c) and 6.3 of the SCM Agreement.
521 European Union's request for the establishment of a panel, para. 23.
522 United States' request for preliminary rulings, dated 13 November 2012, paras. 23-35; reply to the
European Union's response to the United States' request for preliminary rulings, dated 3 December 2012,
paras. 65-71; first written submission, paras. 69-71; and second written submission, paras. 85-92.
523 United States' second written submission, paras. 619 and 620.
524 European Union's request for the establishment of a panel, para. 24.

a. Provision of a long-term lease of government-owned land at preferential rates, pursuant
to a Ground Lease Agreement between the Charleston County Aviation Authority and
South Carolina Public Railways, as amended, and a Ground Sublease between S outh
Carolina Public Railways and Boeing, as amended.
b. Provision of facilities and infrastructure at the Charleston International Airport site, as
provided for in the Project Gemini Agreement between Boeing and the State of South
Carolina, dated 1 January 2010, funded through state general obligation bonds issued
pursuant to Title 11, chapter 41 of the South Carolina Code, as amended by section 5 of
H3130, Act No. 124, 2009 S.C. Acts 1092 (H3130), and South Carolina Code
§ 55-11-520, at no cost to Boeing.
c. Property tax reductions under a fee -in-lieu-of taxes agreement between Charleston
County and Boeing dated 1 December 2009, as authorized by Title 12, chapter 44 of the
South Carolina Code, including the provision of special source credits as provided for in
such agreement, and authorized by South Carolina Code § 4-1-175.525
d. Property tax ex emption for Boeing 's Large Cargo Freighters (LCFs) pursuant to South
Carolina Code §12-37-220(B)(33), as amended by section 1 of H3482, Act No. 45, 2009
S.C. Acts 763.
e. Reductions of state corporate income taxes through an income allocation and
apportionment agreement, entered into pursuant to South Carolina Code
§ 12-6-2320(b), as amended by section 1 of H3130.
f. Provision of corporate income tax credits, as provided for in South Carolina Code
§ 12-6-3360(E)(1), by virtue of designating the Boeing site in No rth Charleston as part
of a business/industrial park jointly established and developed by Charleston County and
Colleton County, South Carolina.
g. Exemption from state sales and use taxes for aircraft fuel, computer equipment, and
construction materials, est ablished by sections 2, 3, and 4 of H3130, respectively, and
codified at South Carolina Code § 12-36-2120(9)(e) and (f), (65)(b), and (67).
h. Establishment of workforce recruitment, training , and development program mes for
Boeing.
7.295. The Project Emerald measures comprise the package of financial incentives offered by
the State of South Carolina to Vought in 2006 in connection with the 787 fuselage fabrication and
integration complex at a site at Charleston International Airport. The European Union 's panel
request identifies the following four measures as part of the Project Emerald package526:
a. Provision of a long -term lease of government -owned land at below -market rates,
pursuant to a Ground Lease Agreement between Charleston County Aviation Authority
and South Carolina Public Railways, as amended, and a ground sublease between S outh
Carolina Public Railways and Boeing, as amended.
b. Provision of facilities and infrastructure at the Charleston International Airport site, as
provided for in the Project Emerald Conf idential Site Development Agreement, funded
through state general obligation bonds issued pursuant to Title 11, chapter 41 of the
South Carolina Code, at no cost to Boeing.
c. Property tax reductions under a fee-in-lieu-of taxes Agreement between Charleston
County and Vought Aircraft Industries, Global Ae ronautica, and Boeing, dated
19 December 2006, and assigned to Boeing on or about 10 February 2010, as authorized

525 The European Union has subsequently advised that the above-referenced FILOT Agreement was a
draft, which had been provided by Charleston County. The final FILOT Agreement is dated 1 December 2010. It
is this final agreement to which the European Union refers in its arguments. (European Union's first written
submission, para. 550 and fn 1309). We refer to this instrument as the Boeing FILOT Agreement, see
para. 8.857 below.
526 European Union's request for the establishment of panel, para. 25.

by Title 12, chapter 44 of the South Carolina Code , and provided for in the Project
Emerald Co nfidential Site Development Agreement, including the provision of
infrastructure credits as provided for in such agreement, and authorized by South
Carolina Code § 12-44-70.
d. Provision of corporate income tax credits, as provided for in South Carolina Code
§ 12-6-3360(E)(1), by virtue of designating the Project Emerald site at Charleston
International Airport as part of a business/industrial park jointly established and
developed by Charleston County and Colleton County, South Carolina.527
7.296. In its second writt en submission, the European Union additionally challenges so -called
Phase II measures which it alleges are further incentives intended to support Boeing 's ongoing
and planned expansions of its LCA manufacturing operations in South Carolina. 528 These Phase II
measures are identified in the European Union's second written submission as529:
a. Sale of at least 320 acres of government property adjacent to Boeing 's Project Site at
less than market value.
b. Funding the acquisition and preparation of land for Boeing with t he proceeds of
USD 120 million in state general obligation economic development bonds.
c. Amendment of the Boeing FILOT Agreement to provide for the reduction or elimination
of Boeing's property taxes related to its Phase II expansion.530
7.297. We first consider the United States ' objections to the inclusion of claims regarding the
Project Gemini and Project Emerald measures within the scope of this proceeding, before
considering whether the Phase II measures are properly before this Panel.
7.5.1 Whether the Project Gemini and Project Emerald measures are outside the scope
of this proceeding.
7.5.1.1 Main arguments of the parties and third parties
7.298. The United States argues that the Project Gemini and Project Emerald measures are
outside the scope of this compliance proceeding becaus e those measures were not challenged in
the original proceeding, and are not the subject of the DSB recommendations and rulings. They
are not declared measures taken to comply, nor can they be considered "undeclared" measures
taken to comply, because the E uropean Union has not demonstrated that they meet the
requirements of the close nexus test.531
7.299. The United States argues that the application of the close nexus test for determining
whether a measure can be considered an "undeclared" measure taken to comply, and thus within
the scope of a compliance proceeding, requires careful consideration of the measures in terms of

527 The Project Emerald and Project Gemini measures are described in greater detail in Section 8.2.8 of
this Report.
528 European Union's second written submission, para. 742. Boeing has announced the following plans
for expansion of its South Carolina operations: (a) establishing a "Dreamlifter Operations Center" at its
Charleston International Airport facility; (b) location of the design and manufacturing of the composite inlets
and nacelle linings for the 737 MAX; and (c) creating a new IT center in North Charleston as part of its plans to
consolidated its IT operations. The European Union says that industry analysts expect this planned expansion
will pave the way for South Carolina to compete with Washington and other states for the 777X final assembly
line, as well as for production of the 777X composite wings. (European Union's second written submission,
para. 745).
529 European Union's second written submission, para. 742. The European Union indicated at the
meeting with the Panel in October 2013 that it had obtained directly from the local government a copy of the
precise agreement evidencing the existence of the Phase II measures. (European Union's opening statement at
the meeting of the Panel, para. 43 (referring to First Amendment to Fee Agreement by and between Charleston
county, South Carolina and the Boeing Company (1 May 2013), (Exhibit EU-1264))).
530 The Boeing FILOT Agreement is the instrument referred to in para. 7.294(c) above.
531 United States' request for preliminary rulings, dated 13 November 2012, paras. 23-35; first written
submission, para. 71; and second written submission, para. 620 (with a respect to the Phase II measures).

their nature, effects , and timing, with the measures subject to the DSB recommendations and
rulings.
7.300. According to the United States, t he nature of the eight Project Gemini measures does not
resemble the nature of the measures covered by the DSB recommendations and rulings. 532 While
the Washington State B&O tax rate reduction (the only Washington State tax measure that was
subject to the DSB recommendations and rulings) was part of the "Project Olympus " incentive
package offered by the State of Washington, the United States argues that Project Olympus was
not itself found to be WTO -inconsistent. The United States considers that i t is insufficient
therefore, for the European Union to allege a close nexus between the Project Gemini and Project
Emerald measures, and the Washington State B&O tax rate reduction, simply on the basis that the
measures in question were part of incentive packages. 533 The United States argues that, to the
extent that the European Union invokes the "Washington subsidies" in its close nexus analysis, the
European Union must show a close nexus to the Washington State B&O tax rate reduction in
particular, not some broader package of subsidies for which there were no DSB recommendations
and rulings.534
7.301. The United States points to the following specific differences between certain individual
components of the Project Gemini incentive package and the Washington State B&O tax rate
reduction in terms of their structure, design, and operation:
a. an alleged exemption from property tax administered by South Carolina on property in
that state shares almost no features with a reduction in a B&O tax;
b. the Income Allocation and Apportionment Agreement concerns the sourcing and
apportionment of corporate income taxes, while the B&O tax in the State of Washington
is not a corporate income tax; and
c. the value of the corporate income tax credits for job creation (job tax credits) available
by virtue of designating the Boeing site in North Charleston as part of a multi -county
industrial park (MCIP) increases with the number of jobs created, while the B&O tax rate
reduction does not have this feature.535
7.302. In addition to the above differences in the nature of the Project Gemini measures that are
tax measures, as compared with the Washington State B&O tax rate reduction, the United States
argues that the European Union does not even attempt to argue a close nexus in terms of nature
regarding the Project Gemini (or Project Emerald) measures that are non -tax related. 536 The
United States points to the fact that five of the 12 Project Gemini and Project Emerald measures
have nothing to do with taxes: two measures concern a long -term land lease, two measures
concern p rovisions of facilities and infrastructure, and one concerns the establishment of
workforce, recruitment, training, and development programmes.
7.303. The United States disputes also the European Union 's argument that the Project Gemini
Income Allocation and Apportionment Agreement has a close nexus with the FSC/ETI subsidies the
subject of the DSB recommendations and rulings. For the Panel to accept the European Union 's
argument that the Income Allocation and Apportionment Agreement "substantially replicates the
prohibited FSC/ETI subsidy on a state level ", it would have to resolve the European Union 's claims
on the merits as to how the Income Allocation and Apportionment Agreement operates. The
determination of whether a measure is within the scope of the procee ding cannot depend on the

532 United States' first written submission, para. 577.
533 United States' opening statement at the meeting of the Panel, para. 73.
534 United States' reply to the European Union's response to the United States' request for preliminary
rulings, dated 3 December 2012, para. 50.
535 United States' first written submission, para. 577.
536 United States' reply to the European Union's response to the United States' request for preliminary
rulings, dated 3 December 2012, para. 51. The United States also argues that a sufficiently close connection
between the South Carolina measures and the Washington State B&O tax rate reduction cannot be established
simply by describing the South Carolina measures as involving "tax incentives". The generic label of "tax
breaks" merely distinguishes one particular method of transmitting funds from others, such as a provision of
grants or loans, rather than the conditions under which the alleged subsidy is paid out and the incentives it
generates for the recipient. (United States' reply to the European Union's response to the United States'
request for preliminary rulings, dated 3 December 2012, para. 52).

outcome of the substantive analysis of that measure, rather it should be a consequence of the
design and nature of the measures at issue. The European Union has not provided any analysis in
this regard.537
7.304. Furthermore, the granting authority for the Project Gemini (and Project Emerald)
measures is different from, and independent of, any of the granting authorities responsible for the
measures at issue in the original proceeding. Indeed, the United States asserts that every past
application of the close nexus test has involved measures with overlapping geographical scope,
which is another aspect of the nature and effects of a measure. By contrast, neither the Project
Gemini nor Project Emerald measures geographically overlap in any wa y with the Washington
State measures.538
7.305. As to the alleged similarities in effects of the Project Gemini measures and the Washington
State tax measures, the United States considers purely speculativ e and hypothetical the
European Union's arguments that if South Carolina had not incentivized Boeing to locate its second
787 production line there, production of the 787 would have been located in Washington and
would have resulted in increased Washington State subsidies.539 Many factors influenced Boeing 's
decision to establish a second 787 assembly line in South Carolina, including the fact that it
enabled Boeing to capture logistical efficiencies as a result of its proximity to the Global
Aeronautica fuselage fabrication and integration site and added geographica l diversity to Boeing 's
operations, as well as political support from a key state. 540 According to the United States, the
European Union's legal position boils down to arguing that any subsidy to Boeing, regardless of its
form or nature, would be a "measure taken to comply" for purposes of this proceeding.541
7.306. As regards timing, the United States argues that there similarly is no nexus between the
Project Gemini measures and the measures the subject of the DSB recommendations and rulings .
According to the United States, Project Gemini began after the original proceedings were initiated,
but before the DSB recommendations and rulings were adopted. The Project Gemini measures
cannot therefore be considered a "measure taken to comply".542
7.307. With respect to Project Emer ald, the United States rejects the European Union 's argument
that the Project Emerald measures are "closely connected" in terms of nature to the tax subsidies
associated with the tax abatements related to the City of Wichita IRBs, as both are subsidies for
Boeing's LCA-component manufacturing facilities and consist primarily of property tax concessions
related to such facilities. 543 First, the largest component of Project Emerald (as alleged by the
European Union) is the provision of facilities and infrastruc ture, which is clearly not a "tax break"
related to LCA component manufacturing facilities. 544 In addition, the European Union fails to
explain how the Project Emerald FILOT agreement, the Project Site Lease, the provision of facilities
and infrastructure or the provision of income tax credits for job creation bear a close nexus in
terms of nature to property and sales tax abatement s provided through the issuance of IRBs.
These are different types of policy tools used by different granting authorities at diff erent times in
non-overlapping geographical areas.545
7.308. Moreover, there is no nexus in terms of timing between the Project Emerald measures and
the DSB recommendations and rulings in the original proceeding, as the Project Emerald measures

537 United States' opening statement at the meeting of the Panel, para. 80 (quoting European Union's
first written submission, para. 735).
538 United States' opening statement at the meeting of the Panel, para. 74.
539 United States' reply to the European Union's response to the United States' request for preliminary
540 United States' second written submission, para. 91 (referring to Boeing Board of Directors, "Gemini
Update", Presentation, 19 October 2009, (Exhibit USA-323), p. 6). The United States also asserts that
confidential information confirms that the Project Gemini incentives did not drive the Boeing Board's decision to
locate its second 787 assembly line in South Carolina. (United States' opening statement at the meeting of the
Panel, para. 76).
541 United States' first written submission, para. 580; second written submission, para. 89; and opening
statement at the meeting of the Panel, para. 76.
542 United States' first written submission, para. 579.
543 See European Union's first written submission, para. 735.
544 United States' first written submission, para. 543.
545 United States' first written submission, para. 544.

date from 2004, when South Carolina designed the Project Emerald incentive package for Vought
and Alenia, well before the European Communities' panel request in the original proceeding.546
7.309. More generally, the United States argues that to find that the Project Gemini and Projec t
Emerald measures satisfy the close nexus test in this proceeding would run counter to the
application of the close nexus test in prior jurisprudence in the following respects:
a. Prior cases have required similarities between the design and architecture of the
measure at issue and the measure in the original dispute. The European Union has not
attempted to show such similarity on a measure -by-measure basis. Rather, the
European Union 's arguments rely on assertions that the South Carolina measures are
part of incentive packages (Project Gemini and Project Emerald), and that the
Washington State B&O tax rate reduction was part of the Project Olympus package, as
evidence of a close nexus. However, "Project Olympus " was not found to be a
WTO-inconsistent measure in the original proceeding and in any case, "coming in
packages" is not enough of a resemblance to warrant a finding of close nexus.547
b. Second, prior applications of the close nexus test have involved measures with
overlapping geographical scope (another aspect of the nature and effects of a measure).
Here, the measures have completely non-overlapping geographical scope.548
c. Third, prior applications of the close nexus test have required commonality in terms of
effects. Here, the European Union 's effects argumen t is based on alleged competition
between the states and a supposition that, if South Carolina had not provided the Project
Gemini package to Boeing in 2009, Boeing would have located the second 787 assembly
line in Washington State, leading to a higher va lue of Washington State subsidies. The
South Carolina measures did not drive the location decision.549
7.310. The European Union argues that its claims concerning the Project Gemini and Project
Emerald measures are within the scope of this proceeding on the basis o f the "close connection"
between these measures and the Washington, Kansas , and FSC/ETI subsidies at issue before the
original panel.550
7.311. The European Union argues that the Project Gemini and Project Emerald measures are
essentially two integrated packages o f incentives for Boeing's 787 production-related facilities and
as such, should be considered together for the purposes of the scope analysis. 551 In this regard,
the European Union explains:
a. the Project Site Lease is a component of both the Project Gemini an d Project Emerald
incentive packages;
b. the bond-funded facilities and infrastructure for both Project Gemini and Project Emerald
support both facilities;
c. the sales and use tax exemptions benefit operations at both facilities;
d. the Charleston-Colleton MCIP includes both facilities; and

546 The United States notes that the European Commission was notified of the acquisition of the
interests of Vought and Alenia in 2009 through a merger notification and approved the transaction. (See
United States' first written submission, para. 537 (referring to Commission of the European Communities,
Merger Procedure, Case No. COMP/M.5151-Boeing/Alenia NA/JV (3 June 2008), (Exhibit USA-203))).
547 United States' opening statement at the meeting of the Panel, para. 73.
548 United States' opening statement at the meeting of the Panel, paras. 74 and 75.
549 United States' second written submission, paras. 91 and 92. The United States argues that, in any
case, the European Union's argument does not justify the inclusion of the Project Emerald measures or the
Phase II measures within the scope of this proceeding. (United States' opening statement at the meeting of the
Panel, para. 76).
550 European Union's first written submission, para. 734; response to the United States' request for
preliminary rulings, dated 23 November 2012, paras. 69-73; and supplemental submission on the
United States' request for preliminary rulings, para. 27.
551 European Union's second written submission, para. 151.

e. the Boeing F ILOT Agreement552 and Emerald F ILOT Agreement553 cover property at the
same site, permitting Boeing to shift property between the two fee -in-lieu-of taxes
arrangements.554
7.312. The European Union considers that the Project Gemi ni measures, like Washington State 's
"Project Olympus" measures in the original proceeding, represent the outcome of a competition
between states as to the location of Boeing 's 787 final assembly line. These measures are
"effectively substitutes" for the Washington State subsidies in the sense that, if not for the South
Carolina measures, Boeing's second final assembly line for the 787 would have been located in
Washington State and Boeing would currently be receiving greater subsidies in the State of
Washington. For example, the Washington State B&O tax rate reduction reduces taxes that apply
to every aircraft produced in Washington State. Each 787 produced in South Carolina rather than
Washington State thus reduces the amount of the B&O tax rate subsidy th at Boeing would
otherwise receive.555 Moreover, as the Project Emerald measures were integral to attracting the
second 787 final assembly line to South Carolina, these too are effectively substitutes for
Washington State subsidies. 556 The European Union theref ore argues that the Project Gemini and
Project Emerald measures undermine the United States ' compliance with the DSB
recommendations and rulings.557
7.313. As to the similarities in nature between the Project Gemini and Project Emerald measures
and the DSB recommendations and rulings, the European Union argues:
a. The Project Gemini and Project Emerald measures are similar in nature to the
"Washington State subsidies ", described by the original panel and Appellate Body as a
"package of tax incentives " relating to "retaining and attracting the aerospace industry
to Washington State " and "designed to lure Boeing to establish its new production
facilities for the 787 in the State of Washington".558
b. The Project Gemini and Project Emerald measures, and the "Washington State subsidies"
are packages that include : (i) tax breaks ; (ii) provided to Boeing ; (iii) for the 787 ; (iv)
related to the location of production facilities.559
c. The reduction of income taxes through the Project Gemini Income Allocation and
Apportionment Agreement is similar in nature to the tax exemptions under FSC/ETI
subsidies as both are methods of excluding export sales from Boeing 's taxable income,
with the South Carolina measure reducing Boeing 's state income taxes in proportion to
Boeing's S outh Carolina foreign sales, just as the FSC/ETI subsidies reduced Boeing 's
federal income taxes based on export sales.560
d. The Project Emerald measures are closely connected to the Wichita Kansas IRBs that
were found to be subsidies that caused adverse effects in the original proceeding as both
are subsidies for Boeing 's LCA-component manufacturing facilities and consist primarily
of property tax breaks related to such facilities.561
7.314. On the similarities in effects between the Project Gemini and Project Emerald measures
and the DSB recommendations and rulings, the European Union argues that the Project Gemini
and Project Emerald measures, as "substitutes and supplements" for subsidies subject to the DSB

552 The Boeing FILOT Agreement is the instrument referred to in para. 7.294(c) above.
553 The Project Emerald FILOT Agreement is the instrument referred to in para. 7.295(c) above.
554 European Union's second written submission, para. 152.
555 European Union's supplemental submission on the United States' request for preliminary rulings,
paras. 30-32; first written submission, para. 735 and fn 1607; and second written submission, para. 148.
556 European Union's second written submission, para. 152.
557 European Union's first written submission, para. 735.
558 European Union's response to the United States' request for preliminary rulings, dated
23 November 2012, para. 70 (quoting Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.41 and
7.45).
559 European Union's response to the United States' request for preliminary rulings, dated
23 November 2012, para. 71.
560 European Union's response to the United States' request for preliminary rulings, dated
23 November 2012, para. 73.
561 European Union's first written submission, para. 735.

recommendations and rulings, effectively negate or undermine purported U.S. compliance.562 If
the United States were allowed to shift subsidies for Boeing from one state to the next and evade
review by a compliance panel, the disciplines of the SCM Agreement would be rendered almost
meaningless as applied to WTO Members with an internal federal structure.563
7.315. As to the timing element of the close nexus test, the European Union notes that the Project
Gemini and Project Emerald measures were not provided to Boeing until after the establishment of
the original panel on 17 February 2006, an d all of the European Union 's claims relate to subsidies
for Boeing that began at the earliest in the latter half of 2009.564
7.316. Certain of the third parties (Brazil, Canada, and Japan) make general arguments as to the
proper application of the close nexus test to determine when so called "new measures" may be
considered within the scope of a compliance proceeding as "undeclared" measures taken to
comply. These arguments are summarized in Section 7.2.2.1 of this Report.
7.5.1.2 Evaluation by the Panel
7.317. The question before us is whether the Project Gemini and Project Emerald measures are
within the scope of this compliance proceeding, despite the fact that these measures were not
challenged in the original proceeding (and therefore were not subject to the DSB recommendations
and rulings) and are not declared measures taken to comply by the United States. The parties
generally agree that, in order to be within the scope of this proceeding, the Project Gemini and
Project Emerald measures must be d emonstrated to be "undeclared" measures taken to comply,
on the basis of their "particularly close relationship" to measures that were the subject of the DSB
recommendations and rulings, or to the United States' declared compliance actions.
7.318. We explain in p aragraphs 7.66 through 7.75 of Section 7.2.2.2 of this Report our
understanding of the close nexus test applied by panels and the Appellate Body in order to
determine wh ether "undeclared" measures with a particularly close relationship to declared
measures taken to comply, and to DSB recommendations and rulings, are susceptible to review by
a compliance panel. The parties disagree in several respects as to how the Panel should determine
whether such a particularly close relationship exists i n the particular context of the South Carolina
measures. One difference concerns the origina l measures against which the South Carolina
measures are to be compared in conducting the clo se nexus analysis. More specifically, the parties
dispute whether the "baseline" measures are necessarily always confined to the measures subject
to the DSB recommendations and rulings and measures that have been declared by the
responding party as being m easures taken to comply, or can also cover other original measures
that were unsuccessfully challenged in the original proceeding.
7.319. The European Union in many places throughout its submissions argues that the Project
Gemini and Project Emerald measures hav e a close nexus to the "Washington State subsid ies at
issue before the original panel ", when the only subsidy provided by the State of Washington that
was found to have caused adverse effects by the conclusion of the appeal process was the
Washington State B&O tax rate reduction. The United States thus considers that the "baseline"
measures for purposes of the close nexus inquiry are those that were subject to the DSB
recommendations and rulings in the original proceeding, or the measures that the respondin g
party declares are the measures it has taken to comply; which in this case is the Washington State
B&O tax rate reduction (rather than all of the Washington State measures that were challenged in
the original proceeding as part of the Project Olympus package), along with the FSC/ETI subsidies
and the tax abatements in connection with the City of Wichita IRBs.
7.320. The basic function of a panel in a compliance proceeding is to determine whether a
responding party has complied with the DSB recommendations and r ulings in the original
proceeding. The close nexus test developed as a means for panels to assess which measures,

562 European Union's response to the United States' request for preliminary rulings, dated
23 November 2012, para. 77.
563 European Union's response to the United States' request for preliminary rulings, dated
23 November 2012, para. 78; supplemental submission on the United States' request for preliminary rulings,
para. 32.
564 European Union's response to the United States' request for preliminary rulings, dated
23 November 2012, para. 80.

beyond those the subject of the DSB recommendations and rulings, and any measures explicitly
adopted by the responding party in purported comp liance with those recommendations and
rulings, a compliance panel should consider in making its determination under Article 21.5 of the
DSU. As we have explained in the context of our ruling that the JCATI measure is outside the
scope of this proceeding, t he fundamental issue for a panel in applying the close nexus test is
whether it is possible to meaningfully assess whether a responding party has complied with the
DSB recommendations and rulings without also considering the "undeclared" measures as part o f
that determination.565
7.321. In contrast to previous cases involving the application of the close nexus test, there
remained, at the conclusion of the original proceedings in this case, a number of measures in
respect of which there were no findings of WTO -inconsistency or WTO-consistency, including with
respect to the Washington State measures that were part of the Project Olympus package (other
than the Washington State B&O tax rate reduction). In Section 7.2 of this Report, we rule that
those three other Washington State tax measures enacted under HB 2294, as original Washington
tax measures566, are within the scope of this proceeding .567 Given that there were no definitive
findings of the WTO-consistency of these measures at the concl usion of the original proceeding,
and bearing in mind that the Washington tax measures are within the scope of this compliance
proceeding, we have concluded that it is appropriate to undertake the close nexus analysis on the
basis of a consideration of the links between the Project Gemini and Project Emerald measures and
the Washington State tax measures enacted under HB 2294, that were challenged in the original
proceeding, including those for which there was no definitive resolution of their WTO -consistency
at the conclusion of that process. In other words, we will consider whether the Project Gemini and
Project Emerald measures bear a sufficiently close nexus, in terms of their nature, effects , and
timing, not just to the Washington State B&O tax rate red uction, which was subject to the DSB
recommendations and rulings, but also to the three other Washington State tax measures enacted
under HB 2294 that were at issue in the original proceeding and that we have elsewhere found to
be within the scope of this compliance proceeding.
7.322. The other difference of view concerns the types of commonalities or links that demonstrate
a close nexus in terms of nature. The parties disagree as to the significance of the legal form of
the various measures and the relevance of their connection to other measures (e.g. as part of an
incentive package). It is difficult to say in the abstract which aspects of a measure may be
relevant to demonstrating a sufficiently close link in terms of "nature" to the measures subject to
the DSB recommendations and rulings, or to other original measures, for purposes of conducting a
close nexus analysis. The relevance or otherwise of certain aspects of the measures depend s very
much on the circumstances of the case. For example, in a dispute invol ving a quarantine measure
found to be WTO-inconsistent, the fact that an "undeclared" measure is also a quarantine measure
covering the same products (or subset of products), or otherwise operating in the same manner as
the quarantine measure the subject o f the DSB recommendations and rulings, will clearly be an
important and relevant element of a panel's assessment of the closeness of the links , in terms of
nature, between the "undeclared" measure and the original measure.
7.323. On the other hand, it is not obv ious that, in a dispute involving subsidies to a particular
recipient in respect of a number of that recipient 's products, the "type" of subsidy should be
determinative in demonstrating whether any "undeclared" measures are within the scope of the
compliance proceeding. When determining whether a compliance panel could meaningfully assess
whether the responding party has complied with the DSB recommendations and rulings under
Article 7.8 of the SCM Agreement , without also considering the "undeclared" measure as part of
that determination, the fact that the "undeclared" measure is a similar type of subsidy (e.g. a tax
concession) may not be especially informative. That said, we acknowledge that the close nexus
test in most cases would require more than that a n "undeclared" measure is alleged to subsidize
the same recipient. As we explain in our discussion of the jurisprudence concerning the
development and application of the close nexus test in Section 7.4.2 of this Report, the foc us of
the close nexus test (and accordingly the relevance of certain aspects of the measures)
fundamentally concerns the links that indicate the potential for the "undeclared" measures to
undermine, impair or nullify any purported compliance by the responding party.

565 See paras. 7.66 through 7.75 of Section 7.2.2.2 above.
566 See para. 7.11 above.
567 See Sections 7.2.1 and 7.3.2 above.

7.5.1.2.1 The relevant original measures
7.324. With the foregoing considerations in mind, we first recall the original Washington State tax
measures enacted under HB 2294 as part of Project Olympus, including the Washington State B&O
tax rate reduction, as wel l as the FSC/ETI subsidies and tax abatements related to the City of
Wichita IRBs which, along with the Washington State B&O tax rate reduction, are the measures
the subject of the DSB recommendations and rulings that the European Union argues are relevant
to the analysis of whether the Project Gemini and Project Emerald measures satisfy the
requirements of the close nexus test.
7.325. The Washington State tax measures enacted under HB 2294 , which we have
concluded are within the scope of this proceeding , were challenged by the European Communities
in the original proceeding. As the original panel explained, HB 2294 was entitled "An Act Related to
Retaining and Attracting the Aerospace Industry to Washington State ", and was expressed to
include "comprehensive tax i ncentives" directed at achieving this aim. 568 HB 2294 took effect in
December 2003 when Boeing entered into a "Memorandum of Agreement for Project Olympus "
with the State of Washington. 569 The Memorandum of Agreement confirmed that the Project
Olympus Master S ite Agreement between Boeing and the State of Washington constituted an
agreement to site a significant commercial air plane final assembly facility in Washington,
specifically in the City of Everett, for purposes of HB 2294. 570 In the original proceeding, th e
European Communities alleged that HB 2294, the Project Olympus Master Site Agreement and an
Ordinance enacted within the City of Everett constituted a "Boeing Incentive Package" designed to
lure Boeing to establish its 787 production facilities in the State of Washington.571
7.326. The Washington State tax measures enacted under HB 2294 that were challenged by the
European Communities in the original proceeding consist of : (a) the B&O tax rate reduction for
manufacturers of commercial airplanes or components of such airplanes572; (b) B&O tax credits for
preproduction development and for computer software and hardware; (c) B&O tax credits for
property taxes; and (d) sales and use tax exemptions for computer software, hardware, and
peripherals to manufacturers of commercial airplanes.573
7.327. The B&O tax rate reduction was a "tied" subsidy, in that it applied to the production and
sale of each LCA manufactured in Washington State on a per -unit basis , increasing Boeing's
after-tax revenue and profitability.574 The B&O tax rate r eduction applied in respect of Boeing
aircraft produced in Washington State, and not just the 787.575

568 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.41.
569 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.43. Section 17(1)(a) of HB 2294
provided that the legislation takes "effect on the first day of the month in which the governor and a
manufacturer of commercial airplanes sign a memorandum of agreement regarding an affirmative final decision
to site a significant commercial airplane final assembly facility in Washington state." Section 17(1)(b) also
provided that HB 2294 is "contingent upon the siting of a significant commercial airplane final assembly facility
in the state of Washington". A "significant commercial airplane final assembly facility" was defined as a
"location with the capacity to produce at least thirty-six superefficient airplanes a year", while a "superefficient
airplane" was defined as "a twin aisle airplane that carries between two hundred and three hundred fifty
passengers, with a range of more than seven thousand two hundred nautical miles, a cruising speed of
approximately mach .85, and that uses fifteen to twenty % less fuel than other similar airplanes on the
market". (See Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.44).
570 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.45.
571 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.45.
572 The business and occupancy (B&O) tax is Washington State's primary business tax. It is a tax on the
gross receipts (i.e. gross proceeds of sales, gross income, or value of products, as applicable) of all businesses
operating in Washington State. Taxpayers are taxed based on the activities in which they engage in the State
of Washington, such as manufacturing, wholesaling, retailing, or the provision of services. (See Appellate Body
Report, US – Large Civil Aircraft (2nd complaint), para. 458).
573 HB 2294 also consisted of sales and use tax exemptions for construction services and equipment, a
leasehold excise tax exemption and a property tax exemption. The panel, however, found insufficient evidence
that Boeing had ever claimed these and thus insufficient evidence of the existence of a financial contribution.
(See Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.151). This finding was not appealed.
574 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 1170 and 1252.
575 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.43 and 7.1803 and fn 1057. In its
Compliance Communication on 23 September 2012, the United States advised that the State of Washington is
applying the rate of B&O tax for aerospace manufacturing and retailing consistent with Article 5(c) of the SCM
Agreement. The European Union argues that this subsidy has been maintained and has not been withdrawn

7.328. The other HB 2294 tax measures at issue in the original proceeding (i.e. the B&O tax
credits for preproduction development and computer software and hardwa re, the B&O tax credits
for property taxes and the sales and use tax exemptions for computer software, hardware, and
peripherals) were considered to be "untied" subsidies in that they were not directly tied to sales of
individual LCA. In the original proce eding, the European Communities identified these other HB
2294 tax measures as subsidies that benefited multiple aircraft families and not solely the 787. 576
The B&O tax credits for preproduction development and computer software and hardware applied
against Boeing's liability for B&O taxes which accrued in connection with the manufacture and sale
of all Boeing LCA produced in the State of Washington.577 The B&O tax credits for property taxes
related to new construction and in reality would have benefited only the 787 at the time of the
original proceeding.578 The sales and use tax exemptions were in principle available in respect of
all Boeing aircraft manufactured in Washington State, and not only in respect of the 787.579
7.329. The original panel found that the purpos e or intent behind the HB 2294 package was to
reduce Boeing's cost structure and thereby significantly improve its competitiveness.580
7.330. The FSC/ETI subsidies are tax exemptions and exclusions in relation to foreign source
income provided under the FSC and suc cessor legislation (namely, the FSC Repeal and
Extraterritorial Income Exclusion Act of 2000, the American Jobs Creation Act of 2004, and the Tax
Increase Prevention and Reconciliation Act of 2005). For present purposes, the key aspects of the
FSC/ETI subsidies are that they involved a tax exemption on a portion of "foreign trade income "
for corporations organized as "foreign sales corporations " (FSCs) pursuant to the particular
requirements of the U.S. Internal Revenue Code. The FSC measure s also permitted U.S. parent
companies of FSCs to defer paying taxes on certain "foreign trade income " and to avoid paying
taxes on dividends received from their FSCs related to "foreign trade income". FSC/ETI exemptions
and exclusions were realized on the delivery of eve ry LCA that Boeing exported, as well as on LCA
that Boeing produce d and sold to domestic carriers and leasing companies for use predominantly
on foreign routes.
7.331. The FSC/ETI subsidies were considered in the original proceeding to be "tied" subsidies, in
that they relate d directly to revenue realized from export LCA sales and operate d to reduce the
revenues that were subject to taxation, thereby lowering Boeing 's taxes and increasing its
after-tax profits.581 There was no evidence that the FSC/ETI subsidies ap plied to sales of the 787,
and the Panel and Appellate Body analysis focused on the effects of these subsidies on the 737
and 777 only.
7.332. The tax abatements related to the City of W ichita IRBs were available in respect of
industrial revenue bonds (IRBs) purchased not by the public or bondholders, as is typically the
case, but by the companies for which they were issued. As Boeing (or Spirit) owned the IRBs, any
principal or interest payments on the bonds were ultimately transferred to themselves. Boeing and
Spirit did not use the IRBs to finance the development of property, but rather, to take advantage
of certain property and sales tax exemptions available to private entities for which IRBs are issued,
namely: (a) property tax abatements for up to ten years on Project Property; and (b) sales tax
exemptions on project property and services acquired with the proceeds of IRBs.582
7.333. The panel found the tax benefits to Boeing arising from the property and sales tax
abatements related to the IRBs issued by the City of Wichita to be a specific subsidy. The Appellate
Body considered that the subsidies provided through the property and sales tax exemptions
related to the IRBs issued by the City of Wichita were specifically aimed at, and were used for the
purpose of, enhancing, Boeing's manufacturing facilities in Wichita, Kansas. It therefore found that

and that the subsidy values are actually increasing each year. (See European Union's first written submission,
para. 447).
576 International Trade Resources LLC, Calculating on a Per-Aircraft Basis the Magnitude of the Subsidies
Provided to US Large Civil Aircraft, (20 February 2007), (Original Exhibit EC-13).
577 In the original proceeding, the evidence upon which the panel relied in calculating the amount of
these tax credits suggested that the tax credits were applied in relation to expenses incurred in the production
of the 787. (See Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1344, fn 2704).
578 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1341.
579 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1345, fn 2707.
580 See Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1803.
581 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 1170 and 1252.
582 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 472-474.

the effects of these subsidies complemented and supplemented the price effects of the FSC/ETI
subsidies and the Washington State B&O tax rate reduction, causing serious pre judice in the form
of significant lost sales in the 100-200 seat LCA product market.583
7.5.1.2.2 The Project Gemini measures and Project Emerald measures
7.334. We now describe in greater detail the links between the Project Gemini and Project
Emerald measures.
7.335. As previou sly explained, the Project Gemini measures date from 2009 and concern
various incentives allegedly provided to Boeing by the State of South Carolina and Charleston
County in order to induce Boeing to locate its second 787 final assembly and delivery facili ty in
North Charleston, South Carolina. They involve the alleged provision of land, infrastructure , and
facilities, as well as a number of tax incentives implemented at both the state and municipal level.
7.336. The Project Emerald measures were initially approv ed in 2004 and involve various
incentives which were provided originally to Vought and Global Aeronautica, in connection with the
location of their respective 787 fuselage fabrication and integration operations in South
Carolina.584 The Project Emerald measu res involve the alleged provision of land on which Vought
and Global Aeronautica constructed their facilities (the same tract of land on which Boeing
subsequently located its 787 final assembly and delivery facility as part of Project Gemini),
financial as sistance in connection with the preparation of the land and the construction of the
infrastructure and facilities, and tax incentives that are similar to some of those subsequently
provided by South Carolina in connection with Project Gemini.
7.337. There are a n umber of links between the Project Gemini and Project Emerald measures.
The first is that both are location incentives offered by South Carolina in connection with the
manufacture of the 787. The Project Gemini measures relate to the 787 's final assembly a nd
delivery facility, while the Project Emerald measures, originally provided to Vought and Global
Aeronautica, concern the manufacture of sections 47 and 48 of the 787 rear fuselage barrels (by
Vought) and the structural integration of the 787 fuselage (by Global Aeronautica).585
7.338. Moreover, the facilities for both Project Gemini and Project Emerald are located on the
same 240 acre tract of land adjacent to Charleston International Airport in North Charleston (the
Project Site). As we explain further in Section 8.2.8.5.1, the right to occupy and use the land in
relation to both Project Gemini and Project Emerald is granted under the same ground sublease
instrument. The Project Gemini facilities and infrastructure and Project Emerald facilities and
infrastructure are both part of the same Charleston-Colleton MCIP.

583 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 1348 and 1350(d)(iv)(C). The
panel had noted that Boeing had sold its Wichita facilities to Spirit Aerosystems (Spirit), on 16 June 2005.
However, for IRBs issued to Boeing prior to the sale of its Wichita facilities to Spirit, where the ten-year tax
exemptions period continued beyond 2005, Boeing continued directly to receive the tax benefits deriving from
the IRBs because Boeing maintained its leasehold interest in the Project Property and subleased the Project
Property to Spirit. The City of Wichita continued to issue IRBs to Boeing following the sale of the Wichita
facilities to Spirit in 2005. (See Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.649 and
7.662). In January 2012, Boeing announced that it would close all of its Wichita operations by the end of 2013.
(A.G. Sulzberger, "Boeing Departure Shakes Wichita's Identity as Airplane Capital", New York Times,
18 January 2012 (Exhibit USA-338)).
584 Confidential Initial Site Development and Incentive Agreement between Vought Aircraft Industries,
Inc. (on behalf of itself and the two entities that comprise Project Emerald), the South Carolina Department of
Commerce, South Carolina Public Railways, Charleston County, and the Charleston County Airport District (29
November 2004) (Initial Project Emerald Incentive Agreement), (Exhibit EU-560). The Vought and Global
Aeronautica facilities opened in 2006. (R. Bundrett, "Anatomy of an Incentives Deal", The Nerve,
25 January 2010, (Exhibit EU-547)). The 2004 Initial Emerald Incentive Agreement was replaced by a 2006
agreement: Project Emerald Confidential Site Development and Incentive Agreement, between Vought Aircraft
Industries, Inc. (on behalf of itself and the two entities that comprise Project Emerald), the South Carolina
Department of Commerce, South Carolina Public Railways, and Charleston County (2006) (Final Project
Emerald Incentive Agreement), (Exhibit EU-550).
585 M. Mecham, "A visit to Vought and Global Aeronautica", Aviation Week, Blog Things With Wings,
11 June 2008, (Exhibit EU-549). Boeing acquired Vought's 787 business in South Carolina in July 2009, as
explained in further detail in para. 8.706 of this Report.

7.339. There is also evidence indicating that the fact that Vought and Global Aeronautica had
established the Project Emerald facilities and infrastructure on the Project Site in 2006 contributed
to the formation of an "aviation infrastructure " in South Carolina, and thereby enhanced the
attractiveness to Boeing of locating its second 787 final assembly and delivery line (i.e. the Project
Gemini facilities and infr astructure) at that same Project Site in 2009, adjacent to the Project
Emerald facilities and infrastructure operated by Vought and Global Aeronautica. 586 The Project
Gemini measures were, it seems, provided against the particular historical background of th e
Project Emerald measures, as well as the initial competition in 2003 between Washington State,
South Carolina, and certain other U.S. states for the location of Boeing's first 787 assembly facility.
7.340. Given this relationship between the Project Gemini and Project Emerald measures, we
consider them together for purposes of evaluating the sufficiency of the links in terms of nature
and effects between those measures, on the one hand, and the relevant original measures that we
have discussed in Section 7.5.1.2.1 above.
7.5.1.2.3 Whether there is a sufficiently close nexus between the Project Gemini and
Project Emerald measures, and the relevant original measures
7.341. As we explain in paragraph 7.323, where a close nexus analysis involves measures that
are components of location incentive packages provided to the same recipient in respect of the
same product, we see no need for a complaining Member to additionally demonstrate that the
incentive packages comprise identical or similar measures.587 Indeed, one might reasonably expect
that states that compete for private investment would do so by offering somewhat different
incentive packages, playing to their perceived comparative advantages i n terms of availability and
location of land and infrastructure, the skill s of the workforce, and the taxation regimes in place in
the particular state. We therefore consider that, in such circumstances, the closeness of links in
terms of nature and effect s between the original measures and the measures at issue should be
undertaken on a more holistic basis. In other words, differences in the measure -by-measure
composition of the Project Olympus and Project Gemini (or Project Emerald) incentive packages do
not preclude the possibility that, considered as a whole, the incentive packages (and their
constituent measures) are sufficiently closely connected in terms of their nature and effects.588
7.342. In our view, the key commonality in terms of nature between the Was hington State tax
measures enacted under HB 2294 , and the Project Gemini and Project Emerald measures , is that
they are packages of incentives which, despite the differences in the individual measures
comprising each package, have been granted by a state o f the United States conditional upon the
location in that state of manufacturing facilities related to the same Boeing product , namely the
787.589 We reach this conclusion despite the fact that we do not agree with the European Union
that the Project Gemini measures are "replacement" measures for the Washington State tax
measures enacted under HB 2294. We do not consider there is sufficient evidence before us to

586 A. Shain, "S.C. travelled a long road to land Boeing", Charlotte Observer, 1 November 2009, (Exhibit
EU-9).
587 Moreover, a similarity in the design and architecture of the measure at issue and the original
measure is not indispensable to concluding that the measures are closely connected. For example, in Australia
– Leather II (Article 21.5 – US) the measure at issue that was found to be closely connected to the original
measure was a loan while the original measure was a grant.
588 To be clear, this does not mean that simply because the measures "come in packages" they are
closely connected in terms of nature. Rather, it is the similarity in the overall nature of the incentive packages
(e.g. their objectives to induce a recipient to locate its facilities in a particular place, the focus on one or more
intended recipients and products of the recipients) that in our view is more relevant to assessing whether the
constituent measures are sufficiently closely linked to warrant the inclusion of so-called new measures within
the scope of a compliance proceeding, than whether the measures themselves are of the same type as the
original measures.
589 This being so, it logically follows that we do not regard the fact that there is no geographical overlap
between the Washington State tax measures enacted under HB 2294 and the measures enacted by South
Carolina as part of Project Gemini and Project Emerald as being fatal to finding that the measures are
nonetheless closely connected in terms of nature or effects. In our view, the relevance to the close nexus
analysis of any overlapping geographical scope of the measures depends very much on the context. For
example, when the measures involve import bans, their respective geographical scope of application may be
highly relevant to an assessment of whether they are sufficiently closely connected. However, where the
measures under consideration are location incentive packages offered by different states in competition with
one another, it is much less relevant to whether they are sufficiently closely connected that they apply in
different geographical areas.

show that Boeing would necessarily have located its second 787 assembly facility in Washington
"but for " the Project Gemini incentives. We therefore do not accept the European Union 's
arguments that, but for the Project Gemini incentives : (a) Boeing would have decided to locate its
second 787 assembly facility in Washington State ; (b) the subsidies pro vided under HB 2294
would have been larger ; and (c) this therefore demonstrates a close nexus in terms of nature
between the Washington State tax measures and the Project Gemini measures.
7.343. We also find a sufficiently close connection in terms of effects of the Project Gemini and
Project Emerald measures, on the one hand, and the Washington State tax measures enacted
under HB 2294, on the other. The Project Gemini and Project Emerald measures, like the
Washington State tax measures enacted under HB 2294, in very general terms induce Boeing to
locate manufacturing operations in a particular place by offering tax and other concessions that
represent the functional equivalent of additional cash to Boeing.
7.344. In relation to timing, we note that the Project Gemini m easures took effect on or after
2009, which is subsequent to the European Communities' panel request in the original proceeding.
The United States argues that this timing indicates that there is no close nexus because the DSB
recommendations and rulings we re not adopted until 23 March 2012, meaning that the Project
Gemini measures cannot be considered to be "undeclared" measures taken to comply. However,
the Appellate Body has considered that the fact that measures are adopted after the original panel
request but prior to the DSB recommendations and rulings in the original proceeding do es not
necessarily sever the close links in terms of nature and effects, and has accordingly found a
measure to satisfy the requirements of the close nexus test notwithstandin g that it preceded the
adoption of DSB recommendations and rulings. 590 We do not see that there is anything about the
timing of the Project Gemini measures that weakens the close nexus in terms of nature and effects
that we consider exists between the Projec t Gemini measures and the Washington State tax
measures enacted under HB 2294.
7.345. We have had greater difficulty in determining whether the timing of the Project Emerald
measures severs the close connection we have found to exist between those measures and t he
Washington State tax measures enacted under HB 2294. The United States argues that elements
of Project Emerald commenced in 2004, and to the extent that the European Union challenges
those elements as they related to Boeing in 2004, the European Union could have challenged them
in the original dispute, but elected not to. 591 The United States disputes that South Carolina
provided any financial contributions to Boeing through the Project Emerald measures, which if
anything, were financial contributions prov ided to Vought, not Boeing. 592 The European Union, on
the other hand, asserts that all of its claims relate to subsidies to Boeing (as opposed to Vought
and Global Aeronautica) that began, at the earliest, in the latter half of 2009; i.e. following
Boeing's assumption of the 787 fuselage fabrication and integration operations from Vought in
2009.593
7.346. We recall that the Project Emerald measures comprise the package of financial incentives
related to the 787 fuselage fabrication and integration complex. The Proje ct Emerald measures
were originally provided to Vought and Global Aeronautica in connection with their 787 fuselage
fabrication and integration operations . As we explain in Section 8.2.8.5.1, owing to unforeseen
production difficulties with these suppliers, Boeing subsequently took a series of steps to acquire
ownership and control of the production and assembly of the 787 fuselage components (and thus
the Project Emerald facilities and infrastructure ) in 2008 an d 2009. As a result, the Project
Emerald facilities and infrastructure have been owned and operated by Boeing South Carolina
since late 2009.

590 Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), paras. 224-226.
591 United States' first written submission, para. 539.
592 The United States argues, moreover, that in order for financial contributions provided to Vought to
involve subsidies to Boeing (from 2009 onwards), the European Union would need to demonstrate that the
benefit conferred by those financial contributions to Vought had "passed through" to Boeing. According to the
United States, as the European Union has not attempted to demonstrate that such benefits passed through to
Boeing, it has failed to demonstrate the existence of any subsidies to Boeing arising out of the Project Emerald
measures.
593 European Union's response to the United States' request for preliminary rulings, dated
23 November 2012, para. 80.

7.347. Given the European Union 's assertion as to the nature of its claims regarding the Project
Emerald measures, i.e. as covering only the period after Boeing's assumption of Vought's interests
in the Project Emerald measures in 2009, and not the prior period, we do not regard the timing
element, of itself, to sufficiently weaken the close nexus in terms of nature and effects that we find
to exist between the Project Emerald measures and the Washington State tax measures enacted
under HB 2294. The United States ' arguments concerning a lack of close nexus in terms of timing
in reality go to the question of whether the Projec t Emerald measures involve subsidies to Boeing.
This issue is therefore better dealt with in the context of our consideration of whether the
European Union has demonstrated that any of the Project Emerald measures are specific subsidies
to Boeing, which we address in Section 8.2.8 of this Report.
7.348. In sum, we are satisfied that there are sufficiently close connections, in terms of their
nature and effects, between the Project Gemini and Project Emerald measures, on the one hand,
and the Washington State tax measures enacted under HB 2294, on the other, to conclude that
the Project Gemini and Project Emerald measures are within the scope of this proceeding. We do
not regard any aspects of the timing of the Project Gemini or Project Emerald measures as
sufficiently negating those close connections in terms of nature or effects, as to warrant a
conclusion that the measures in question are outside the scope of this proceeding.
7.349. It remains to note that we are not persuaded of the existen ce of sufficiently close links, in
terms of nature or effects, between the Project Gemini and Project Emerald measures , and the tax
abatements related to the City of Wichita IRBs, or between the Project Gemini and Project Emerald
measures and the FSC/ETI s ubsidies. The Project Gemini and Project Emerald measures concern
the production of the 787. It may be possible to point to superficial similarities between : (a) the
property tax abatements related to the City of Wichita IRBs and the property tax reduction s
provided through the Boeing and Project Emerald FILOT Agreements; and (b) FSC/ETI's exclusion
of certain sales from Boeing 's corporate income tax liability and the income sourcing rules for
apportioning Boeing's LCA sales under the Income Allocation and Apportionment Agreement that is
part of the Project Gemini incentive package. However, the Wichita IRBs were found by the
Appellate Body to be linked to the production of the 737 594 and not the 787. Similarly, the
European Communities in the original proceed ing did not allege that the FSC/ETI subsidies
benefited the 787. 595 We therefore consider there is an insufficient basis for finding a close
connection in terms of nature or effects between either of those measures and the Project Gemini
or Project Emerald measures, which relate to the manufacture of the 787. Put another way, we are
not persuaded that, in assessing whether the United States has complied with the DSB
recommendations and rulings in respect to the tax abatements related to the City of Wichita IRBs
or the FSC/ETI subsidies, it is relevant or necessary for the Panel to consider the Project Gemini
measures or Project Emerald measures.
7.350. We therefore dismiss the United States' request for a ruling that the Project
Gemini and Project Emerald measures are outside the scope of this proceeding and rule
that these measures are within the scope of this proceeding.
7.5.2 Whether the Phase II measures are outside the Panel's terms of reference
7.5.2.1 Main arguments of the parties
7.351. The United States argues that the Europea n Union has failed to articulate any valid basis
for concluding that the Phase II measures are within the Panel 's terms of reference . It further
argues that the European Union has failed to establish that the Phase II measures even exist, or to
advance sufficient evidence to establish a prima facie case for any of its Phase II-related claims.596
7.352. The United States considers that the European Union 's justification for the inclusion of the
Phase II measures within the scope of this proceeding is confined to a f ootnote in the
European Union's second written submission , to the effect that the Phase II measures a re a
"further expansion and supplement of the previous subsidy packages " to Vought and Boeing. 597

594 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1347.
595 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1802.
596 United States' second written submission, para. 613.
597 United States' second written submission, para. 619 (referring to European Union's second written
submission, para. 151 and fn 190).

For the United States, such a "simplistic explanation" presumes that any future action taken by
South Carolina with regard to Boeing automatically affects the United States ' obligations in this
dispute. However, a compliance panel 's terms of reference extend only to measures that are
measures taken to comply , within the meaning of Article 21.5 of the DSU . There are no declared
measures taken to comply related to Phase II and the European Union has not argued that there
are any "undeclared" measures taken to comply.598
7.353. The European Union argues that the Phase II meas ures are properly within the Panel 's
terms of reference because they constitute amendments or supplements to or extensions of , the
South Carolina measures addressed in the European Union 's panel request , and first written
submission.599 The European Union no tes that in its panel request, in addition to the measures
specifically identified therein, it stated that it considered that "any amendments, supplements,
extensions, replacement measures, renewal measures, related measures, or implementing
measures", in addition to those specifically listed in section I of the panel request, constitute
specific subsidies.600
7.354. The European Union argues that the Phase II measures are generally "extensions" of the
subsidies provided for Project Gemini and Project Emerald. Thus, the Phase II fee-in-lieu-of taxes
agreement is "literally an extension of the FILOT for Project Gemini ", provided by means of an
amendment to the Boeing F ILOT Agreement.601 Similarly, the Phase II economic development
bond issuance "replicates" the earlier bond issuances for Project Gemini and Project Emerald, with
the proceeds being used to fund the acquisition and preparation of real property for Boeing 's use
(including the purchase of land which South Carolina plans to provide to Boeing by means of a
long-term ground lease for nominal rent).602
7.355. The European Union asserts that the Phase II measures are part of South Carolina 's
incentive offer to Boeing arising from the "competition" between states to locate production of
Boeing's recently launched 777X. 603 According to the European Union, Boeing 's decision to locate
the 777X in South Carolina and to benefit from the Phase II measures, rather than to locate the
777X in Washington State, would decrease the value of future subsidies in Washington State, while
increasing those subsidies in South Carolina. In assessing the close nexus between the various
South Carolina measures and the Washington state and local subsidies, the Panel should consider
the fact that they are all provided in the context of a competition b etween various U.S. states, or
parts thereof, to secure the location of various Boeing facilities.604
7.5.2.2 Evaluation by the Panel
7.356. As we stated in paragraph 7.296 above, the European Union challenges , as "Phase II "
measures, an alleged sale of government land adjacent to Boeing 's existing Project Site, the
funding, acquisition and preparation of that land through the proceeds of USD 120 million in state
general obligation economic development bonds and the amendment of the Boeing F ILOT
Agreement to provide for the reduction or elimination of Boeing 's property taxes related to the
Phase II expansion.605
7.357. As explained in paragraphs 7.294-7.295 above, item I.G of the European Union 's panel
request identifies a number of measures as "Project Gemini -Related Subsidies " and "Project
Emerald-Related Subsidies". The European Union did not identify the "Phase II" measures in its
panel request, as these measures had not come into existence at the time of the European Union 's
panel request in October 2012. The European Union first sought to make claims in respect of the
"Phase II measures" in its second written submission, dated 25 July 2013, some n ine months after
its panel request, based on public reports appearing in the first quarter of 2013 that Boeing

598 United States' second written submission, para. 619.
599 European Union's second written submission, para. 743.
600 European Union's second written submission, para. 743 (referring to para. 27 of the
European Union's request for the establishment of a panel).
601 European Union's response to Panel question No. 8, para. 61. The Boeing FILOT Agreement is the
instrument referred to in para. 7.294(c) above.
602 European Union's response to Panel question No. 8, para. 61.
603 European Union's response to Panel question No. 8, para. 59.
604 European Union's response to Panel question No. 8, para. 59.
605 The Boeing FILOT Agreement is the instrument referred to in para. 7.294(c) above.

planned to make further investments in South Carolina and that the South Carolina legislature had
approved a Bill to issue USD 120 million in bonds for site development by Boeing.606
7.358. In our view, these circumstances raise a jurisdictional issue; namely, whether the Phase II
measures, not having been explicitly identified in the European Union 's panel request, and indeed
which did not exist at the time of that request , are nonetheless properly within the Panel's terms
of reference. As this issue goes to the root of our jurisdiction, we must deal with it, if necessary,
on our own motion, in order to satisfy ourselves that we have authority to proceed. 607 This issue
raises similar issues to those the Panel considered in a ruling w hich was issued on
18 September 2014 (the SSB 5952 ruling). 608 In that ruling, we addressed whether the
Washington State tax measures, as amended by SSB 5952, were within this Panel 's terms of
reference although SSB 5952 was not explicitly identified in the European Union 's panel request
and was neither enacted nor came into effect until over a year after the panel request.
7.359. Article 6.2 of the DSU provides, in relevant part:
The request for the establishment of a panel shall be made in writing. It shall indicate
whether consultations were held, identify the specific measures at issue and provide a
brief summary of the legal basis of the complaint sufficient to present the problem
clearly.
7.360. In evaluating whether the European Union 's panel request meets the requirements of
Article 6.2 of the DSU as regards the identification of the Phase II measures, we must also take
into account that this is a compliance proceeding brought pursuant to A rticle 21.5 of the DSU. The
Appellate Body has stated that, although Article 6.2 is generally applicable to panel requests under
Article 21.5: "the requirements of Article 6.2, as they apply to an original panel request, need to
be adapted to a panel reque st under Article 21.5."609 As the Appellate Body stated in US – FSC
(Article 21.5 – EC II), in Article 21.5 proceedings, the "specific measures at issue " are measures
"that have a bearing on compliance with the recommendations and rulings of the DSB ".610 This
indicates that the "requirements of Article 6.2 of the DSU, as they apply to an Article 21.5 panel
request, must be assessed in light of the recommendations and rulings of the DSB in the original …
proceedings that dealt with the same dispute."611
7.361. In our SSB 5952 ruling, we examined a number of cases in which panels and the Appellate
Body considered that measures not explicitly identified in a panel request, which came into
existence in whole or in part after the date of the panel request, were nevertheless within a panel's
terms of reference.612 We concluded on the basis of that examination that: (a) the requirements of
Article 6.2 of the DSU are such that the measures included in a panel 's terms of reference will
ordinarily be in existence at the time of the e stablishment of the panel ; and (b) there are
particular, limited circumstances in which measures coming into existence subsequent to the panel
request are within a panel 's terms of reference. These circumstances, in one way or another,
involve new measures that amend, modify, supplement, extend, replace, renew, relate to , or
implement the measures that were explicitly identified in the panel request without changing their
essence, in light of the claims made by the complaining party . The Appellate Body has thus

606 European Union's second written submission, paras. 744 and 745 (referring to M. Tomsic, "State
leaders praise Boeing Co. expansion, incentives bill", Charleston Regional Business Journal, 9 April 2013,
(Exhibit EU-1128); and J. McDermott, "Boeing S.C. confirms North Charleston expansion", The Post and
Courier, 9 April 2013, (Exhibit EU-1129)).
607 We note that the Appellate Body has previously referred to the widely accepted rule that an
international tribunal is entitled to consider the issue of its own jurisdiction on its own initiative, and to satisfy
itself that it has jurisdiction in any case that comes before it. (See Appellate Body Reports, US – 1916 Act,
para. 54 and fn 30; Mexico – Corn Syrup (Article 21.5 – US), para. 36; and EC and certain member States –
Large Civil Aircraft, para. 791). See also Panel Reports, US – Anti-Dumping Measures on Oil Country Tubular
608 See Reasons for Declining the European Union's Request for Leave to File an Additional Submission
Regarding SSB 5952 at Section 7.7.
609 Appellate Body Reports, US – FSC (Article 21.5 – EC II), para. 59; and US – Zeroing (Japan)
(Article 21.5 – Japan), para. 109.
610 Appellate Body Report, US – FSC (Article 21.5 – EC II), para. 61.
611 Appellate Body Report, US – FSC (Article 21.5 – EC II), para. 61. See also Appellate Body Report, US
612 See Reasons for Declining the European Union's Request for Leave to File an Additional Submission
Regarding SSB 5952 at Section 7.7, paras. 7.506-7.526.

interpreted the requirements of Article 6.2 of the DSU in a manner that prevents a measure
evading review merely because of amendments or modifications to the legal form of the measure
during the course of dispute settlement proceedings that do not ch ange its essence in light of the
nature of the claims at issue, while still fully respecting the due process rights of responding
parties and potential third parties to be informed of the specific measures at issue and the nature
of the claims raised by the complaining party.
7.362. The European Union argues that its panel request, through its references to "any
amendments, supplements, extensions, replacement measures, renewal measures, related
measures, or implementing measures ", in addition to those specificall y listed in section I of the
panel request encompasses the Phase II measures, which are amendments or supplements to, or
extensions of, the South Carolina measures identified in the panel request.
7.363. However, as we have previously explained in the context of our SSB 5952 ruling, the
limited circumstances in which measures coming into existence subsequent to the panel request
may be considered to be within a panel's terms of reference in conformity with the requirements of
Article 6.2 of the DSU cannot be artif icially enlarged through the inclusion of very general and
extensive "catch-all" phrases in a panel request. Otherwise, a specific and quite limited set of
circumstances in which measures coming into existence after the request for the establishment of
a p anel may be found to be within a panel 's terms of reference would be transformed into a
situation in which, provided a panel request includes a sufficiently broad catch -all description, any
subsequent measures that come into existence during the course of a panel proceeding will be
within a panel's terms of reference.
7.364. To the extent that the Phase II measures can be considered to "amend", "supplement", or
"extend" the Project Gemini or Project Emerald measures identified in the European Union 's panel
request, such amendments, supplements , or extensions would change the essence of the Project
Gemini measures and Project Emerald measures, and thus fall outside the limited circumstances in
which measures coming into existence after the date of a panel request c an nevertheless fall
within the terms of reference of a panel consistently with the requirements of Article 6.2 of the
DSU. The Phase II measures are alleged to involve a new sale of land to Boeing, a new bond
issuance, and an amendment to the Boeing FILOT Agreement to cover the new property in relation
to corporate activities and objectives extending beyond the manufacture of the 787. 613 We do not
regard the Phase II measures as being formal, non -substantive clarifications or amendments that
do not change th e essence of the Project Gemini and Project Emerald measures. 614 Rather, they
appear to be a distinct, additional set of measures, provided in consideration for a further
expansion of Boeing 's operations in South Carolina. As the European Union recognizes, t hat
expansion appears to cover the creation of a new IT centre in North Charleston, as part of
Boeing-wide plans to consolidate its IT operations, the establishment of a Dreamlifter Operations
Center and the location of the design and manufacture of compos ite inlets and nacelle linings for
the 737 MAX.615
7.365. We therefore consider that paragraph 27 of the European Union 's panel request does not
provide a basis for including the Phase II measures within the panel 's terms of reference,
consistently with the require ments of Article 6.2 of the DSU to "identify the specific measures at
issue".
7.366. We conclude that the European Union's panel request does not meet the
requirements of Article 6.2 of the DSU, read in the light of Article 21.5 of the DSU, to

613 As previously noted, the Boeing FILOT Agreement is the instrument referred to in para. 7.294(c)
above.
614 The Phase II measures can be contrasted in this regard with the new measures in cases such as
Chile – Price Band System, Argentina – Footwear (EC), US – Zeroing (Japan) (Article 21.5 – Japan), EC – IT
Products, and EC – Fasteners (China), where the new measures either "clarified" the measure or essentially
replicated the explicitly identified measures through new legislative action, and thus concerned the same
measure (in a substantive sense) that was either the subject of the panel request or that had been found
WTO-inconsistent in the original proceeding.
615 See European Union's second written submission, para. 745. The European Union also asserts, in
response to a question from the Panel, that the Phase II measures are "simply (part) of South Carolina's
incentive offer to Boeing as part of the competition to locate production of Boeing's recently launched 777X".
(European Union's response to Panel question No. 8, para. 59).

specifically identify the measures at issue, as regards the Phase II measures. We thus
find that the Phase II measures are outside the Panel's terms of reference.
7.6 Claims under Article s 3.1(a) and (b) of the SCM Agreement and Article III of the
GATT 1994
7.6.1 Conformity of the panel request with Article 6.2 of the DSU
7.367. As previously noted, the European Union argues that the measures at issue in this
proceeding (identified in items I.A to I.G of its panel request) demonstrate that the United States
has failed to withdraw the subsidy or take appropriate steps to remove the adverse effects, within
the meaning of Article 7.8 of the SCM Agreement.
7.368. The European Union additionally makes claims in respect of all of the subsidy measures
identified therein (in items I.A to I.G) under Articles 3.1(a), 3.1(b), and 3.2 of the SCM Agreement
and under Article III of the GATT 1994.616
7.369. The United States requests a preliminary ruling that the European Union 's panel request
fails to satisfy the requirements of Article 6.2 of the DSU in respe ct of the cl aims under
Articles 3.1(a), 3.1(b), and 3.2 of the SCM Agreement and Article III of the GATT 1994.617
7.6.1.1 Main arguments of the parties
7.370. The United States argues that the panel request fails to connect the challenged measures
with the provisions of the covered a greements claimed to have been breached , in a manner that
presents the problem clearly. 618 According to the United States, it is not clear which "problem" is
caused by which measure. Rather, the European Union 's panel request, in a section entitled
"Measures", lists a large number of measures in items I.A through I.G, then in a section entitled
"Legal Basis", describes the violation of four groups of treaty provisions, stating that all measures
listed in items I.A through I.G are inconsistent with the relevan t provisions.619 The United States
says it is not plausible that the European Union is making the dozens of claims implied by the
language in the panel request that all measures in items I.A through I.G violate all of the treaty
provisions discussed in paragraphs 30-32.620
7.371. The United States likens the deficiencies in the European Union 's panel request to those in
the panel requests in China – Raw Materials . In that case, one section of the panel requests
(section III) first briefly described , in narrative para graphs, a number of different allegations of
violation relating to different types of restraints, then provided a bullet point list of the legal
instruments alleged to reflect the Chinese measures, and concluded with the statement that "these
measures" were inconsistent with 13 listed treaty provisions.621 The Appellate Body concluded that
because the complainants had not, in either the narrative paragraphs or in the final listing of the
provisions of the covered agreements alleged to have been violated, prov ided the basis on which
the panel and China could determine with sufficient clarity wh ich "problem" or "problems" were
alleged to have been caused by which measures, they failed to present the legal basis for their

616 European Union's request for the establishment of a panel, paras. 30-32. While paragraph 32 of the
European Union's panel request alleges that the measures in items I.A through I.G are inconsistent with
Articles III:1, III:4, and III:5 of the GATT 1994, in its first and second written submissions, the
European Union's claims in relation to Article III of the GATT 1994 are limited to alleged inconsistency with
Article III:4 of the GATT 1994. (See European Union's first written submission, paras. 777-788; and second
written submission, paras. 851-864). The European Union therefore appears not to pursue its other claims
under Article III of the GATT 1994.
617 United States' request for preliminary rulings, dated 13 November 2012, paras. 45 and 54; first
618 United States' request for preliminary rulings, dated 13 November 2012, para. 45; first written
submission, para. 89.
619 United States' request for preliminary rulings, dated 13 November 2012, para. 47 (referring to
European Union's request for the establishment of a panel, paras. 29-32).
620 United States' request for preliminary rulings, dated 13 November 2012, para. 54; reply to the
European Union's response to the United States' request for preliminary rulings, dated 23 November 2012,
para. 74.
621 United States' request for preliminary rulings, dated 13 November 2012, para. 55 (referring to
Appellate Body Reports, China – Raw Materials, paras. 222-225).

complaints with sufficient clarity to comply with Article 6.2 of the DSU.622 The United States argues
that the Panel should reach the same conclusion with respect to the European Union 's panel
request in this proceeding , as the European Union 's panel request fails to connect the various
treaty provisions in paragraphs 30 -32 with the long list of measures included in paragraphs 8 -26
(items I.A through I.G).623
7.372. The European Union argues that the specific basis for the United States ' request is the
assertion that it is evident that the European Union is not making each claim for each measure,
while also acknowledging that the panel request expressly states that the claims are made with
respect to all of the measures identified in the panel request.624 The European Union argues that it
is clear from the panel request that the European Union makes the claims with respect to all of the
measures, and that the United States has understood this to be the case.625 That being so, there is
no basis for the United States' preliminary ruling request.
7.373. In its response to the United States ' request for preliminary rulings, the European Union
also "confirms" the express wording of its panel request; i.e. that the claims are made with respect
to all of the measures.626 In a supplemental submission made by the European Union after filing its
first written submission627, the European Union notes that it did, indeed, make the relevant claims
in its first written submission with respect to all of the identified measures. 628 According to the
European Union, "by its own terms " there is no longer any basis for the United States ' challenge
with respect to this matter. 629 The United States' arguments concerning the "implausibility" of the
claims in reality go to the merits of those claims.630
7.6.1.2 Evaluation by the Panel
7.374. Article 6.2 of the DSU requi res that a panel request clearly identify "the specific measures
at issue" and provide a "brief summary of the legal basis of the complaint sufficient to present the
problem clearly ".631 A panel request forms the basis for the terms of reference of a panel, in
accordance with Article 7.1 of the DSU. 632 It also serves the due process objective of notifying the
respondent and third parties of the nature of the complainant 's case.633 The identification of the
specific measures at issue and the provision of a "brief summary of the legal basis of the complaint
sufficient to present the problem clearly " are therefore central to defining the scope of the dispute
to be addressed by the panel.634
7.375. A panel must carefully scrutinize the language used in a panel request in orde r to
determine whether the panel request is sufficiently precise to comply with Article 6.2 of the DSU.
Submissions may be referenced in order to confirm the meaning of words used in a panel request ,
but the content of those submissions cannot have the eff ect of curing the failings of a deficient

622 United States' request for preliminary rulings, dated 13 November 2012, para. 55 (referring to
Appellate Body Reports, China – Raw Materials, para. 231).
623 United States' request for preliminary rulings, dated 13 November 2012, para. 57.
624 European Union's response to the United States' request for preliminary rulings, dated
23 November 2012, paras. 92 and 93.
625 European Union's response to the United States' request for preliminary rulings, dated
23 November 2012, para. 96.
626 European Union's response to the United States' request for preliminary rulings, dated
23 November 2012, para. 96.
627 See para. 7.135.
628 European Union's supplemental submission on the United States' request for preliminary rulings,
para. 34.
629 European Union's supplemental submission on the United States' request for preliminary rulings,
630 European Union's response to the United States' request for preliminary rulings, dated
23 November 2012, para. 99; supplemental submission on the United States' request for preliminary rulings,
para. 34.
631 Together, these two elements constitute the "matter referred to the DSB" so that if either of them is
not properly identified, the matter would not be within the Panel's terms of reference. (See Appellate Body
632 Appellate Body Reports, China – Raw Materials, para. 219; Guatemala – Cement I, paras. 72 and 73;
US – Carbon Steel, para. 125; US – Continued Zeroing, para. 160; and US – Zeroing (Japan) (Article 21.5 –
Japan), para. 107.
633 Appellate Body Reports, China – Raw Materials, para. 219; and EC and certain member States –
Large Civil Aircraft, para. 786.
634 Appellate Body Reports, China – Raw Materials, para. 219.

panel request. 635 In particular, the Appellate Body has explained that whether a panel request
challenging a number of measures on the basis of multiple WTO provisions sets out a "brief
summary of the legal basis of the complaint sufficient to present the problem clearly " may depend
on whether it is sufficiently clear which "problem" is caused by which measure or group of
measures.636
7.376. The European Union 's panel request in this proceeding cites all of the measures listed in
items I.A through I.G in relation to each of Article 3.1(a) of the SCM Agreement, Article 3.1(b) of
the SCM Agreement , and Article III of the GATT 1994. Thus , the European Union requests, in
paragraphs 30 through 32 of its panel request, that the panel find that:
a. the measures listed in items 1.A through 1.G of the panel request are inconsistent with
Articles 3.1(a) and 3.2 of the SCM Agreement;
b. the measures listed in items 1.A through 1.G of the panel request are inconsistent with
Articles 3.1(b) and 3.2 of the SCM Agreement; and
c. the measures listed in items 1.A through 1.G of the panel request are inconsistent with
Articles III:4 and III:5 of the GATT 1994.637
7.377. We see pertinent differences between the European Union 's panel request in this
proceeding and t he complainants ' panel requests in China – Raw Materials . In China – Raw
Materials, section III of the complainants ' panel requests contained a series of paragraphs setting
out in narrative fashion different allegations of violation relating to varied situ ations in which
obligations under the WTO Agreements might not be satisfied, followed by a bullet point list of 37
legal instruments introduced by the phrase: "{the complainant} understands that these Chinese
measures are reflected in, among others … " with the listed legal instruments ranging from entire
codes or charters to specific administrative measures, without identifying any of the specific
sections or provisions of the listed instruments. The final paragraph of section III consisted of a list
of 13 treaty provisions with which the measures were alleged to be inconsistent. 638 The Appellate
Body concluded that the panel requests did not make clear which allegations of error pertained to
which particular measures or sets of measures identified in the pane l requests.639 Moreover, it was
unclear whether each of the listed measures related to one specific allegation described in the
narrative paragraphs or to several or even all of those allegations, and whether each of the listed
measures allegedly violated on e specific provision of the covered agreements, or several of
them.640 As a result, the complainants had failed to provide the basis on which the panel and China
could determine with sufficient clarity what "problem" or "problems" were alleged to have been
caused by which measures, thus failing to present the legal basis for their complaints with
sufficient clarity to comply with Article 6.2 of the DSU.641
7.378. Items I.A through I.G of the European Union 's panel request identify the following
measures that are alle ged to c onstitute specific subsidies: (A ) "NASA R&D Subsidies "; (B)
"Department of Defense R&D Subsidies"; (C) "Federal Aviation Administration R&D Subsidies"; (D)
"Washington State and Local Subsidies "; (E) "FSC/ETI Legislation and Successor Acts" ; (F) "State
of Kansas and City of Wichita Subsidies "; and (G) "South Carolina State and Local Subsidies" . On
its face, the European Union 's pane l request alleges in paragraphs 30 through 32 that "the
measures listed in items I.A to I.G" are inconsistent with, res pectively, Articles 3.1(a) (including
footnote 4), 3.1(b), and 3.2 of the SCM Agreement , and Article s III:4, III:5 and III:1 of the
GATT 1994.
7.379. The United States argues that it is implausible that the European Union would in reality
seek to pursue all of t he "hundreds of possible measure -provision combinations" apparent from a

635 Appellate Body Reports, China – Raw Materials, para. 220; and EC – Fasteners (China), para. 562
(referring to Appellate Body Reports EC and certain member States – Large Civil Aircraft, para. 642; EC –
636 Appellate Body Reports, China – Raw Materials, para. 220.
637 European Union's request for the establishment of a panel, paras. 30-32.
638 See Appellate Body Reports, China – Raw Materials, paras. 221-225.
639 Appellate Body Reports, China – Raw Materials, para. 226.
640 Appellate Body Reports, China – Raw Materials, para. 226.
641 Appellate Body Reports, China – Raw Materials, para. 231.

reading of the panel request at face value. 642 According to the United States, as it is simply
implausible that the European Union would actually advance all of the claims in relation t o all of
the measures, the European Union 's panel request therefore fails to "present the problem
clearly".643
7.380. It appears to us that the United States ' argument that the European Union's panel request
is insufficiently clear is based on a belief that the Eu ropean Union could not credibly consider that
each of the listed measures is inconsistent with each of the listed WTO provisions. 644 This,
however, reflects the United States ' assessment of the merits of the European Union's claims,
rather than the clarity of their expression for purposes of Article 6.2 of the DSU.
7.381. We recall that the requirement in Article 6.2 of the DSU to provide a "brief summary of
the legal basis of the complaint sufficient to present the problem clearly " refers to the description
in the panel request of a party 's claims, rather than its arguments. 645 A "claim" is an allegation
that the respondent party has violated, or nullified or impa ired the benefits arising from, an
identified provision of a particular covered agreement.646 An "argument" comprises the statements
made in support of a claim to demonstrate that a responding party 's measure infringes an
identified treaty provision. These are "set out and progressively clarified in the first written
submissions, the rebuttal submissions, and t he first and second panel meetings with the
parties".647
7.382. In section VI of its first written submission, the European Union sets forth its claims under
Articles 3.1(a) and 3.1(b) of the SCM Agreement and under Article III:4 of the GATT 1994. 648 The
United States characterizes the European Union 's first written submission as presenting measures
comprising a "system of subsidies " which collectively are inconsistent with Articles 3.1(a) and
3.1(b) of the SCM Agreement and Article III of the GATT 1994. For the Unite d States, this
"clarification" only confirms that the European Union 's panel request fails to "present the problem
clearly", as required by Article 6.2 of the DSU, as the phrase "system of subsidies " does not
appear in the panel request, nor is it apparent from the panel request how the measures could
possibly operate collectively so as to induce export performance, import substitution, or
preferential treatment of domestic products. 649 The European Union denies that its claims seek to
identify a "system of subsidies" as a measure at issue. 650 It would seem that these arguments go
to the merits of the European Union 's claims under Articles 3.1(a) and 3.1(b) of the SCM
Agreement and Article III of the GATT 1994, rather than to the question of whether those claims
are presented sufficiently clearly in the panel request to satisfy the requirements of Article 6.2 of
the DSU.
7.383. In conclusion, we consider that the European Union 's panel request, in alleging that the
measures listed in items I.A through I.G are inconsistent with, respectively, Articles 3.1(a), 3.1(b),
and 3.2 of the SCM Agreement, and various paragraphs of Article III of the GATT 1994, meets the
requirements of Article 6.2 of the DSU in presenting the problem clearly. The Panel therefore
dismisses the United States' request for preliminary rulings that the European Union 's
panel request fails to satisfy the requirements of Article 6.2 of the DSU with respect to
the claims under Articles 3.1(a), 3.1(b), and 3.2 of the SCM Agreement , and Article III

642 United States' reply to the European Union's response to the United States' request for preliminary
rulings, dated 3 December 2012, para. 73.
643 United States' reply to the European Union's response to the United States' request for preliminary
rulings, dated 3 December 2012, paras. 72 and 74.
644 See e.g. United States' request for preliminary rulings, dated 13 November 2012, paras. 49 and 54;
and reply to the European Union's response to the United States' request for preliminary rulings, dated
3 December 2012, para. 74. We are mindful that Article 3.7 of the DSU requires Members to exercise judgment
in deciding whether action under the DSU would be fruitful.
645 Appellate Body Reports, Guatemala – Cement I, para. 72; and EC – Bananas III, paras. 141-143.
646 Appellate Body Report, Korea – Dairy, para. 139.
647 Appellate Body Report, Korea – Dairy, para. 139.
648 While paragraph 32 of the European Union's panel request alleges that the measures in items I.A
through I.G are inconsistent with Articles III:1, III:4, and III:5 of the GATT 1994, in its first and second written
submissions, the European Union's claims in relation to Article III of the GATT 1994 are limited to alleged
inconsistency with Article III:4 of the GATT 1994. (See European Union's first written submission,
paras. 777-788; and second written submission, paras. 851-864). The European Union therefore appears not
to pursue its other claims under Article III of the GATT 1994.
649 United States' first written submission, para. 89.
650 European Union's second written submission, para. 105.

of the G ATT 1994. The Panel rules that the Europea n Union's claims under
Articles 3.1(a), 3.1(b), and 3.2 of the SCM Agreement, an d under Article III of the
GATT 1994, are within the Panel's terms of reference.651
7.6.2 Whether claims under Articles 3.1(a), 3.1(b) , and 3.2 of the SCM Agreement and
under Article III of the GATT 1994, in respect of certain measures, are outside the scope
of this proceeding
7.384. The United States additionally requests preliminary rulings that the European Union is
precluded from bringing claims under Articles 3.1(a), 3.1(b) , and 3.2 of the SCM Agreement and
under Article III of the GATT 1994 in respect of various original measures .652 The United States
advances different bases for these requests depending on the identity of the original measures and
the claims to which they were subject in the original proceeding. In summary, the United States
makes the following objections:
a. To the inclusion of claims under Article s 3.1(a) and 3.2 of the SCM Agreement against
the original Washington State tax measures enacted under HB 2294 on the basis that
they were the subject of claims under Article s 3.1(a) and 3.2 of the SCM Agreement in
the original proceeding and those claims were rejected.653
b. To the inclusion of claims under Articles 3.1(a) and 3.2 of the SCM Agreement against all
other original measures (aside from the original Washington State tax measures enacted
under HB 2294 which are the subject of the above objection, and the FSC/ETI measures)
on the basis that the European Communities did not make such cl aims in the original
proceeding and thus is precluded from bringing those claims against those same
measures at the compliance stage.654
c. To the inclusion of claims under Articles 3.1(b) and 3.2 of the SCM Agreement and
Article III:4 of the GATT 1994 in rela tion to all original measures on the basis that the
European Communities did not make such claims in the original proceeding and thus is
precluded from bringing those claims against those same measures at the compliance
stage.655
7.385. We consider the objection i n (a) above first in Section 7.6.2.1 before considering those in
(b) and (c), which raise common legal issues, together in Section 7.6.2.2.
7.6.2.1 Claims under Articles 3.1(a) and 3.2 of the SCM Agreement with respect to
original Washington State tax measures enacted under HB 2294
7.386. We first consider the United States' request that the Panel rule that the European Union 's
claims under Articles 3.1(a) and 3.2 of the SCM Agreement against the following measure s are
precluded:

651 The Panel's ruling that the European Union's claims under Articles 3.1(a), 3.1(b), and 3.2 of the SCM
Agreement, and under Article III of the GATT 1994, are within its terms of reference is without prejudice to its
further rulings, in Section 7.6.2, as to whether these claims in respect of certain measures are nevertheless
outside the scope of this compliance proceeding.
652 United States' request for preliminary rulings, dated 13 November 2012, paras. 16 and 17. While
paragraph 32 of the European Union's panel request alleges that the measures in items I.A through I.G are
inconsistent with Articles III:1, III:4, and III:5 of the GATT 1994, in its first and second written submissions,
the European Union's claims in relation to Article III of the GATT 1994 are limited to alleged inconsistency with
Article III:4 of the GATT 1994. (See European Union's first written submission, paras. 777-788; and second
written submission, paras. 851-864). The European Union therefore appears not to pursue its other claims
under Article III of the GATT 1994. Accordingly, the Panel refers hereafter to the European Union's claims
under Article III:4 of the GATT 1994.
653 United States' request for preliminary rulings, dated 13 November 2012, paras. 5-7 and 60; reply to
the European Union's response to the United States' request for preliminary rulings, dated 3 December 2012,
para. 25; first written submission, para. 80; and second written submission, paras. 16 and 35.
654 United States' request for preliminary rulings, dated 13 November 2012, para. 17; reply to the
European Union's response to the United States' request for preliminary rulings, dated 3 December 2012,
655 United States' request for preliminary rulings, dated 13 November 2012, para. 16; reply to the
European Union's response to the United States' request for preliminary rulings, dated 3 December 2012,
para. 16; first written submission, para. 84; and second written submission, paras. 46 and 48.

a. Washington State B&O tax rate reduction;
b. Washington State B&O tax credits for preproduction/aerospace product development;
c. Washington State B&O tax credit for property taxes; and
d. Washington State sales and use tax exemptions for computer hardware, peripherals, and
software.
7.6.2.1.1 Main arguments of the parties and third parties
7.387. The United States argues that the European Union "did not appeal " the finding of the
original panel that the taxation measures enacted under HB 2294 had not been demonstra ted to
be inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement, and the European Union should
not now be given an "unfair second chance " to make its case. 656 The United States refers to the
Appellate Body Reports in US – Upland Cotton (Article 21.5 – Brazil) and EC – Bed Linen
(Article 21.5 – India) as standing for the proposition that a compliance proceeding is not the
proper forum for a complaining party to re -litigate the original dispute by repeating unsuccessful
claims.657
7.388. The United States says that, given that the European Union has not argued that the
Washington State B&O tax rate reduction itself is new, or has changed, it is the same measure
considered by the original panel . The European Union's Article 3.1(a) and 3.2 claims are therefore
not within the compliance panel's terms of reference.658 Additionally, although the European Union
has argued (for the first time in its second written submission) that the Washington State B&O tax
credits for preproduction /aerospace product development have be en modified, it has failed to
demonstrate that these tax credits are a "new measure" or a "measure taken to comply ".659 The
United States faults the European Union for attempting to conflate the separate measures and the
legislation under which they were enacted (HB 2294) to argue that, because the preproduction tax
credits are a "new measure ", the Panel must now assess HB 2294 and the associated tax
provisions, as revised, in their totality and in an integrated manner. The United States says that
the original panel was clear that the measures were the exemptions themselves, not HB 2294.
Modification of an individual measure does not authorize a complaining party to re -litigate any
claim it wants with respect to distinct measures that may have been enacted und er the same
legislation.660
7.389. The United States argues that the European Union cannot attempt to circumvent this
restriction on the scope of Article 21.5 proceedings by asserting "artificial distinctions between a
measure and the 'subsequent incidences ' of app lying that measure ".661 There is no basis for
treating "subsequent incidences of application " of a measure as a separate measure. The
United States says that the European Union 's argument is similar to an argument made by the
United States in US – Upland Cot ton (Article 21.5 – Brazil) – that payments under a subsidy
programme could, in a compliance proceeding, be analysed separately from the program me at
issue in the original proceeding – an argument rejected by the Appellate Body.662
7.390. The European Union observes that the issue raised by the United States is not in truth
whether these claims are within the Panel 's terms of reference, but rather, whether the
European Union is seeking an adjudication of the same matter that was adjudicated by the original
panel.663 As such, this is not an issue for a preliminary ruling but relates to the substantive merits
of the European Union 's claim. In any case, the European Union submits that it is not seeking an
adjudication of the same matter. It argues that claims of de facto export contingency must be
considered on the basis of all of the facts. It makes the following arguments:

656 United States' second written submission, para. 36.
657 United States' second written submission, para. 36.
658 United States' second written submission, para. 39.
659 United States' second written submission, para. 42.
660 United States' second written submission, para. 43.
661 United States' second written submission, para. 37.
662 United States' second written submission, para. 38.
663 European Union's response to the United States' request for preliminary rulings, dated
23 November 2012, para. 8.

a. The European Union 's claim in the original proceeding was that HB 2294 was
inconsistent with Articles 3.1(a) and 3.2 owing to five categories of fisca l subsidies. The
panel found that four of these (i.e. the four original Washington State tax measures
listed in paragraph 7.386 above, which were treated as three by the panel) were
subsidies, and assessed the European Union 's claim of de facto export contingency with
respect to those four (three) Washington State tax measures enacted under HB 2294.
Some of these measures have since been modified. The Panel should now assess HB
2294 and the associated tax measures, as revised, i n their totality and in an integrated
manner.664
b. The measures before this Panel are not the same as the measures at issue in the original
proceeding. Also at issue in this proceeding are the "subsequent incidences of
application" of the measures which were n ot before the original panel. 665 These
subsequent incidences of application are actually new measures that have a close nexus
to the "overarching measure" of which they are discrete applications.666
c. The de facto export contingency challenge brought in this pr oceeding does not relate to
the same aspect of the measures challenged in the original proceeding (i.e. that they are
contingent upon sales) but rather to the fact that the measures are subsidies, and "in
the nature of encouragement or direction and/or reward".667
d. The "clarification of relevant WTO law " to be applied by the Panel is different from that
followed by the original panel, especially following the "confirmations and clarifications "
provided by the Appellate Body Report in EC and certain member Stat es – Large Civil
Aircraft.668 These clarifications form part of the WTO acquis and subsequent panels,
including this compliance Panel, are expected to follow the same interpretations.
e. The evidence and facts on which the European Union relies are different.669
7.391. In its second written submission, the European Union sets forth its understanding of
concepts such as jurisdiction and terms of reference, and submits that there is no rule of res
judicata in WTO dispute settlement proceedings or any possibility of non liquet. It also discusses
what it considers are the limited circumstances in which the Appellate Body Report in EC – Bed
Linen (Article 21.5 – India) would apply. 670 At several places throughout this discussion, the
European Union makes the following argument:
{O}nce particular measures are properly within the scope of compliance proceedings,
because they are declared or undeclared measures taken to comply, any claim may be
made against them, whether or not made in the original proceedings, and the
compliance panel must assess and rule on such claim , such ruling being subject to
scrutiny on appeal.671
7.392. Certain of the third parties (Brazil, Canada, Japan, and Korea) make general arguments as
to the situations in which a complaining party may be precluded from challen ging a measure in a
compliance proceeding that it had not successfully challenged in the original proceeding. These
arguments are summarized in Section 7.2.1.1 of this Report.
7.6.2.1.2 Evaluation by the Panel
7.393. The question before us is w hether the European Union can bring prohibited subsidy claims
under Articles 3.1(a) and 3.2 of the SCM Agreement in respect of the four Washington Stat e tax
measures enacted under HB 2294 which were the subject of un successful claims under
Article 3.1(a) of the SCM Agreement in the original proceeding.

664 European Union's second written submission, para. 85.
665 European Union's second written submission, para. 58.
666 European Union's second written submission, para. 61.
667 European Union's second written submission, para. 76.
668 European Union's second written submission, paras. 68-74.
669 European Union's second written submission, para. 77.
670 European Union's second written submission, paras. 9-40.
671 European Union's second written submission, paras. 22, 24, and 26. (emphasis original)

7.394. To recall, in the original proceedi ng, the European Communities challenged the subsidies
granted under HB 2294 (including the above -referenced measures) as being de facto
export-contingent subsidies inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement.672 The
panel found that the European Communities had not demonstrated the existence of a "tie"
between the grant of the subsidies and anticipated exportation or export earnings. Nor had it
established that the subsidies were tied to actual exportation. Consequently, the pan el found that
the European Communities had not demonstrated that the Washington State tax measures
enacted under HB 2294 were inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement.673
7.395. In its notice of appeal, the European Union appealed the panel 's interpretation of
Article 3.1(a) and footnote 4 of the SCM Agreement, and also argued that the panel failed to make
an objective assessment as required by Article 11 of the DSU, in fin ding that "the European Union
had not demonstrated that HB 2294 and the B&O tax rate reductions a nd instances of application
are subsidies contingent/conditional in fact upon export. "674 The European Union requested the
Appellate Body to complete the analysi s.675 However, on 19 May 2011, pursuant to Rule 30(1) of
the Appellate Body's Working Procedures, the European Union notified the Appellate Body , as well
as the United States and third participants , that it was withdrawing its appeal insofar as it related
to subsidies contingent upon export, with immediate effect. 676 Consequently, the panel 's findings
concerning the Article 3.1(a) and 3.2 claims were not disturbed by the Appellate Body and were
adopted as part of the DSB recommendations and rulings. Thus, the D SB recommendations and
rulings in the original proceeding include d a finding that the European Communities had failed to
demonstrate that the challenged Washington State tax measures enacted under HB 2294 were
inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement.
7.396. In Section 7.2 of this Report, we dismiss the United States ' request for preliminary rulings
that the four original Washington tax measures (three of which are the subject of this preliminary
rulings request regarding the permissibility of allowing the European Union to reassert claims
under Article 3.1(a)) are outside the scope of this proceeding on the grounds that they were
original measures not subject to the DSB recommendations and rulings. 677 That issue de alt with
the question of whether original measures that did not conclusively result in findings of
WTO-inconsistency in the original proceeding may be subsequently challenged in a compliance
proceeding.
7.397. The question before us in this Section is whether a complaining party may re -litigate the
same claims of WTO -inconsistency in relation to unchanged aspects of original measures in
circumstances where those claims were found not to have been established in the original
proceeding. In our view, the key consideration is that the panel reject ed the European
Communities' Article 3.1(a) claims in respect of the original Washington Stat e tax measures , and
the European Union did not ultimately appeal that finding. This situation appears to be similar to
the situatio n addressed in EC – Bed Linen (Article 21.5 – India), where India did not appeal a
finding of the panel and then sought to raise the same claim in relation to an unchanged aspect of
the implementation measure. The Appellate Body said that an unappealed finding in a panel report
that is adopted by the DSB must be regarded as a final resolution to a dispute between the parties
in respect of that particular claim and the specific component of the measure that is the subject of
that claim.678
7.398. The European Union seeks to narrow the application of the reasoning in EC – Bed Linen
(Article 21.5 – India) to the particular facts of that case. Thus, it argues that the principle
expressed in EC – Bed Linen (Article 21.5 – India) is confined to scenarios where one or more of
following is present:

672 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1465 and 7.1472.
673 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1590.
674 European Union's notice of appeal, dated 4 April 2011, WT/DS353/8, para. 4.
675 European Union's notice of appeal, dated 4 April 2011, WT/DS353/8, para. 4.
676 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 28.
677 We take this opportunity to explain that the "original Washington tax measures" the focus of our
ruling in Section 7.2.1 overlap with the Washington State tax measures enacted under HB 2294 which are the
focus of this ruling, with the exception of the City of Everett B&O tax rate reduction, which is a municipal tax,
and therefore is an original Washington tax measure, but not a Washington State tax measure enacted under
HB 2294.
678 Appellate Body Report, EC – Bed Linen (Article 21.5 – India), para. 93.

a. the measures or aspects of measures challenged have not changed and the aspect of the
measure challenged was "separable" from other aspects of the measure;
b. the facts and evidence are exactly the same as the facts and evidence in t he original
proceeding; and
c. the law does not change between the original proceeding and the compliance
proceeding.679
7.399. Moreover, it notes that every subsequent case has distinguished EC – Bed Linen
(Article 21.5 – India).680 In short, the European Union's case is that these claims are not the same
claims it made in the original proceeding; the measures are different, the applicable law is
different, and the facts are different.
7.400. The European Union argues that the Washington State tax measures before this Panel a re
not the same as those at issue in the original proceeding ; rather they are "subsequent incidences
of application" of an overarching measure to which both are closely connected. We are not
persuaded by the European Union 's portrayal of the "subsequent in stances of application " of a
measure as being a new measure, distinct from the original measure, and for this to affect the
question of whether the Article 3.1(a) claims against the original measure can be re -litigated. The
Appellate Body was critical of the United States' attempts to distinguish the payments made under
a subsidy program me from the subsidy program me itself in the Upland Cotton compliance
proceeding.681 The Appellate Body said:
We have some difficulty accepting the notion that a subsidy progra mme and the
payments provided under that programme can be assessed separately. While the
payments may cause adverse effects, the amount of the payments, beneficiaries, and
the terms and conditions of eligibility will be provided in the subsidy programme or
legislation authorizing those payments.682
7.401. The European Union also argues that measures and instances of their application are
"inseparable", as are cases involving subsidies that are prohibited and/or actionable, or where
subsidies may be cumulated or aggr egated for purposes of the serious prejudice analysis. 683
However, the European Union appears to take out of context a reference to "separability" between
aspects of a measure that the Appellate Body made in a case subsequent to EC – Bed Linen
(Article 21.5 – India) to the effect that a complaining party can challenge an aspect of a measure
that it did not challenge in the original proceeding in situations where that aspect is an
"inseparable" part of the "measure taken to comply".684 The notion of "inseparability" of aspects of
a measure referred to in that case is not relevant to the present discussion.
7.402. We also do not consider the reasoning in EC – Bed Linen (Article 21.5 – India) to be
confined to cases where there is absolutely no change in the facts or evi dence. EC – Bed Linen
(Article 21.5 – India) concerned a challenge by India to an aspect of a European Commission
anti-dumping determination. None of the facts or evidence regarding the investigation changed; it
was simply a question of challenging one asp ect of the Commission 's determination that had not
been challenged in the original proceeding because the panel had found that India had not made a
prima facie case. Nevertheless, we do not see a basis for limiting the reasoning of the Appellate
Body in that case to situations in which the claim does not involve any changed facts or evidence.
A claim of WTO -inconsistency raised for a second time in a compliance proceeding could be
expected to involve different facts, at least in the subsidies context, which presumably would deal
with events at a different point in time. It is almost always possible for a complaining party in a
compliance proceeding to present new facts and evidence on the record to support a claim. To

679 European Union's second written submission, paras. 12 and 33-38.
680 European Union's second written submission, para. 39.
681 The United States in that case had argued that the DSB recommendations and rulings covered only
payments made under marketing loan and counter-cyclical programmes in marking years 1999-2002 and did
not extend to payments under those same programmes made in subsequent years. Thus it argued that
subsequent payments under those programmes were outside the scope of the compliance proceeding. (See
Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), paras. 22-27).
682 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 234.
683 European Union's second written submission, paras. 12 and 78-80.
684 Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), paras. 432 and 433.

limit the application of the notion of f inality of DSB recommendations and rulings expressed in EC
– Bed Linen (Article 21.5 – India) to situations in which there are no new facts or evidence on the
record presented in support of the claim in the compliance proceeding would be to implicitly
overrule EC – Bed Linen (Article 21.5 – India).
7.403. We are mindful that there is a legitimate question as to whether de facto claims relate so
inherently to the particular facts on which the claims are argued that whenever the constellation of
facts supporting the claim changes, the "claim" of de facto export contingency made in a
compliance proceeding should be considered to be a new and different claim to th at made in the
original proceeding. Thus we do not exclude the possibility that, owing to fundamental chang es in
the factual situation between the original proceeding and compliance proceeding, a measure that
was originally found not to be de facto export contingent could subsequently become so. In this
situation, it may be that the complaining party would not be precluded from demonstrating de
facto export contingency in a compliance proceeding. However, this is not the present situation.
For reasons that we explain below, we regard t he individual claim s of inconsistency with
Articles 3.1(a) and 3.2 that the Eu ropean Union makes in relation to the Washington State tax
measures enacted under HB 2294 in this proceeding a s the same claims of de facto export
contingency that it made in the original proceeding with respect to those measures.
7.404. Comparing the claims of de facto export contingency made in the original and compliance
proceedings, we see that in the original proceedin g, the European Communities' Article 3.1(a)
claim concerned "the grant of subsidies under HB 2294 " as being contingent in fact upon export
performance because the grant is tied to actual or anticipated exportation or export earnings. 685
The contention was that the entering into effect of HB 2294 was explicitly contingent on the siting
of a "significant commercial airplane final assembly facility i n Washington State " that could
produce "at least thirty -six superefficient airplanes {i.e. 787s} per year ". The European
Communities presented evidence to seek to demonstrate that it was highly unlikely that Boeing
could sustain a production rate of 36 787 aircraft per year for the U .S. market alone. The panel
described the issue before it as "whether the tax measures under HB 2294 constitute subsidies
contingent upon export performance under Article 3.1(a) of the SCM Agreement ".686 It also said
that the "European Communities ' claim is that HB 2294 is de facto contingent upon export
performance" before referring to a series of arguments advanced by the European Communities
regarding HB 2294 (as opposed to each of the individual taxation measures enacted under it).687
The panel concluded that the European Communities "has not demonstrated that HB 2294 is
contingent upon export performance "688 and on that basis found that the European Communities
had not demonstrated that the tax ation measures enacted under HB 2294 are inconsistent with
Articles 3.1(a) and 3.2 of the SCM Agreement.689
7.405. In the present proceeding, the European Union claims that the subsidies (i.e. all measures
at issue in this proceeding, including the four Washington State tax measures enacted under
HB 2294) are "contingent/conditional, in fact, whether solely or as one of several other conditions,
upon export performance, and are prohibited by Articles 3.1(a) and 3.2 and footnote 4 of the SCM
Agreement".690 The European Union argues that Boeing 's actual and anticipated sales are
"skewed" toward exports, that through its repeated actions over time, the United States has
"conditioned Boeing's behaviour so as to induce or incentivise such skewing " and that, "taken as a
whole, or in any permutation" the facts and evidence demonstrate that the granting or maintaining
of the subsidies, without having been made legally contingent/conditional upon export
performance, is nevertheless in fact tied to actual or anticipated exportation or export earnings. 691
The European Union clarified any apparent confusion over the nature of these claims in its second
written submission:
Thus, contrary to the manner in which the United States seeks to reformulate the EU
claims, the European Union does not argue that the measures only bec ome

685 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1465 and 7.1472. See also
para. 4.254: "the European Communities argues that the State of Washington's HB 2294 tax incentives are
contingent in fact on export performance, within the meaning of Article 3.1(a) of the SCM Agreement".
686 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1513.
687 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1514.
688 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1543 and 7.1589.
689 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1590.
690 European Union's first written submission, para. 763.
691 European Union's first written submission, para. 763.

inconsistent when considered collectively and does not make a claim that seeks to
identify a "system of subsidies" as a measure at issue. Rather, we argue that each of
the measures is inconsistent ; and we specify, as recalled above, the facts and
evidence on which we rely for that purpose. Thus, each subsidy is viewed individually,
but not in clinical isolation from the totality of the facts and evidence (including the
other subsidies) supporting the claim.692
7.406. The European Union does not seek to justify r aising its Article 3.1(a) and 3.2 claims
against the Washington State tax measures enacted under HB 2294 in the compliance proceeding
on the basis of funda mental factual changes that have taken place between the original and
compliance proceedings. Rather, the European Union adopts a different underlying theory as to
how the measures in question are de facto export contingent, and seeks to adduce different facts
in support of that different theory. In other words, the arguments the European Union now relies
upon to show de facto export contingency are different from those that the European Communities
made in the original proceeding. They no longer concern the condition upon which the HB 2294 tax
incentives were to become effective, but rather an allegation that the United States has created a
state of interdependence and mutual expectation regarding exportation and the receipt of further
subsidies.693
7.407. Despite the different argumentation, the claims under Article s 3.1(a) and 3.2 of the SCM
Agreement in respect of the Washington State tax measures enacted under HB 2294 remain the
same. Those Article 3.1(a) and 3.2 claims were resolved in a panel report that was adopted by the
DSB and must be regarded as a final resolution of the dispute between the parties in re spect of
those claims and the measures the subject of those claims. The European Union is not permitted
to reassert those claims against those measures in a compliance proceeding based on a new
theory of how the measures are de facto export contingent.
7.408. We are aware that two of the taxation measures enacted und er HB 2294 have been
modified: (a) t he B&O tax credits for preproduction/aerospace development were amended by
SSB 6828 to expand their application beyond preproduction development to include all aero space
product development, as well as to permit non -manufacturing entities to claim the credit for
expenditures after 30 June 2014; and (b) the B&O tax credits for property taxes were amended by
HB 2466 to extend the availability of the tax credits to leasehold excise taxes and not just property
taxes. However, it is not apparent that the nature of these modifications is relevant to the
European Union 's arguments as to why the measures are now contingent in fact upon export
performance when they were not pr eviously so. Accordingly, we do not consider that this factor
changes our analysis.694
7.409. Finally, it remains to consider the European Union's argument regarding the clarification of
relevant WTO law to be applied by the compliance Panel, which will be differen t from that followed
by the original panel, owing to the confirmations and clarifications of the Appellate Body in EC and
certain member States – Large Civil Aircraft . Specifically, the Appellate Body in EC and certain
member States – Large Civil Aircraft clarified the interpretation of Article 3.1(a) of the SCM
Agreement in a number of respects which differ from the original panel's interpretation of that
provision.695
7.410. The difficulty we see with the argument that the principle expressed in EC – Bed Linen
(Article 21.5 – India) does not apply in respect of claims decided on the basis of "outdated"
interpretations of the covered agreements is that, in contrast to bringing a new proceeding in
which the claim is made against that measure, a reconsideration of th e unsuccessful claim at the

692 European Union's second written submission, para. 53. (emphasis added, fns omitted)
693 See European Union's first written submission, para. 758:
The United States has thus come to associate subsidies with exports, and Boeing
has come to associate exports with subsidies, e ach becoming a reflex to the other,
so deeply ingrained that it can no longer be disguised … Boeing has thus been
transformed into precisely what US industrial policy was designed to create: a US
national champion in a global market, skewed towards exports.
694 For the reasons explained in our ruling "Reasons for Declining the European Union's Request for
Leave to File and Additional Submission Regarding SSB 5952", the text of which may be found in Section 7.7 of
this Report, we do not consider in this Report the amendments effected by SSB 5952 to the provisions of the
Revised Code of Washington that reflect the Washington State tax measures enacted under HB 2294.
695 See European Union's second written submission, paras. 68-74.

compliance stage amounts to re -litigating an issue that was conclusively decided on the merits in
the original proceeding in a manner that compromises the finality of DSB recommendations and
rulings.696 As the Appellate Body said:
{A}n 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.697
7.411. Clarifications of interpretations of the covered agreements can be expected to emerge over
time. This should not affect the finality of DSB recommendations and rulings. As the Appellate
Body in EC – Bed Linen (Article 21.5 – India) observed: "{a}t some point, disputes must be
viewed as definitely settled by the WTO dispute settlement system ".698 Moreover, in the present
proceeding, the European Union does not seek to make the same case of export contingency that
it tried to make in the original proceed ing, but on the basis of a clarified understanding of the
interpretation of Article 3.1(a). Rather, the arguments the European Union makes in support of its
export contingency claims in this proceeding and the evidence it provides in support of those
arguments are altogether different from those in the original proceeding, no longer focusing on the
condition on which HB 2294 was enacted, but on the "Pavlovian effect " of the United States '
continued subsidization of Boeing in return for increased exports.699
7.412. On the basis of the foregoing considerations, the Panel grants the United States'
request and rules that the European Union is precluded from bringing claims under
Articles 3.1(a) and 3.2 of the SCM Agreement against the following four original
Washington State tax measures enacted under HB 2294:
a. Washington State B&O tax rate reduction;
b. Washington State B&O tax credits for preproduction/aerospace product
development700;
c. Washington State B&O tax credit for property taxes701; and
d. Washington State sales and use ta x exemptions for computer hardware,
peripherals, and software.
7.6.2.2 Claims under Article s 3.1(a) and 3.2 of the SCM Agreement against certain
original measures; and claims under Articles 3.1(b) and 3.2 of the SCM Agreement and
Article III:4 of the GATT 1994 against all original measures
7.413. We now consider the United States ' request that the Panel rule that the European Union is
precluded from making the following claims in respect of the following measures:
a. Claims that all original measures , other than the Washington State tax measures
enacted under HB 2294 and the FSC/ETI measures, are inconsistent with Articles 3.1(a)
and 3.2 of the SCM Agreement.702

696 The European Union was free to bring a new proceeding alleging violations of Articles 3.1(a) and 3.2
of the SCM Agreement in relation to these measures, and to support the claims based on the interpretation of
Article 3.1(a) as clarified by the Appellate Body in EC and certain member States – Large Civil Aircraft.
697 Appellate Body Report, EC – Bed Linen (Article 21.5 – India), para. 93. (emphasis original)
698 Appellate Body Report, EC – Bed Linen (Article 21.5 – India), para. 98. (emphasis original)
699 As noted above, the European Union initially appealed the panel's findings regarding the export
contingency of the Washington State tax measures enacted under HB 2294 in the original proceeding but then
withdrew its appeal on 19 May 2011, the day after the Appellate Body Report in EC and certain member States
– Large Civil Aircraft was circulated. It seems to us that if the European Union had wanted to pursue its export
contingency claims in relation to the HB 2294 taxation measures on the basis of the newly clarified
interpretation of Article 3.1(a) of the SCM Agreement, it could have done so by continuing with its appeal of
the panel's findings regarding its 3.1(a) claim in the original proceeding.
700 Including amendments thereto pursuant to SSB 6828.
701 Including amendments thereto pursuant to HB 2466.
702 United States' request for preliminary rulings, dated 13 November 2012, paras. 18 and 60.

b. Claims that all original measures are inconsistent with Articles 3.1(b) and 3.2 of the SCM
Agreement.
c. Claims that all original measures are inconsistent with Article III of the GATT 1994.703
7.414. The United States objects to the inclusion of these claims in respect of the above
categories of original measures on the basis that these claims were not made in the original
proceeding with respect to these measures and could have been, such that the European Union is
precluded from bringing them in the compliance proceeding.704
7.6.2.2.1 Main arguments of the parties and third parties
7.415. The United States argues that the European Union did not mak e Articles 3.1(a), 3.1(b),
and 3.2 claims against the above-referenced measures in the original proceeding and is precluded
from making those claims now. 705 Similarly, the European Union could have pursued Article III:4
GATT claims in the original proceeding but it chose not to. Indeed, in its panel request in the
original proceeding, the European Communities did make claims under Article III:4 of the
GATT 1994 with respect to all of the measures listed in its panel request, but it later abandoned
those claims. A party may not invoke Article 21.5 of the DSU to pursue a claim that it could have,
but did not, pursue in the original proceeding.706
7.416. The United States disputes the European Union 's contention that the measures before this
Panel are not the measures tha t were before the original panel, asserting that most of the NASA,
DOD, Washington State and Kansas measures covered by the European Union 's Article III claim
were in fact before the original panel. 707 Although the European Union contends that the facts and
evidence have changed significantly, it does not point to any specific facts or evidence that might
warrant allowing the European Union to make claims that it cou ld have raised in the original
proceeding, but opted not to. The European Union's assertion that the facts and evidence on which
the claims are based only came into existence after 17 February 2006 is "demonstrably false "
because its Article III claims rest at base on a series of quotations reproduced in Exhibit EU -583,
many of which predate 17 February 2006.708
7.417. The European Union argues that the claims in question are based on facts and evidence
that only came into existence after the date on which the ori ginal panel was established
(17 February 2006) and that these are not therefor e claims that the European Communities could
have raised in the original proceeding. 709 The premise on which the United States ' objection is
based is therefore groundless.
7.418. In addition, the European Union argues, as it did in relation to the United States'
objections to the E uropean Union's Article 3.1(a) claims in respect of the Washington State tax
measures enacted under HB 2294, (see Section 7.6.2.1.1 above) that the measures before this
Panel at the compliance stage are not the same measures th at were before the original panel.
Rather, these measures are "instances of application " that are different from the original
measures. In addition, the law has changed, the measures have been altered, the facts and

703 While paragraph 32 of the European Union's panel request alleges that the measures in items I.A
through I.G are inconsistent with Articles III:1, III:4, and III:5 of the GATT 1994, in its first and second written
submissions, the European Union's claims in relation to Article III of the GATT 1994 are limited to alleged
inconsistency with Article III:4 of the GATT 1994. (See European Union's first written submission,
paras. 777-788; and second written submission, paras. 851-864). The European Union therefore appears not
to pursue its other claims under Article III of the GATT 1994.
704 United States' request for preliminary rulings, dated 13 November 2012, paras. 15-17 and 60; reply
to the European Union's response to the United States' request for preliminary rulings, dated
3 December 2012, paras. 14 and 25; and first written submission, paras. 81 and 84.
705 United States' first written submission, paras. 82, 84, and 89; request for preliminary rulings, dated
13 November 2012, paras. 16 and 17.
706 United States' first written submission, paras. 85, 670, and 671; second written submission,
para. 48.
707 United States' second written submission, para. 50.
709 European Union's second written submission, paras. 95 and 100.

evidence relied upon have changed and th e measures are not separable from other measures that
are within the scope of this compliance proceeding.710
7.419. As regards the claim under Article 3.1(a) of the SCM Agreement, the European Union
clarifies also that it is not arguing that each of the identified measures, viewed in isolation from all
of the other measures , is prohibited. Rather, taking into account all of the facts, each of the
identified measures is prohibited. 711 This is not a claim that could have been made in the original
proceedings because a substantial part of the facts relied upon only materialized in the intervening
period.712
7.420. Brazil argues that a Member cannot invoke Article 21.5 of the DSU to pursue a claim that it
could have pursued in the original proceeding, but chose not to raise or oth erwise abandoned at
some stage in the dispute settlement process. An implementing Member should be entitled to
presume that it need not address those unchallenged aspects in attempting to comply with the
DSB recommendations and rulings. 713 Brazil therefore c onsiders that the claims made by the
European Union under Article III:4 of the GATT 1994 are outside the scope of this proceeding,
since allowing a party to invoke Article 21.5 of the DSU to pursue claims that it could have pursued
in the original proceeding, but instead chose to abandon, would undermine the dispute settlement
system's functioning and predictability. 714 Where the situation involves new claims relating to a
measure for which the original panel rejected th e complaining Member's claims of incons istency
with a covered agreement, Brazil argues that the measures should be presumed to be consistent
with WTO obligations. To include such a measure within the scope of a compliance proceeding
would require the complaining Member to demonstrate that the m easure has undergone such
significant changes that it is a "measure taken to comply" with the adverse WTO decision.715
7.421. Canada considers that a complaining party should generally be precluded from raising
claims in compliance proceedings that it could have br ought in the original proceeding but did not.
To allow a complaining party to make a claim that it could have, but did not, raise in the original
proceeding would jeopardize fundamental fairness and due process rights since, in the absence of
a finding of a violation of its obligations, a respondent should be allowed to assume that its
measure is WTO-consistent.716 Canada considers that this principle applies to the claim s advanced
under Articles 3.1(a) and 3.1(b) with respect to the Washington State B&O tax rate reduction.717
7.422. Japan considers that respect for the due process rights of the responding party requires
that a complaining party generally should not be permitted to bring a claim in a compliance
proceeding that could have been brought in the original p roceeding. If an unchanged measure (or
unchanged elements of that measure) were subject to review by a compliance panel pursuant to a
claim that could have been, but was not, raised in the original proceeding, this would effectively
give the complaining pa rty an unfair "second chance". However , the question of whether a claim
could or could not have been brought in the original proceeding is fact -specific and should be
addressed on a case-by-case basis.718

710 European Union response to the United States' request for preliminary rulings, dated
23 November 2012, paras. 9, 43, and 44; supplemental submission on the United States' request for
preliminary rulings, paras. 21-23; and second written submission, paras. 97 and 102.
711 European Union's supplemental submission on the United States' request for preliminary rulings,
para. 23.
712 European Union's supplemental submission on the United States' request for preliminary rulings,
para. 23; second written submission, paras. 89, 95, and 100.
713 Brazil's third-party response to Panel question No. 1, paras. 3 and 4. Brazil argues that a
complaining Member cannot "present a long list of alleged violations in its panel request, drop some of them
during the proceedings, and then decide to reintroduce them in the compliance panel, as the system's
functioning and predictability would be undermined." See also Brazil's third-party submission, paras. 39 and
40.
714 Brazil's third-party submission, paras. 39 and 40.
715 Brazil's third-party submission, para. 41.
716 Canada's third-party response to Panel question No. 1, paras. 2 and 3.
717 Canada's third-party statement, paras. 5-7.
718 Japan's third-party response to Panel question No. 1, para. 5.

7.423. Korea considers that the United States' objections ar e based on an expansive concept of
"claim preclusion" that applies under U.S. domestic law.719 However, the WTO's dispute settlement
procedures (which do not allow "amendments" to the Panel's terms of reference to incorporate
issues that were not addressed i n the complaining party's consultation and panel requests) do not
appear to permit the flexibility that justifies the broad rule of claim preclusion applied in U.S. law.
Moreover, the relevant provisions of the DSU do not support the conclusion that broad rules of
claim preclusion should be applied in a compliance proceeding. 720 Korea considers that, as a
practical matter, the only claims barred in a compliance proceeding are those that were already
decided in the original proceeding.721
7.6.2.2.2 Evaluation by the Panel
7.424. The European Union 's panel request includes claims that all of the measures identified in
items I.A to I.G thereof (i.e. DOD aeronautics R&D measures, NASA aeronautics R&D measures,
FAA aeronautics R&D measure, Washington measures, FSC/ETI measures, Stat e of Kansas and
City of Wichita measures, and South Carolina measures) are inconsistent with Articles 3.1(a),
3.1(b), and 3.2 of the SCM Agreement and Article III of the GATT 1994. 722 For purposes of our
evaluation of whether the European Union is precluded from bringing certain claims in respect of
certain measures, based on the claims that the European Communities allegedly either made or
failed to make in respect of those measures in the original proceeding, it is helpful to identify four
different categories of measures:
a. Original measures that remain unchanged since the original proceeding : Certain of the
measures cited in items I.A to I.G of the European Union's panel request are measures
that were challenged by the European Communities in the original pr oceeding which
remain unchanged since the original proceeding , such as the Washington State B&O tax
rate reduction 723, the Washington State sales and use tax exemptions for computer
software, hardware, and peripherals , the City of Everett B&O tax rate reduct ion, the
FSC/ETI measures724, the tax abatements related to the City of Wichita IRBs, and the
pre-2007 NASA Space Act Agreements and pre-2007 DOD procurement contracts.
b. Original measures that have otherwise been amended since the original proceeding :
Certain other measures cited in items I.A to I.G of the European Union's panel request
are measures that have been amended, but not in purported compliance with the DSB
recommendations and rulings: i.e. the Washington State B&O tax credits for aerospace
preproduction/aerospace product development and the Washington State B&O tax credit
for property taxes , both of which have been amended to expand their scope of
application.
c. Original measures that have been amended since the original proceeding in purported
compliance with the DSB recommendations and rulings : Certain other measures cited in
items I.A to I.G of the panel request are measures that were before the original panel
that have been amended in order to comply with the DSB recommendations and rulings
in the o riginal proceeding (i.e. the pre-2007 NASA procurement contracts and DOD
assistance instruments at issue in the original proceeding, which were amended by the
respective Boeing Patent Licence Agreements).

719 Korea's third-party submission, para. 6 (referring to Commissioner v. Sunnen, 333, U.S. 591, 68
S.Ct. 715, 719, (1947), and Sea-Land Servs., Inc. v. Gaudet, 414 U.S. 573, 578-79, 94, S.Ct. 806, 812, reh'g
denied, 415 U.S. 986, 94 S.Ct. 1582 (1974)).
720 Korea's third-party submission, para. 7.
721 Korea's third-party submission, para. 11.
722 European Union's request for the establishment of a panel, paras. 30-32; and United States first
written submission, para. 85. The United States also requests a preliminary ruling that the European Union's
panel request does not satisfy the requirements of Article 6.2 of the DSU in relation to these claims. (See
United States' request for preliminary rulings, dated 13 November 2012, para. 45; and Section 7.6.1 of this
Report).
723 Excluding amendments effected by SSB 5952, which are outside the terms of reference of this Panel.
See Reasons for Declining the European Union's Request for Leave to File an Additional Submission Regarding
SSB 5952 in Section 7.7 below.
724 We note that the European Communities had brought claims under Article 3.1(a) against the FSC/ETI
measures in the original proceeding and the United States does not object to the European Union bringing
Article 3.1(a) claims against these measures in this compliance proceeding.

d. New measures that are within the scope of the compliance proceeding. In addition, there
are measures that have come into existence since the original proceeding, which the
European Union alleges the United States grants or maintains, and which the European
Union therefore challenges as evidencing a failur e of the United States to withdraw the
subsidy, or take appropriate steps to remove the adverse effects, within the meaning of
Article 7.8 of the SCM Agreement. These measures are the South Carolina measures, the
FAA aeronautics R&D measure, the JCATI meas ure, and the post -2006 NASA and DOD
aeronautics R&D measures.725
7.425. The United States' objections in this part of our findings concern measures in categories
(a), (b) , and (c) above. 726 There is no dispute between the parties that none of the measures
listed in paragraphs (a) or (b) of paragraph 7.424 above was challenged in the original proceeding
as being inconsistent with Articles 3.1(b) and 3.2 of the SCM Agreement or with Article III:4 of the
GATT 1994. With the exception of the Washington State tax measures enacted under HB 2294
(discussed in Section 7.2 of this Report) and the FSC/ETI measures, none of those measures was
challenged in the original proceeding as being inconsistent with Article 3.1(a) of the SCM
Agreement.
7.426. The Appellate Body stated in US – Upland Cotton (Article 21.5 – Brazil) that a complaining
party "ordinarily would not be allowed to raise claims in an Article 21.5 proceeding that it could
have pursued in the original proceedings, b ut did not ".727 At the meeting with the Panel, the
European Union sought to emphasize the use of the word "ordinarily" in that statement, and
suggested that a reasonable balance needs to be struck. We note that in a subsequent case , the
Appellate Body said that the use of "ordinarily" in the Upland Cotton compliance case did not mean
that such claims could never be brought.728 In US – Zeroing (EC) (Article 21.5 – EC), the Appellate
Body, overruling the panel, permitted the European Union to raise in a complianc e proceeding a
challenge to an "arithmetical error " allegedly committed by the USDOC in a Section 129
Determination that had been carried over from an anti -dumping determination that the
European Union had successfully challenged on other grounds in the or iginal proceeding. The
Appellate Body considered that the arithmetical error was an "integral" part of the Section 129
Determination because it affected the duty that was to be levied on the imports of that product
and allowed the challenge on that basis. It distinguished "inseparable" elements of compliance
measures from "separable" aspects which, ordinarily, could not be challenged at the compliance
stage if they were not challenged at the original stage. 729 For example, the aspect of the measure
that India sought to challenge at the compliance stage in the Bed Linen case was considered a
"separable" aspect of the compliance measure (a non -attribution analysis that was a distinct and
"separable" part of the causation analysis that carried over from the origi nal dumping
determination to the compliance measure because India had not successfully challenged it in the
original proceeding).730
7.427. There are some important differences between original and compliance proceedings. These
differences were explained by the App ellate Body in US – Softwood Lumber IV (Article 21.5 –
Canada):

725 In Section 7.2.2, we rule that the JCATI measure is outside the scope of this proceeding.
726 The United States does not object to the European Union bringing claims under Articles 3.1(a),
3.1(b), 3.2 of the SCM Agreement or Article III:4 of the GATT 1994 in relation to measures in category (d)
above on the basis that it should properly have brought these claims against these measures in the original
proceeding. However, it does allege that certain of these measures are not within the Panel's terms of
reference or are otherwise outside the scope of this proceeding. The Panel has ruled that the Phase II South
Carolina measures are outside the Panel's terms of reference (see Section 7.5.2) and that the JCATI measure
is outside the scope of this proceeding (see Section 7.2.2).
727 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 211.
728 Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), para. 431.
729 Appellate Body Report, US – Zeroing (EC) (Article 21.5 – EC), paras. 432-435.
730 See Appellate Body Report, EC – Bed Linen (Article 21.5 – India), para. 86:
Moreover, we do not see why that part of the redetermination that merely
incorporates elements of the original determination on "other factors" would
constitute an inseparable element of a measure taken to comply with the DSB
rulings in the original dispute. Indeed, the investigating authorities of the European
Communities were able to treat this element separately. Therefore, we do not
agree with India that the redetermination can only be considered "as a whole new
measure".
(emphasis added)

First, the composition of an Article 21.5 panel is, in principle, already determined –
wherever possible it is the original panel. These individuals will be familiar with the
contours of the dispute, and the experience gained from the original proceedings
should enable them to deal more efficiently with matters arising in an Article 21.5
proceeding "against the background of the original proceedings ". Secondly, the
time-frames are shorter – an Article 21.5 panel has, in principle, 90 days in which to
issue its report, as compared to the six to nine months afforded original panels.
Thirdly, there are some limits on the claims that can be raised in Article 21.5
proceedings.731
7.428. The Appellate Body continued:
Taken together, these observations underscore the balance that Article 21.5 strikes
between competing considerations. On the one hand, it seeks to promote the prompt
resolution of disputes, to avoid a complaining member having to initiate dispute
settlement proceedings afresh when an original measure found to be inconsistent has
not been brought into conformity with the recommendations and rulings of the DSB,
and to make efficient use of the original panel and its relevant experience. On the
other hand, the applicable time -limits are shorter than those in original proceedings,
and there are limitations on the types of claims that may be raised in Article 21.5
proceedings. This balance should be borne in mind in interpreting Article 21.5 and, in
particular, in determining the measures that may be evaluated in proceedings
pursuant to that provision.732
7.429. As to the limitations on claims that can be raised in a compliance proceeding, we begin
from the proposition that "ordinarily" a complaining party is not allowed "to raise claims in an
Article 21.5 proceeding that it could have pursued in the original proceedings, but did not".733 We
acknowledge, on the other hand, that a complaining party may bring a new claim challenging a
new measure, which is different from the measure at issue in the original proceeding, or a new
component of a measure taken to comply that was not part of the original measure.734
7.430. In resolving whether the European Union can bring claims under Articles 3.1(a), 3.1(b),
and 3.2 of the SCM Agr eement, and under Article III:4 of the GATT 1994, in respect of measures
against which it had not made such claims in the original proceeding, we bear in mind the need to
strike a balance between prompt resolution of the dispute from the perspective of the complaining
party and the due process concerns that would arise in relation to the responding party if a
complaining party were permitted to raise in compliance proceedings claims which, as a legal and
practical matter, could have been raised and pursued in the original dispute.735
7.431. As is evident from our consideration of other preliminar y objections made by the
United States, we think it is reasonable that the European Union in this compliance proceeding
should be permitted to pursue its claims against orig inal measures that were not definitively
resolved on the merits in the original proceeding in the interests of fairly, promptly , and efficiently
resolving the dispute between the parties. 736 These considerations have also affected the way in
which we have ap plied the close nexus test for purposes of determining the measures that are
within the scope of this compliance proceeding. 737 However, we are equally cognizant of the fact
that there are limits to the scope of compliance p roceedings. The European Communiti es' panel
request in the original proceeding did not include claims under Article s 3.1(a) and 3.2 of the SCM
Agreement (other than with respect to the Washington State tax measures enacted under HB 2294
and the FSC/ETI measures), or under Article 3.1(b) an d 3.2 of the SCM Agreement, and the

731 Appellate Body Report, US – Softwood Lumber IV (Article 21.5 – Canada), para. 71. (fns omitted)
732 Appellate Body Report, US – Softwood Lumber IV (Article 21.5 – Canada), para. 72.
733 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 211.
734 Appellate Body Reports, Canada – Aircraft (Article 21.5 – Brazil), para. 41; EC – Bed Linen
(Article 21.5 – India), paras. 88 and 89; and US – Softwood Lumber IV (Article 21.5 – Canada), para. 71 and
fn 110.
735 See Panel Report, EC – Bed Linen (Article 21.5 – India), para. 6.43 and the reference therein to
Appellate Body Report, US – FSC, para. 166: "{t}he procedural rules of WTO dispute settlement are designed
to promote, not the development of litigation techniques, but simply the fair, prompt and effective resolution of
trade disputes."
736 See Sections 7.2.1 and 7.3.2.
737 See Sections 7.2.2, 7.4, and 7.5.1.

European Communities in its submissions to the original panel elected not to pursue the
Article III:4 GATT claims it had raised. In this li ght, we do not consider that the Panel should
consider those claims against those original measures for the first time in this compliance
proceeding. To do so would, in our view, amount to an impermissible expansion of the scope of the
dispute beyond that defined by the original panel request, and the original proceeding as actually
pursued by the complaining party.
7.432. We therefore grant the United States ' request in relati on to the claims under
Articles 3.1(a), 3.1(b) , and 3.2 of the SCM Agreement and Article III:4 of the GATT 1994 in
respect of original measures that have remained uncha nged since the original proceeding, i.e.
those in category (a) of paragraph 7.424 above (other than the claims under Article 3.1(a) of the
SCM Agreement concerning the Washington State B&O tax rate reduction and the Washington
State sales and use tax exemptions for computer software, hardware, and peripherals , which are
the subject of a separate objection that we have addressed in Section 7.6.2.1.2 of this Report, and
the FSC/ETI measures).
7.433. The question that next arises is whether we should also grant t he United States' request in
respect of original measures that have been amended since the original proceeding, i.e. those in
categories (b) and (c) of paragraph 7.424 above.
7.434. As regards the original measures that have otherwise been amended since the original
proceeding, it appears to us, based on the nature of those a mendments, that if the
European Union were permitted to bring claims under Articles 3.1(a), 3.1(b), and 3.2 of the SCM
Agreement, and under Article III:4 of the GATT 1994 at the compliance stage, when it had failed
to challenge those measures under the relevant provisions of the WTO Agreements in the original
proceeding, it would be impermissibly expanding the s cope of the dispute beyond that defined by
its panel request in the original proceeding. We therefore grant the United States' request in
relation to these measures (other than the claims under Article 3.1(a) of the SCM Agreement
concerning the Washington State B&O tax credits for aerospace preproduction/aerospace product
development, and the Washington State B&O tax credit for property taxes, which are the subject
of a separate objection that we have addressed in Section 7.6.2.1.2 of this Report).
7.435. As regards those original measures that were amended in order to comply with the DSB
recommendations and ruling s, namely, the pre -2007 NASA procurement contracts and DOD
assistance instruments, which were amended by the respective Boeing Patent Licence Agreements,
we see no thing in the European Union 's claims under Articles 3.1(a), 3.1(b) , and 3.2 of the SCM
Agreement, or under Article III:4 of the G ATT 1994, to indicate that the claims concern new
components of these declared measures taken to comply which were not part of the original
measures. In other words, the European Union's claims under Articles 3.1(a), 3.1(b) , and 3.2 of
the SCM Agreement and under Article III:4 of the GATT 1994 in respect of the pre-2007 NASA
procurement contr acts and DOD assistance instruments , as amended by the respective Boeing
Patent Licence Agreements, are claims that it could have raised in relation to those measures in
the original proceeding. We therefore see the situation before us as different from that in Canada –
Aircraft (Article 21.5 – Brazil), where Canada had implemented the recommendation of the DSB by
adopting a "new and different " measure.738 We therefore grant the United States' request in
relation to this category of original measure.
7.436. We therefore conclude that the European Union is precluded from making claims
under 3.1(b) and 3.2 of the SCM Agreement, and under Article III:4 of the GATT in
respect of the following measures:
a. the Washington State B&O tax rate reduction;
b. the Washington State sa les and use tax exemptions for computer software,
hardware, and peripherals;

738 Appellate Body Reports, Canada – Aircraft (Article 21.5 – Brazil), para. 36; and EC – Bed Linen
(Article 21.5 – India) para. 88.

c. the Washington State B&O tax credits for aerospace preproduction/aerospace
product development739;
d. the Washington State B&O tax credit for property taxes740; and
e. the FSC/ETI measures.
7.437. We further conclude that the European Union is precluded from making claims
under Articles 3.1(a), 3.1(b), and 3.2 of the SCM Agreement, and under Article III:4 of
the GATT 1994 in respect of the following measures:
a. the City of Everett B&O tax rate reduc tion, the tax abatements related to the
City of Wichita IRBs, and the pre -2007 NASA Space Act Agreements and DOD
procurement contracts; and
b. the pre-2007 NASA procurement contracts and DOD assistance instruments at
issue in the original proceeding, which we re amended by the respective Boeing
Patent Licence Agreements.
7.438. For the sake of completeness, we note that this ruling means that in this compliance
proceeding, the European Union may validly make claims under Articles 3.1(a), 3.1(b), and 3.2 of
the SCM Agr eement, and under Article III:4 of the GATT 1994 in respect of the South Carolina
measures that are otherwise within the Panel's terms of reference or otherwise within the scope of
this proceeding, the FAA aeronautics R&D measure, and the post-2006 NASA and DOD aeronautics
R&D measures, none of which were measures challenged in the original proceeding. The
European Union may also validly make claims under Articles 3.1(a) and 3.2 of the SCM Agreement
against the FSC/ETI measures.
7.7 Reasons for Declining the Eu ropean Union's Request for Leave to File an Additional
Submission Regarding SSB 5952
7.439. This Section contains the ruling " Reasons for Declining the European Union's Request for
Leave to File an Additional Submission Regarding SSB 5952 ", which was issued to th e parties on
18 September 2014. The Panel has made changes to the formatting to accommodate its inclusion
in this Report. The substance of the ruling is identical to that issued to the parties.
7.7.1 Introduction
7.440. As foreshadowed in our communication of 27 May 20 14, we hereby issue the reasons
underlying our decision to decline the European Union 's request for leave to file an additional
submission detailing the legal ramifications of Washington State Legislature Substitute Senate
Bill 5952 (SSB 5952).741
7.441. Our decision whether to grant leave turns, in the first instance, on whether the measures
in question are within this Panel 's terms of reference. If they are not, there is no basis for us to
consider further submissions from the parties on the implications of SSB 5 952 and it is proper to
decline the European Union 's request. We have concluded that the Washington State tax
measures, as amended by SSB 5952, are not within the Panel's terms of reference.
7.442. As we explain in greater detail in these reasons, we understand t he requirements of
Article 6.2 of the DSU to be such that the measures included in a panel 's terms of reference will
ordinarily be measures that are in existence at the time of the establishment of the panel. There
are, however, particular, limited circums tances in which measures coming into existence
subsequent to a panel request are within a panel 's terms of reference. Where a panel request is
sufficiently broad to cover amendments and modifications to explicitly identified measures, new
measures coming into existence after the date of the panel request will be within the panel's terms

739 As amended by HB 2466 and by SSB 6828, respectively.
740 As amended by HB 2466 and by SSB 6828, respectively.
741 Engrossed Substitute Senate Bill 5952, chapter 2, Laws of 2013, 63rd Leg., 3rd Spec. Sess.
(Wash. 2013), appendix to the European Union's letter to the Panel, dated 4 March 2014 (hereafter SSB 5952).

of reference only to the extent that they amend or modify explicitly identified measures without
changing their essence, in light of the claims made by the complaining party . We consider that the
amendments effected by SSB 5952 change the nature of the Washington State measures that will
operate from 1 July 2024 in a significant respect in light of th e claims made by the
European Union. We therefore do not consider that, in t he context of the specific claims made in
this dispute, the Washington State tax measures can be said to remain essentially unchanged
following the enactment of SSB 5952. Moreover, we do not regard the inclusion of the Washington
State tax measures as amen ded by SSB 5952 within the Panel 's terms of reference as necessary
for the Panel to assess whether there has been compliance, or otherwise consider that the
exclusion of the amendments to the Washington State tax measures effected by SSB 5952 from
this proceeding will frustrate the function of this compliance Panel.
7.443. In the following sections of these reasons, we first summarize the background to the
European Union's request for leave to file a further submission and the basis on which the Panel
has reviewed and considered the arguments and factual material submitted by the European Union
in support of its request. We then provide an overview of the Washington State tax measures
already at issue in this proceeding, as well as an explanation of SSB 5952 and of how, according to
the European Union, SSB 5952 affects the nature of the claims made by the European Union in
respect of those measures in this proceeding. We then summarize the arguments presented by the
parties as to whether the Washington State tax mea sures, as amended by SSB 5952, are within
our terms of reference before setting forth our evaluation of this issue.
7.7.2 Background to the European Union's request
7.444. By letter dated 4 March 2014, the European Union informed the Panel that the Washington
State Legislature had recently passed legislation amending "the 2003 legislation subject to findings
and recommendations in the original proceedings ".742 The European Union asserted that these
"additional measures taken to comply by the United States " have "dramatically increased the level
of US non-compliance with its WTO obligations, including with the recommendations and rulings of
the DSB".743
7.445. The European Union submitted that:
{A}s part of its effort to induce Boeing to manufacture components locally and use
those components in assembly of the 777X in Washington State, the State legislature
recently amended the 2003 legislation subject to findings and recommendations in the
original proceedings, and significantly extended, in time and value, a string of
powerful tax incentives for Boeing.744
7.446. Moreover, according to the European Union:
{T}he extension of these subsidies was conditioned, by law, on a decision by Boeing
to manufacture components for the 777X in Washington State, and to use those
components in the assembly of the aircraft in Washington State. Following adoption by
the State Legislature of the amendments to the 2003 subsidy package in
November 2013, Boeing took the decision to meet these conditions in January 2014,
and finally announced, on 18 February 201 4, that it would locate its new 777X
composite wing centre in Everett, Washington.745
7.447. The European Union alleges that, as a result of conditions established by these
amendments, the Washington State tax measures : (a) constitute prohibited subsidies continge nt
upon the use of domestic over imported goods, in violation of Article 3.1(b) of the SCM
Agreement; and (b) are inconsistent with the national treatment obligation in Article III:4 of the
GATT 1994 "in a manner that reiterates and significantly develops the violations of these same
provisions" that the European Union has previously raised. The European Union additionally alleges

742 European Union's letter to the Panel, dated 4 March 2014, para. 1.
743 European Union's letter to the Panel, dated 4 March 2014, para. 1.
744 European Union's letter to the Panel, dated 4 March 2014, para. 1.
745 European Union's letter to the Panel, dated 4 March 2014, para. 2. (fn omitted)

that the extension of the Washington State tax measures strengthens the causal link between the
U.S. subsidies and the 777X-, 787- and 737 MAX-related adverse effects.746
7.448. The European Union therefore requested leave from the Panel to file an additional
submission detailing "the legal ramifications of the 2013 amendments to the Washington State
measure".747
7.449. In support of its request f or leave to file a further submission, the European Union argues
that its claims against the Washington State tax measures, as amended by SSB 5952, properly fall
within the terms of reference and jurisdiction of this compliance proceeding. 748 According to th e
European Union, each of the Washington State tax measures, as amended by SSB 5952, is the
very same measure and thus remains within the scope of the proceeding. 749 The remainder of the
European Union 's letter of 4 March 2014 contains a "description of the Washington State
measures" and an "overview" of the arguments the European Union would offer in support of its
legal claims should the Panel grant its request.
7.450. By a communication dated 11 March 2014, the Panel requested the United States to
respond to the European Union's request, addressing the question of whether, and the basis on
which, the Panel should proceed to examine in this compliance proceeding the "additional
measures taken to comply by the United States " using the phrase that had been used by th e
European Union to describe SSB 5952 in the first sentence of its request.750
7.451. Following an exchange of views on this issue by the United States in a letter dated
21 March 2014, a response by the European Union in a letter dated 31 March 2014, and comments
on that response by the United States in a letter dated 9 April 2014, the Panel on 27 May 2014
indicated to the parties that it had decided to decline the European Union 's request and would
issue the reasons underlying this decision in due course.751
7.7.3 The Pa nel's consideration of the argument and factual material provided in the
European Union's request of 4 March 2014
7.452. At the outset, we wish to clarify the basis on which we have considered the argumentation
and factual material submitted by the European Union in support of its request for leave, in light of
an objection made by the United States.
7.453. As part of its response to the European Union's request for leave, the United States objects
to what it considers to be the European Union 's "unsolicited submission of new factual evidence
and supplemental argumentation " in the European Union 's letter of 4 March 2014, which the
United States submits is contrary to paragraph 15 of the Panel's Working Procedures.752
7.454. According to the United States, the European Union 's letter of 4 March 2014 purports to
submit a "new exhibit" in the annex to its letter (this being the SSB 5952 legislation) and other
allegedly relevant facts cited in its letter of 4 March 2014, well after its first written submission or
the time for rebutta ls or answers to questions. 753 The United States considers that the
European Union has failed to show good cause for the Panel to allow the submission of such
facts.754 The United States argues that, to the extent that any factual information related to the
SSB 5952 legislation is relevant to the European Union 's existing claims, and relevant to the
Panel's questions, it could have submitted the legislation when submitting its responses to the

746 European Union's letter to the Panel, dated 4 March 2014, para. 1.
747 European Union's letter to the Panel, dated 4 March 2014, para. 2.
748 European Union's letter to the Panel, dated 4 March 2014, para. 18.
749 European Union's letter to the Panel, dated 4 March 2014, para. 18. See also European Union's letter
to the Panel, dated 31 March 2014, para. 7.
750 Communication from the Panel, dated 11 March 2014.
751 Communication from the Panel, dated 27 May 2014. By letter dated 25 July 2014, the
European Union referred to the 27 May 2014 Communication from the Panel and requested the Panel to issue
the reasons underlying its decision to decline the European Union's request for leave to file the additional
submission concerning the matters raised in the European Union's request of 4 March 2014 as soon as
possible. (European Union's letter to the Panel, dated 25 July 2014).
752 United States' letters to the Panel, dated 21 March 2014, para. 8, and dated 9 April 2014, para. 16.
753 United States' letter to the Panel, dated 21 March 2014, para. 8.
754 United States' letter to the Panel, dated 21 March 2014, para. 8.

Panel's first set of questions on 5 December 2013, o r when commentin g on the
United States' responses, to the extent relevant, on 19 December 2013.755
7.455. While the United States acknowledges that requesting leave to file a new submission is
not, in and of itself, inconsistent with the Panel 's Working Procedures, it objects to the "pages and
pages of new argumentation and new evidence that the EU grafted onto its request ", which it
considers are not permitted by the Working Procedures. 756 According to the United States, the
"right accorded under those procedures to ask for leave t o provide additional information does not
imply a right to provide information and arguments in the effective form of an additional
submission and then ask for leave ".757 The United States alleges that European Union 's request is
a "thinly veiled attempt to supplement legal claims that it has thus far failed to articulate
coherently" in its submissions. 758 The United States thus requests t he Panel to reject the
European Union's "unsolicited submission of new factual evidence and supplemental argument ", to
disregard the European Union's "submission" and to "clarify that the exhibit to that submission will
not be considered as part of this proceeding".759
7.456. The European Union disagrees that the submission of additional evidence and arguments
with its request of 4 Marc h 2014 contravenes the Panel 's Working Procedures, and that the
European Union could have (and should have) submitted any additional evidence and arguments
earlier in this proceeding.760 The European Union considers that, in seeking leave from the Panel to
file an additional submission, including factual evidence, and explaining the reasons for seeking
leave, it has demonstrated "good cause " and has fully complied with the Panel 's Working
Procedures.761
7.457. Moreover, the European Union rejects the suggestion that i t could have raised the issue of
the impact of SSB 5952 on its claims regarding the Washington State tax measures in its
responses to the Panel 's questions or comments on the United States ' responses to the Panel 's
questions in December 2013. While the Eur opean Union did refer to SSB 5952 in one of its
answers to the Panel 's questions, the legislation did not take effect until February 2014, and until
then, it was not clear that the Washington State tax measures would actually be amended and
extended.762
7.458. Paragraph 15 of the Panel's Working Procedures provides:
Parties shall submit all factual evidence to the Panel no later than their first written
submissions, other than evidence necessary for purposes of rebuttals and answers to
questions. Exceptions to this procedure may be granted upon a showing of good
cause. In such a case, the other party shall be accorded a period of time for comment
on the newly submitted evidence, as the Panel deems appropriate.
7.459. As noted earlier, in support of its request for leave, th e European Union submitted as an
annex to its letter of 4 March 2014 the text of SSB 5952, as signed into law on
11 November 2013. It also included a number of footnote references to materials not previously
submitted as exhibits in this proceeding in supp ort of various assertions it makes in its request for
leave.763

755 United States' letter to the Panel, dated 21 March 2014, para. 9. The United States notes that the
European Union did refer to the SSB 5952 legislation in response to Panel question No. 8 but failed to present
the Panel with any of the additional information set forth in the European Union's letter to the Panel, dated
4 March 2014.
756 United States' letter to the Panel, dated 9 April 2014, para. 16.
757 United States' letter to the Panel, dated 9 April 2014, para. 16.
758 United States' letters to the Panel, dated 21 March 2014, paras. 10 and 11, and dated 9 April 2014,
para. 17.
759 United States' letters to the Panel, dated 21 March 2014, paras. 8 and 11, and dated 9 April 2014,
para. 17.
760 European Union's letter to the Panel, dated 31 March 2014, para. 25.
761 European Union's letter to the Panel, dated 31 March 2014, para. 26.
762 European Union's letter to the Panel, dated 31 March 2014, para. 27.
763 These footnote references include matters such as the date on which SSB 5952 was signed into law
and entered into effect, Boeing's announcement to locate its 777X composite wing centre in Everett,
Washington, its estimates of the value of the extension of the Washington State tax incentives, alternative

7.460. This material was submitted by the European Union in support of its request for leave to
file a further submission concerning developments subsequent to the normal deadline for
submitting factu al information provided in the Working Procedures. To the extent that factual
information submitted for this limited and specific purpose constitutes "factual evidence" in this
proceeding, within the meaning of paragraph 15 of the Working Procedures, we co nsider there
would nevertheless be "good cause " for us to consider it for such a purpose in the particular
situation before us. Similarly, we do not consider that the argumentat ion made in the
European Union's letter of 4 March 2014 goes to the merits of t he claims before us. Rather, it
relates to matters the European Union considers relevant to our consideration of its request for
leave; namely, the arguments it would make in relation to claims concerning the Washington State
tax measures as amended by SSB 5952 if leave were granted. In short, the purpose of the
European Union's request, and the material submitted in support of that request, is to obtain the
Panel's leave, in accordance with paragraph 15 of the Working Procedures, to submit additional
arguments and evidence at some point in the future.764
7.461. We have reviewed the European Union 's request for leave to file an additional submission
on the basis of the factual information it has provided in support of that request, including its
explanations of the arguments it would seek to make in any subsequent submission were the Panel
to grant leave. We do not see how we could adequately consider the European Union 's request if
we did not take this material into account. The United States has not specifically ch allenged the
accuracy or authenticity of the factual information provided by the European Union, or taken issue
with the European Union's explanations of the operation of SSB 5952. 765 While we have ultimately
decided to decline the European Union 's request f or leave, owing to our conclusion that the
Washington State tax measures as amended by SSB 5952 are outside the Panel 's terms of
reference, we have done so after fully considering the factual material submitted by the
European Union in its letter of 4 Marc h 2014, as well as the arguments of the parties in
subsequent exchanges in March and April of 2014. We consider this to be entirely proper and
consistent with our Working Procedures.
7.7.4 The Washington State tax measures challenged by the European Union in th is
proceeding
7.462. The European Union 's claims in this proceeding include claims under Articles 3.1(a),
3.1(b), and 3.2 of the SCM Agreement, Article III:4 of the GATT 1994 and Articles 5(c) and 6.3 of
the SCM Agreement, against certain tax measures in the Revi sed Code of Washington that were
originally enacted by the State of Washington in 2003 pursuant to HB 2294. These Washington
State tax measures are as follows:
a. Washington State B&O tax rate reduction for manufacturers of commercial aircraft766;
b. Washington State B&O tax credits for preproduction/aerospace product development767;

locations that Boeing was considering for the manufacture of the composite wings for the 777X, a recent
significant order for the Boeing 777-9X, estimates of development costs for the 777X and an argument made
by the United States in another dispute concerning large civil aircraft. (See European Union's letter to the
Panel, dated 4 March 2014, fns 2, 5, 8, 13, 19, 20, 29, 30, 42, 46, and 58).
764 We do not consider that the European Union can be faulted for failing to submit factual information
concerning SSB 5952 in its responses to the Panel's questions, or in its comments on the
United States' responses, as the contingency on which the legislation was expressed to enter into effect had
not then occurred.
765 We note that the United States has indicated that, should the Panel "accept the EU's submission
March 4 and/or grant the EU's request to file a second additional submission", the United States requests
sufficient opportunities to respond to the "numerous procedural, terms of reference, factual and substantive
legal issues raised by the EU's submission(s)". (United States' letter to the Panel, dated 21 March 2014,
para. 11). However, had there been any material factual inaccuracies in the material submitted by the
European Union in relation to the enactment and effectiveness or operation of SSB 5952, the United States
should properly have alerted the Panel to such inaccuracies in its letters of 21 March 2014 and 9 April 2014.
766 Codified at Revised Code of Washington (RCW) 82.04.260(1). See European Union's request for the
767 Codified at RCW 82.04.4461. See European Union's request for the establishment of a panel,
para. 17; and first written submission, para. 461. This B&O tax credit for preproduction development was
amended through Section 7 of State Substitute Bill 6828 (SSB 6828) to expand its application to all "aerospace
product development", effective 30 June 2008, rather than just "preproduction development". SSB 6828 also

c. Washington State B&O tax credit for property taxes and for leasehold excise taxes
granted pursuant to HB 2466768; and
d. Washington State sales and use tax exemptions for computer software, hardware, and
peripherals.769
7.463. The European Communities had previously challenged the Washington State tax measures
enacted through HB 2294 in the original proceeding, other than the B&O tax credit for leasehold
excise taxes, which arose pursuant to a subseq uent amendment to that legislation. 770 The
United States has requested a number of preliminary rulings concerning, inter alia, the Washington
State tax measures and the European Union 's claims regarding those measures. It is not
necessary to explain the prec ise nature of the United States ' request for preliminary rulings in
these reasons, other than to note that the parties dispute whether any of the Washington State
tax measures other than the B&O tax rate reduction are within the scope of this compliance
proceeding, and whether the European Union 's claims under Article 3.1(b) and 3.2 of the SCM
Agreement as well as under Article III:4 of the GATT 1994 concerning all measures, including the
Washington State tax measures, are properly before this compliance Panel.
7.464. As the original panel explained, the Washington State Legislature passed HB 2294 in 2003.
The legislation, which implemented a number of amendments to the Revised Code of Washington,
was expressed to relate to "retaining and attracting the aerospace i ndustry to Washington State "
and to include "comprehensive tax incentives" directed at achieving this aim. 771 HB 2294 entered
into effect:
{O}n the first day of the month in which the governor and a manufacturer of
commercial airplanes sign a memorandum of agreement regarding an affirmative final
decision to site a significant commercial airplane final assembly facility in Washington
state.772
7.465. A "significant commercial airplane final assembly facility " was defined in HB 2294 as "a
location with the capacity to produce at least thirty -six super -efficient airplanes a year ". A
"super-efficient airplane" was defined as a "twin aisle airplane that carries between two hundred
and three hundred fifty passengers, with a range of more than seven thousand two hundred
nautical miles, a cruising speed of approximately mach .85, and that uses fifteen to twenty per
cent less fuel than other similar airplanes on the market. "773 Provided that assembly of a
super-efficient airplane had begun by 31 December 2007, the Washington Stat e tax measures
were to remain in place until 1 July 2024.774
7.7.5 SSB 5952 and its implications for the European Union 's claims regarding the
Washington State tax measures
7.7.5.1 SSB 5952
7.466. SSB 5952 was passed by the Washington State Legislature on 9 November 2013 and
signed into law by the Governor on 11 November 2013. The preamble to the Bill describes it as:

expanded the eligible entities and persons that may claim the credit for expenditures after 30 June 2008 to
include non-manufacturing entities. (Substitute Senate Bill 6828, "Aerospace Tax Incentives", Washington
Session Laws 365 (2008), (Exhibit EU-434)).
768 Codified at RCW 82.04.4463. See European Union's request for the establishment of a panel,
para. 17; and first written submission, para. 474. The B&O tax credit for leasehold excise taxes measure, while
presented in the European Union's first written submission as a measure distinct from the B&O tax credit for
property taxes, was enacted under Section 10 of House Bill 2466, 2006 Wash. Sess. Laws 787 (HB 2466) as an
amendment to the B&O tax credit on property taxes codified in RCW 82.04.4463. (See European Union's
request for the establishment of a panel, para. 17).
769 Codified at RCW 82.08.975 and 82.12.975. See European Union's request for the establishment of a
770 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.42.
771 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.41.
772 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.43.
773 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.44.
774 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.49 and 7.215.

AN ACT Relating to incentivizing a long -term commitment to maintain and grow jobs
in the aerospace industry in Washington state by extending the expiration date of
aerospace tax preferences and expanding the sales and use tax exemption for the
construction of new facilities used to manufacture superefficient airplanes to include
the construction of new facilities used to manufacture commercial airplanes or the
wings or fuselage of commercial airplanes; amending RCW … 82.04.260 …
82.04.4461, 82.04.4463, 82.08.975, 82.12.975 … .
7.467. SSB 5952, inter alia, amends the sections of the Revised Code of Washington that reflect
the Washington State tax incentives implemented throu gh HB 2294 which are challenged by the
European Union in this proceeding. Pursuant to SSB 5952:
a. the expiration date for the Washington State B&O tax rate reduction for manufacturers
of commercial aircraft is extended from 1 July 2024 to 1 July 2040775;
b. the expiration date for the Washington State B&O tax credits for
preproduction/aerospace product development is extended from 1 July 2024 to
1 July 2040776;
c. the expiration date for the Washington State B&O tax credit for property taxes and for
leasehold excise t axes granted pursuant to HB 2466 is extended from 1 July 2024 to
1 July 2040777; and
d. the expiration date for the Washington State sales and use tax exemptions for computer
software, hardware, and peripherals is extended from 1 July 2024 to 1 July 2040.778
7.468. Section 2 of SSB 5952 provides that the entire Act takes effect "contingent upon the siting
of a significant commercial airplane manufacturing program in the state of Washington " by
30 June 2017.779 "Siting" means a final decision, made on or after 1 November 2 013, by a
manufacturer to locate a significant commercial airplane manufacturing program in Washington
State.780 A "significant commercial airplane manufacturing program" is defined as:
{A}n airplane program in which the following products, including final a ssembly, will
commence manufacture at a new or existing location within Washington state on or
after the effective date of this section:
(i) The new model, or any version or variant of an existing model of a commercial
airplane; and
(ii) Fuselages and wing s of a new model, or any version or variant of an existing
model, of a commercial airplane.781
7.469. A "new model, or any version or variant of an existing model, of a commercial airplane "
means a commercial airplane manufactured with a carbon fiber composite fuse lage or carbon fiber
composite wings or both.782
7.470. The European Union refers to the above condition for the effectiveness of SSB 5952 as the
"programme-siting condition" in which the extensions of the tax incentives were made contingent
upon Boeing 's decision : (a) to locate production of the wings and fuselage for the 777X in
Washington State; and (b) to use those wings and fuselages in final assembly of the 777X, also in
Washington State. In other words, in order for the Washington State tax incentives to exte nd

775 SSB 5952, sections 5(11) and 6(11).
776 SSB 5952, section 9(8).
777 SSB 5952, section 10(6).
778 SSB 5952, sections 11(4) and 12(3).
779 SSB 5952, section 2(1).
780 SSB 5952, section 2(2)(d).
781 SSB 5952, section 2(2)(c).
782 SSB 5952, section 2(2)(b).

beyond 2024, Boeing was required to commit to use wings and fuselages produced or assembled
in Washington State in the final assembly of the 777X in Washington State.783
7.471. In addition, sections 5 and 6 of SSB 5952, which concern the B&O tax rate reduction, add
the following condition through a new subsection (e)(ii) added to RCW 82.04.260(11):
With respect to the manufacturing of commercial airplanes or making sales, at retail
or wholesale, of commercial airplanes, this subsection (11) does not apply on or after
July 1 st of the year in which the department makes a determination that any final
assembly or wing assembly of any version or variant of a commercial airplane that is
the basis of a siting of a significant commercial airplane manufacturing program in the
state under section 2 of this act has been sited outside the state of Washington. This
subsection (11)(e)(ii) only applies to the manufacturing or sale of commercial
airplanes that are the basis of a siting of a significant commercial airplane
manufacturing program in the state under section 2 of this act.
7.472. The European Union refers to this condition as the "exclusive-production condition" which
applies solely to the availability of the B&O tax rate reduction for revenues in respect of the 777X.
Under this condition, the B&O tax rate reduction would not apply to 777X revenues if and when
Boeing were to conduct any final assembly or any wing assembly for the 777X outside of
Washington State.784
7.473. As noted earlier, the European Union claims that each of the m easures identified in its
panel request, including the Washington State tax measures, is inconsistent with Articles 3.1(b)
and 3.2 of the SCM Agreement, Article III:4 of the GATT 1994 , and Articles 5(c) and 6.3 of the
SCM Agreement. In Sections 7.7.5.2 to 7.7.5.4 below, we summarize the arguments that the
European Union makes in support of those claims as they concern the Washington State tax
measures, as well as the arguments that the European Union has foreshadowed it would make in
relation to the Washington State tax measures as amended by SSB 5952, if leave were granted to
file a submission regarding the implications of SSB 5952.
7.7.5.2 The European Union 's claims under Articles 3.1(b) and 3.2 of the SCM
Agreement with respect to the Washington State tax measures in its written
submissions and as foreshadowed in its 4 March 2014 letter, as a result of SSB 5952
7.474. With respect to its claims under Article 3.1(b) and 3.2 of the SCM Agreement, the
European Union alleges in its submissions, based on a series of extracts from documents relating
to the various measures:
a. that Boeing is to produce certain goods in the United States, which are thus goods of US
origin, which are destined to be used in the manufacture o f Boeing LCA to the exclusion
of imported goods;
b. that Boeing is to maintain certain employment levels in the United States which far
exceed anything that would be necessary to produce LCA without any material local
value added, and therefore necessarily imply the use of some U.S. domestic goods;
c. that Boeing is to locate substantial development or production activities in the
United States that it would be implausible to carry on solely on the basis that all
materials would be imported, and thus which necess arily imply the use of some U .S.
domestic goods;

783 European Union's letter to the Panel, dated 4 March 2014, para. 12. The European Union asserts that
Boeing announced its decision to manufacture the fuselage and large composite wing for the 777X in
Washington State on 4 January 2014, and because this occurrence satisfied the programme-siting condition,
SSB 5952 became effective as of 8 February 2014. (European Union's letter to the Panel, dated 4 March 2014,
para. 13 and fns 19 and 20).
784 European Union's letter to the Panel, dated 4 March 2014, paras. 14-17. According to the
European Union, in contrast to the "programme-siting condition" which affects the availability of the
Washington State tax measures only after 2024, the "exclusive-production condition" affects the availability of
the B&O tax rate reduction for 777X-related revenue realized both before and after 2024.

d. that statements attributable to the United States or Boeing refer expressly to the use of
U.S. domestic goods or labour, or a proxy thereof, and are in nature both of
encouragement or direction going forward , and at the same time, reward for past
performance. Taken as a whole, these frequently reiterated statements have telegraphed
a clear signal to Boeing that, should it favour the use of U.S. domestic goods and labour,
it will be rewarded through the furthe r granting or maintaining of subsidies, and at the
same time, a clear signal back to the United States government that Boeing will continue
to favour local goods and labour so long as the United States keeps granting or
maintaining subsidies.785
7.475. According to the European Union, "through this system of subsidies, the United States has
conditioned Boeing's behaviour so as to induce or incentivise the use of domestic over imported
goods."786 These arguments and evidence are applicable to all of the measures chall enged in the
proceeding, including the Washington State tax measures.
7.476. In its letter of 4 March 2014, the European Union foreshadows that it would, if granted
leave to file a further submission, argue that as a result of the "programme-siting condition" and
the "exclusive-production condition" contained in SSB 5952, the Washington State tax measures
as amended by SSB 5952, constitute prohibited subsidies contingent on the use of domestic over
imported goods, within the meaning of Article 3.1(b) of the SCM Agreement.787
7.477. More specifically, the European Union would argue that, pursuant to the "programme-siting
condition" in Section 2 of SSB 5952, the Washington State tax incentives received by Boeing after
2024 are conditional on the establishment of a new commerc ial aircraft manufacturing programme
that assembles an aircraft using goods (i.e. fuselages and wings) produced in the United States
(i.e. Washington State). The Washington State tax incentives would not have been extended in
duration to 2040 had Boeing de cided to "use", in the assembly of the 777X, wings and fuselages
that were imported. 788 In addition, the European Union would argue that, pursuant to the
"exclusive-production condition ", the B&O tax rate reduction for the 777X is conditional upon
Boeing's use of wings exclusively produced in the United States (i.e. Washington State). Under this
condition, Boeing will benefit from the B&O tax rate reduction for the 777X only if it "uses" wings
assembled exclusively in Washington State for the 777X or any variant thereof.789
7.7.5.3 The European Union 's claims under Article III:4 of the GATT 1994 with respect
to the Washington State tax measures in its written submissions and as foreshadowed
in its 4 March 2014 letter, as a result of SSB 5952
7.478. With respect to its claims under Article III:4 of the GATT 1994, the European Union alleges
in its submissions that:
a. the laws, regulations and requirements at issue are the "measures and subsidies ",
including the Washington State tax measures;
b. the "like products" of U.S. origin are parts and materials capable of being used in the
production of Boeing LCA;
c. the measures at issue affect the internal sale, offering for sale, purchase,
transportation, distribution or use of the imported product and the like U .S. product,
effectively favouring the like U.S. product.790
7.479. The European Union argues that the United States is granting or maintaining subsidies to
Boeing, and that Boeing is to: produce goods of U .S. domestic origin destined to be used in the
manufacture of Boeing LCA to the exclusion of imported goods; maintain employment levels in the

785 European Union's first written submission, paras. 769-773; second written submission,
paras. 840-850; and Illustrative statements relating to de facto contingency on the use of domestic over
imported goods, (Exhibit EU-583).
786 European Union's first written submission, para. 774.
787 European Union's letter to the Panel, dated 4 March 2014, para. 19.
788 European Union's letter to the Panel, dated 4 March 2014, para. 22.
789 European Union's letter to the Panel, dated 4 March 2014, para. 23.
790 European Union's first written submission, paras. 784-787.

United States that cannot be sustained without the use of U .S. domestic products or materials;
and locate substantial development and production activities in the United States (which
necessarily implies the use of U .S. domestic products or materials). The United States favours the
use of U .S. domestic products or materials and labour, and conditions Boeing 's behaviour by
encouraging and directing Boeing to favour U .S. domestic goods and labour, rewardi ng Boeing
when it complies. The European Union concludes by arguing that, in light of all of the surrounding
facts and circumstances, the measures at issue are applied so as to afford protection to domestic
production of the U.S. like product and are thus inconsistent with Article III:4 of the GATT 1994.791
7.480. In its letter of 4 March 2014, the European Union foreshadows that it would, if granted
leave to file a further submission, argue that the imported and domestic "like products " for
purposes of the Article III:4 analysis are wings and fuselages in the case of the "programme-siting
condition", and wings with respect to the "exclusive-production condition ". Each of the two
conditions in SSB 5952 affects the sale, purchase or use of the imported and domestic LC A
components, as each condition, in differing circumstances, is capable of strongly influencing
Boeing's choice between imported components and U .S.-produced components for the 777X,
insofar as the choice to utilize components produced outside of Washingto n State "would result in
the loss of billions of US dollars in tax incentives to Boeing ".792 Moreover, each of the conditions
that SSB 5952 attaches to the Washington State tax measures "radically changes the conditions of
competition between domestic and im ported components for the 777X (i.e. wings and fuselages)
to the detriment of imported components ".793 The European Union concludes by arguing that the
availability of the Washington State tax incentives, conditioned on Boeing's use of domestic inputs,
provides an advantage to the use of such domestic input products and introduces non -commercial
considerations (i.e. the loss of the tax incentives) into Boeing 's choice to use domestic or imported
wings and fuselages. Therefore, the "conditional tax incentives " accord less favourable treatment
to the imported products.794
7.7.5.4 The European Union 's adverse effects claims with respect to the Washington
State tax measures in its written submissions and as foreshadowed in its 4 March 2014
letter, as a result of SSB 5952
7.481. With respect to its adverse effects claims, the European Union argues that the Washington
State B&O tax credits for pre -production development are most closely linked to the 737 MAX and
787-10 as well as the 787-8/-9 in earlier years, the Washington State p roperty tax credits for new
investment are most closely linked to the 737NG, 737 MAX, and 787 (production sites for which
Boeing has recently made the largest investments in land and facilities), the Washington State
B&O tax credit for leasehold excise tax es applies with respect to the Dreamlifter Operations
Center, used in Boeing 's production of the 787 as well as other Boeing facilities, while the
Washington State sales and use tax exemptions for computer software, hardware, and peripherals
are most close ly linked to the 737NG, 737 MAX, and 787.795 The European Union considers that
the relationship between each of these subsidies and the development and production of the
737NG, 737 MAX, and/or 787 family LCA, particularly in light of the competitive conditio ns in the
relevant LCA markets, is evidence of a "genuine" causal link between these subsidies and the
pricing of the relevant Boeing LCA. 796 The Washington State B&O tax rate reduction, as a subsidy
tied to sales of LCA, has a close link to the production a nd sale of every Boeing LCA manufactured
in Washington State, which includes the 737NG, 787, and soon, the 737 MAX family of LCA.797 The
Washington State B&O tax rate reduction is said to impact Boeing 's LCA pricing in a manner that
constitutes a genuine and substantial cause of adverse effects.798
7.482. In addition, the European Union in its submissions argues that the imminent launch of the
777X, which benefits from the advanced technologies enabled by the aeronautics R&D subsidies
and which is very likely to be of fered at aggressive prices in competitive campaigns against the

791 European Union's first written submission, paras. 787 and 788; second written submission,
paras. 859-864.
792 European Union's letter to the Panel, dated 4 March 2014, para. 31.
793 European Union's letter to the Panel, dated 4 March 2014, para. 33.
794 European Union's letter to the Panel, dated 4 March 2014, para. 33.
795 European Union's first written submission, para. 1160.
796 European Union's first written submission, para. 1162.
797 European Union's first written submission, para. 1135.
798 European Union's first written submission, paras. 1153 and 1154.

A350XWB, causes a threat of significant price suppression 799, as well as a threat of significant lost
sales.800
7.483. In its letter of 4 March 2014, the European Union foreshadows that it would, if gra nted
leave to file a further submission, argue that the extension of the Washington State tax measures
also further strengthens the causal link between the alleged subsidies to Boeing and adverse
effects to EU LCA -related interests, including in particular the causal link to 777X -related adverse
effects but also for the 787 - and 737 MAX -related adverse effects. 801 More specifically, the
European Union would argue that its estimates of the amounts of Washington State tax measures
to be received by Boeing from 2025 to 2040 is of a sufficiently large magnitude as to provide
Boeing with significant pricing flexibility for sales of its 777X, 787, and 737 MAX aircraft.802
7.484. In sum, the Washington State tax measures as amended by SSB 5952 would further
strengthen the genuine and substantial link that the European Union alleges to exist between the
U.S. subsidies to Boeing and present adverse effects. 803 Finally, the European Union expresses the
view that the extension of the Washington State tax measures made Boeing 's decision to launch
the 777X on 17 November 2013 significantly "more likely ", as that launch decision and the
decision to locate its wing and fuselage production and assembly, as well as its final assembly, in
Washington State "unlocked $8.7 billion in subsidie s, of which the vast majority is anticipated to
go to Boeing".804
7.7.5.5 Conclusion
7.485. In sum, we understand that if granted leave to file an additional submission regarding the
implications of SSB 5952:
a. The European Union 's arguments in support of the claims under Ar ticle 3.1(b) of the
SCM Agreement in respect of the Washington State tax measures will change from
being arguments that certain evidence gives rise to a clear inference that the receipt of
the Washington State tax measures, in conjunction with all of the o ther measures
alleged to be subsidies, conditions Boeing 's behaviour to use domestic over imported
goods; to arguments that the "programme-siting condition " expressly conditions
receipt of post -2024 Washington State tax incentives on the use of
domestically-produced wings and fuselages in the assembly of the 777X, and the
"exclusive-production condition " expressly conditions receipt of the B&O tax rate
reduction in respect of 777X revenues on the use of domestically -produced wings
assembled exclusively in Washington State.
b. The European Union 's arguments in support of the claims under Article III:4 of the
GATT 1994 in respect of the Washington State tax measures will change from being
arguments that certain evidence gives rise to a clear inference that all of the measures
at issue, including the Washington State tax measures, are being applied so as to
afford protection to domestic production of the U .S. like products and materials; to
arguments that the "programme-siting condition " changes the conditions of
competition between domestic and imported wings and fuselages for the 777X in
favour of the domestic products, and the "exclusive-production condition" changes the
conditions of competition between domestic and imported wings for the 777X in favour
of the d omestic product. The Washington State tax mea sures, as amended by
SSB 5952, thus provide an advantage to domestic input products by influencing
Boeing's choice of domestic compared to imported wings and fuselages in favour of the
former, thereby according less favourable treatment to the imported products.

799 European Union's first written submission, para. 1321.
800 European Union's first written submission, paras. 1555 and 1566. The European Union also argues in
its response to Panel question No. 42 that the launch orders and commitments for the 777X demonstrate that
the threat of significant lost sales has now materialized into present significant lost sales. (European Union's
response to Panel question No. 42, para. 273).
801 European Union's letter to the Panel, dated 4 March 2014, paras. 34 and 37.
802 European Union's letter to the Panel, dated 4 March 2014, paras. 38-42.
803 European Union's letter to the Panel, dated 4 March 2014, para. 43.
804 European Union's letter to the Panel, dated 4 March 2014, para. 44.

c. With respect to its arguments pertaining to the effects under Articles 5(c) and 6.3 of
the SCM Agreement of the Washington State tax measures, the differences in
arguments will relate to the impact of the increased amounts of the subsidies involved
(owing to the extension of the Washington State tax measures to 2040) on the causal
analysis as well as a new argument that SSB 5952 made Boeing 's decision to launch
the 777X in November 2013 significantly more likely.
7.486. Based on this understanding, the impact of SSB 5952 on the Washington State tax
measures in the context of the European Union 's existing arguments concerning the relevant
claims appears to us to be significant, particularly in relation to the claim s under Article 3.1(b) of
the SCM Agreement and Article III:4 of the GATT 1994, but also in relation to the adverse effects
claims under Articles 5(c) and 6.3 of the SCM Agreement.
7.487. We next turn to the parties' arguments as to whether the Washington State t ax measures,
as amended by SSB 5952, are within the Panel 's terms of reference and our evaluation of that
issue.
7.7.6 Whether the Washington State tax measures as amended by SSB 5952 are within
the Panel's terms of reference
7.7.6.1 Main arguments of the parties
7.7.6.1.1 United States
7.488. The United States argues that, whether characterized as "additional measures taken to
comply" or as "Washington State tax incentives as amended by SSB 5952 ", the claims in respect
of SSB 5952 are not within the Panel's terms of reference.
7.489. First, as "additional measures", the SSB 5952 measures are not within the Panel's terms of
reference because SSB 5952 was not identified in the European Union 's panel request. 805 The
inclusion of the terms "amendments" and "extensions" in the European Union 's panel request,
coupled with the assertion that SSB 5952 "amends" or "extends" measures that were themselves
already identified in the panel request, does not provide a basis for including SSB 5952 with the
Panel's terms of reference. To conclude that a new measure is necessarily within a panel's terms of
reference provided it can be characterized as an amendment to a measure that is within the terms
of reference through the inclusion of the word "amendment" in the panel request, regardless of the
timing or nature of the amendment, would enable complaining parties to circumvent the
requirements of Article 6.2 of the DSU by including broad "placeholders" in their panel request.
This would deny responding parties a full briefing on the issues before the panel and und ermine
the notice element of a panel request, including as regards potential third parties, who would be
prevented from knowing whether the dispute would affect their interests.806
7.490. The United States argues that the Appellate Body has cautioned that a measure enacted
subsequent to the establishment of a panel only falls within the panel 's terms of reference in
certain limited circumstances; namely, where the new measure merely amends an original
measure and the amendment does not in any way "change the essence " of the original
measure.807 Here, the European Union makes contradictory assertions. On the one hand it argues
that the passage of SSB 5952 raises important new matters for the Panel 's consideration,
particularly through the establishment of the new "program-siting condition " and
"exclusive-production condition " which the European Union considers to be inconsistent with
Article 3.1(b) of the SCM Agreement and Article III:4 of the GATT 1994. On the other hand, it
argues at the same time that SSB 5952 is with in the Panel's terms of reference because it merely

805 United States' letter to the Panel, dated 21 March 2014, para. 2.
806 United States' letter to the Panel, dated 9 April 2014, para. 7. The United States submits that no
panel or Appellate Body reports endorse the expansive doctrine advocated by the European Union, according to
which a mere reference to "amendments" in the panel request "somehow sweeps all subsequent amendments
into a panel's terms of reference, even if they change the essence of the original measure".
(United States' letter to the Panel, dated 9 April 2014, para. 10).
807 United States' letter to the Panel, dated 21 March 2014, para. 4 (referring to Appellate Body Reports
Chile – Price Band System, para. 137; and EC – Chicken Cuts, para. 157). See also United States' letter to the
Panel, dated 9 April 2014, para. 7.

amends the Washington State tax measures, without changing their essential character. 808
According to the United States, if the conditions have the implications that the European Union
alleges, they cannot leave the Washington State tax measures "essentially unchanged" such that
they should be considered within the Panel 's terms of reference. 809 Rather, the European Union 's
arguments raise different claims regarding the tax treatment accorded pursuant to HB 22 94 as
opposed to the new claims regarding tax treatment allegedly accorded pursuant to SSB 5952. 810
The United States considers that the European Union is in reality seeking to raise new prohibited
subsidy and other claims that it did not articulate until Ma rch 2014, almost 17 months after its
request for the establishment of a panel.811
7.491. The United States says that this inherent contradiction in the European Union 's position is
not addressed by characterizing the European Union 's claims as concerning "the continuing flow of
Washington State tax incentives ".812 The "continuing flow" of tax incentives cannot be considered
in the abstract, divorced from HB 2294, which enacted the tax measures identified in the
European Union's panel request and the amendments allege dly embodied in SSB 5952. In any
case, it does not obscure the fact that the European Union 's own arguments raise different claims
regarding the tax treatment accorded under the Washington State tax measures enacted under
HB 2294 and tax treatment allegedly accorded under SSB 5952.813
7.492. The United States submits that a compliance panel 's terms of reference are not
open-ended "evolving to capture anything the responding Member does at any point during the
panel process ".814 According to the United States, the B&O tax rate reduction enacted under
HB 2294 and payments made pursuant to that aspect of HB 2294 are within the Panel 's terms of
reference, while any modifications to the conditions for receiving subsidies in the future are not. 815
This is an even -handed principle that applies whether the subsequent amendments "increase" or
"decrease" the WTO -consistency of a challenged measure. In either case, the subsequent
amendment does not change the "matter" before the panel, as set out in the panel request. The
United States considers that the systemic and procedural fairness concerns that would arise if the
DSU were read to permit compliance panels to examine new measures or modifications during the
course of proceedings, which were identified by the United States and the Appellate Body in US –
Zeroing (Japan) (Article 21.5 – Japan), cannot be brushed aside in this case. The United
States' interests in knowing the case alleged against it and presenting a full defence would be
prejudiced if the Panel were to allow the Europ ean Union to raise claims against the United States
under Articles 3.1 and 3.2 of the SCM Agreement and Article III:4 of the GATT 1994, or if the
Panel allows the European Union to introduce new claims and measures at this late stage of the
dispute, after the European Union has already made its case in chief and the United States has
already presented its defences, and after the Panel has already met with the parties.816
7.493. Finally, the United States refers to its request for preliminary rulings that the
European Union's panel request fails to meet the requirements of Article 6.2 of the DSU with
respect to claims under Articles 3.1(a), 3.1(b), and 3.2 of the SCM Agreement and under
Articles III:1, III:4, and III:5 of the GATT 1994 because it fails to provide a b rief summary of the

808 United States' letters to the Panel, dated 21 March 2014, para. 5, and dated 9 April 2014, paras. 4
and 5.
809 United States' letters to the Panel, dated 21 March 2014, para. 5, and dated 9 April 2014, paras. 4
and 11. The United States considers that the European Union's assertion that the "tax incentives that are the
subject of its additional claims are the very same tax incentives" listed in the European Union's panel request
suffers from the same contradiction: the European Union cannot make this assertion consistently with an
argument that the Washington State tax measures, as amended by SSB 5952, give rise to new legal claims,
because in that case, the measures cannot be the same measures as were identified in the European Union's
panel request. (United States' letter to the Panel, dated 9 April 2014, para. 5).
810 United States' letter to the Panel, dated 9 April 2014, para. 6. Moreover, the United States argues
that the European Union cannot characterize the new claims as concerning the "continuing flow" of Washington
State tax incentives, divorced from HB 2294, which enacted the Washington State tax measures, and
amendments to those measures allegedly embodied in SSB 5952.
811 United States' letter to the Panel, dated 9 April 2014, para. 9.
812 United States' letter to the Panel, dated 9 April 2014, para. 6 (referring to European Union's letter to
the Panel, dated 31 March 2014, paras. 6-8).
813 United States' letter to the Panel, dated 9 April 2014, para. 6.
814 United States' letter to the Panel, dated 9 April 2014, para. 9.
815 United States' letter to the Panel, dated 9 April 2014, para. 9.
816 United States' letter to the Panel, dated 9 April 2014, para. 15.

complaint sufficient to present the problem clearly. 817 In this regard, it submits that the section of
the European Union 's panel request discussing the challenged Washington State tax measures
does not mention Article 3.1(b) of the SCM A greement or Article III:4 of the GATT 1994, and
accordingly, the European Union 's claims under those provisions are not within the panel 's terms
of reference.818
7.7.6.1.2 European Union
7.494. The European Union considers the United States ' arguments incorrectly reduce the subject
of the European Union 's claims to SSB 5952 as a single measure, whereas it is evident from the
European Union 's request for leave that the measures at issue are the "Washington State tax
incentives, as amended by SSB 5952" and not simply SSB 5952.819
7.495. Furthermore, the European Union asserts that the measures at issue include "all instances
of application of the Washington State tax incentives ", irrespective of any amendments to the
subsidy programme itself. 820 The European Union 's claims demonstrate th at it is the "continuing
flow of these tax incentives , and the attendant conditions established by SSB 5952 " which are
subject to the claims under Article 3 of the SCM Agreement, Article III:4 of the GATT 1994 and
which contribute to adverse effects. 821 According to the European Union, the United States does
not, and cannot, contest that the "continuing flow of Washington State tax incentives " is clearly
identified in the European Union 's panel request. 822 This being so, there is no basis for the
United States to argue that those Washington State tax measures are outside the Panel 's terms of
reference.823 As the United States ' objection relates only to the amendments to the Washington
State law made by SSB 5952 and not the continuing flow of the tax incentives pur suant to that
law, the United States has only purported to address one of two alternative reasons why the
measures are within the scope of this proceeding.824
7.496. In any event, the European Union notes that its panel request explicitly identified the
measures a t issue as encompassing "any amendments " and "extensions" of the challenged
measures it had specifically identified. SSB 5952 merely "amends" or "extends" the Washington
State tax measures already at issue in this proceeding. 825 The United States does not ex plain why
listing "amendments" and "extensions" in the European Union 's panel request is insufficient to
"identify the specific measures" and consequently bring those measures within the Panel's terms of
reference.826 The European Union refers in this regard to statements by the Appellate Body that
the text of Article 6.2 of the DSU does not require that a measure be referred to individually in
order to be properly identified for purposes of Article 6.2; rather, there may be circumstances in
which a party des cribes a measure in a more generic way, which nonetheless allows the measure
to be discerned. 827 According to the European Union, a panel request can identify measures or a
category of measures with some breadth while still meeting the requirement of Article 6.2 of the
DSU to identify the specific measures at issue. In the present case, the references to
"amendments" and "extensions" in the European Union's panel request are broad enough to make
it possible to discern that the challenged measures included SSB 5952 and put the United States
on notice that the amendments to the Washington State tax measures embodied in SSB 5952
were covered by the European Union's panel request.828

817 United States' letters to the Panel, dated 21 March 2014, para. 6, and dated 9 April 2014, para. 14
(referring to United States' request for preliminary rulings, dated 13 November 2012, paras. 45-57).
818 United States' letters to the Panel, dated 21 March 2014, para. 6, and dated 9 April 2014, para. 14.
819 European Union's letter to the Panel, dated 31 March 2014, para. 6 (referring to European Union's
letter to the Panel, dated 4 March 2014, para. 18).
820 European Union's letter to the Panel, dated 31 March 2014, para. 6.
821 European Union's letter to the Panel, dated 31 March 2014, para. 6. (emphasis original)
822 European Union's letter to the Panel, dated 31 March 2014, para. 7 (referring to European Union's
request for the establishment of a panel, para. 17; and United States' second written submission, para. 457).
823 European Union's letter to the Panel, dated 31 March 2014, para. 7.
824 European Union's letter to the Panel, dated 31 March 2014, para. 8.
825 European Union's letter to the Panel, dated 4 March 2014, para. 18.
826 European Union's letter to the Panel, dated 31 March 2014, para. 9.
827 European Union's letter to the Panel, dated 31 March 2014, para. 9 (referring to Appellate Body
Report, US – Zeroing (Japan) (Article 21.5 – Japan), para. 116).
828 European Union's letter to the Panel, dated 31 March 2014, para. 10.

7.497. The European Union also disagrees with the United States that a measure which is
amended subsequent to the establishment of a panel cannot fall within the panel 's terms of
reference unless it remains "essentially unchanged ".829 Article 6.2 of the DSU does not
categorically prohibit the inclusion within a panel 's terms of reference of meas ures that come into
existence or are completed after the panel request is submitted. 830 The United States has sought
to rely on brief quotations from the Appellate Body Reports in Chile – Price Band System and EC –
Chicken Cuts in support of its position. Ho wever, these reports to not provide support for such a
rule and in fact support the contrary conclusion.831
7.498. The European Union argues that, even if there were a rule that a measure which is
amended subsequent to the establishment of a panel is outside the pa nel's terms of reference
unless the amendments leave the measure "essentially unchanged", SSB 5952 did not "change the
essence" of the Washington State tax measures and thereby "shield" the amended measures from
scrutiny by this Panel. In this regard, the European Union disputes that the two new conditions for
the extension of the tax measures are the "essence" of the amended measures. Rather, the
"essence" of the amended measures continues to be the nature of those measures as tax
incentives, the conditions attendant to an outcome being merely ancillary to that outcome.832
7.499. Moreover, the United States ' position ignores the Appellate Body 's clarification that the
requirements of Article 6.2 must be adapted to a panel request under Article 21.5, and its caution
that the a priori exclusion from a compliance panel's terms of reference of measures that were not
fully in place at the time of the panel request would frustrate the compliance panel 's function
because the disagreement as to the existence or consistency with a covered agreement of
measures taken to comply could not be fully resolved by the panel. 833 Failure to do so, the
European Union argues, would frustrate the compliance panel 's function and would hinder the
ability to achieve prompt settlement and to secure a positive solution to the dispute as reflected in
Articles 3.3 and 3.7 of the DSU.834
7.500. As to the United States ' argument that the European Union 's panel request does not
sufficiently connect the challenged measures with the European Union 's claims under
Articles 3.1(b) of the SCM Agreement and Article III:4 of the GATT 1994, the European Union
notes that paragraphs 30 and 32 of the European Union 's panel request specifically relate those
claims to the subsidy measures listed in section I.D of the panel r equest, which lists all of the
Washington State tax measures, as amended and extended by SSB 5952, including their instances
of application.835 The European Union considers that the United States ' complaint is not so much
that the claims were not precisely l inked with the measures, but that the arguments supporting
those claims had not been summarized in the panel request. However, Article 6.2 of the DSU does
not require a party to set out arguments or evidence in support of its claims in its panel request.
Moreover, the United States has not shown that it suffered any prejudice from the alleged
shortcomings in the panel request, based on the objective of Article 6.2 of the DSU of providing
notice to the responding party regarding the nature of the dispute, in order to satisfy due process
concerns.836
7.7.6.2 Evaluation
7.501. In this compliance proceeding, the European Union claims that the Washington State tax
measures constitute prohibited export subsidies inconsistent with Articles 3.1(a), 3.1(b), and 3.2
of the SCM Agreem ent, and specific subsidies that cause adverse effects , within the meaning of
Article 5(c) and 6.3 of the SCM Agreement, as well as measures that are inconsistent with
Article III:4 of the GATT 1994. As originally enacted pursuant to HB 2294, and as identi fied in the
European Union's panel request, the Washington State tax measures continue in effect until
1 July 2024.

829 European Union's letter to the Panel, dated 31 March 2014, para. 11.
830 European Union's letter to the Panel, dated 31 March 2014, para. 16.
831 European Union's letter to the Panel, dated 31 March 2014, paras. 11-16.
832 European Union's letter to the Panel, dated 31 March 2014, para. 11, fn 26.
833 European Union's letter to the Panel, dated 31 March 2014, para. 17 (referring to Appellate Body
Reports, US – FSC (Article 21.5 – EC II), para. 59; and US – Zeroing (Japan) (Article 21.5 – Japan),
paras. 109, 122, and 124).
834 European Union's letter to the Panel, dated 31 March 2014, para. 17.
835 European Union's letter to the Panel, dated 31 March 2014, para. 19.
836 European Union's letter to the Panel, dated 31 March 2014, paras. 21-23.

7.502. As explained in Section 7.7.5.1, SSB 5952 alters the future availability of the Washington
State tax measures by extending their expiration date from 1 July 2024 to 1 July 2040, subject to
a new condition, and imposes a new condition on eligibility for the B&O tax rate reduction in
respect of certain revenues that Boeing will recognize in the future. SSB 5952 was enacted on
11 November 2013, more than a year after the European Union 's panel request, and several
months after the meeting of the Panel. 837 Consequently, SSB 5952 was not explicitly identified by
the European Union in its panel request.
7.503. The question before us is whether the Washington State tax measures, as amended by
SSB 5952, are within our terms of reference, although SSB 5952 was not explicitly identified in the
European Union's panel request, and was neither enacted nor came into effect until over a ye ar
after the panel request. In answering this question, we must determine whether the references in
the European Union 's panel request to "amendments" and "extensions" of the explicitly identified
measures sufficiently identify the specific Washington Stat e tax measures, as amended by
SSB 5952, for purposes of Article 6.2 of the DSU.
7.504. Article 6.2 of the DSU provides, in relevant part:
The request for the establishment of a panel shall be made in writing. It shall indicate
whether consultations were held, identify the specific measures at issue and provide a
brief summary of the legal basis of the complaint sufficient to present the problem
clearly.
7.505. A panel request must therefore : (a) identify the specific measures at issue ; and (b)
provide a brief summary of the legal basis of the complaint sufficient to present the problem
clearly. Together, these two elements constitute the "matter referred to the DSB", which forms the
basis of a panel 's terms of reference under Article 7.1 of the DSU. 838 The panel request th us
defines the jurisdiction of the panel, since only the matter(s) raised in the panel request fall within
the panel's terms of reference. In addition, the panel request serves the due process objective of
notifying the parties and potential third parties of the nature of the dispute and the parameters of
the case to which they must begin preparing a response.839
7.506. In evaluating whether the European Union 's panel request meets the requirements of
Article 6.2 of the DSU in relation to the identification of the W ashington State tax measures as
amended by SSB 5952, we must also take into account that this is a compliance proceeding
brought pursuant to Article 21.5 of the DSU. The Appellate Body has stated that, although
Article 6.2 is generally applicable to panel requests under Article 21.5 "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."840 As the Appellate Body stated in US – FSC (Article 21.5 – EC II), in Article 21.5
proceedings, the "specific measures at issue " are measures "that have a bearing on compliance
with the recommendations and rulings of the DSB ".841 This indicates that the "requirements of
Article 6.2 of the DSU, as they apply to an Article 21.5 panel request, must be assessed in the
light of the recommendations and rulings of the DSB in the original … proceedings that dealt with
the same dispute."842
7.507. The parties have directed the Panel to several cases in which panels and the Appellate
Body have considered that measures not explicitly identified in a panel request, which came into

837 The European Union's panel request is dated 12 October 2012. The parties filed their first and second
written submissions by August 2013 and the Panel held its meeting with the parties and third parties in
October 2013. The parties additionally responded to a first set of Panel questions and commented on each
other's responses to those questions by December 2013. According to the European Union, SSB 5952 did not
enter into effect until February 2014, owing to the fact that Boeing did not announce its decision to locate the
777X facilities in Washington State until January 2014.
838 Appellate Body Reports, Guatemala – Cement I, para. 72; US – Carbon Steel, para. 125; and US –
Continued Zeroing, para. 160.
839 Appellate Body Reports, US – Carbon Steel, para. 126; Brazil – Desiccated Coconut, para. 186; EC –
840 Appellate Body Reports, US – FSC (Article 21.5 – EC II), para. 59; and US – Zeroing (Japan)
(Article 21.5 – Japan), para. 109.
841 Appellate Body Report, US – FSC (Article 21.5 – EC II), para. 61.
842 Appellate Body Report, US – FSC (Article 21.5 – EC II), para. 61. See also Appellate Body Report, US

existence in whole or in part after the date of the panel request, were nevertheless within the
panel's terms of reference. We have reviewed these cases and set forth below our understanding
of those issues and the manner in which they were resolved.
7.508. We begin with Chile – Price Band System , in which Chile, by enacting Law 19.772,
amended the law setting out the methodology for calculating the upper and lower thresholds of the
price band system t hat had been challenged by Argentina. 843 Chile informed the panel of this
amendment at the second substantive meeting with the parties. The facts regarding this
amendment to Chile 's price band system are worth recounting in some detail. Law 19.772
amended the law setting forth the methodology for calculating the upper and lower thresholds for
the price band system by adding a paragraph to make explicit that there was a cap on the amount
of the total tariff that could be applied under the system at the tariff rate at which Chile was bound
in its Schedule. Chile explained to the Appellate Body that Law 19.772 was "merely declaratory in
nature" because the total amount of duties that could be applied on products subject to the price
band system had been subject t o a tariff binding since the Tokyo Round. 844 According to Chile,
Law 19.772 did not change this tariff binding, but merely "reinforced" Chile's existing obligations,
serving to "reassure" Chile's trading partners that there would be no recurrence of previous
breaches of its tariff binding.845
7.509. The Appellate Body considered that it was first necessary to identify whether the measure
before it on appeal was Chile 's price band system as amended by Law 19.722, or Chile 's price
band system as it existed before the entry into force of Law 19.722.846 The Appellate Body recalled
that Argentina's panel request referred to the measure at issue as the price band system under
the relevant laws, "as well as the regulations and complementary provisions and/or amendments ".
The Appellate Body considered that such amendments included Law 19.722 and that "the broad
scope of the Panel request suggests that Argentina intended the request to cover the measure
even as amended ". The Appellate Body thus concluded that Law 19.772 fell withi n the panel 's
terms of reference.847
7.510. The Appellate Body then went on to address the issue of the "identity of the measure " in
situations where there are subsequent regulatory changes relevant to a measure. In this context,
the Appellate Body explained that Law 19.772 "clarified" the legislation that established Chile 's
price band system, but did not change the price band system into a measure that was different
from the price band system that was in force before the amendment. 848 In short, Chile 's price
band system remained essentially the same after the enactment of Law 19.772, and the measure
was not "in its essence " any different because of that amendment. The Appellate Body therefore
concluded that the measure before it included Law 19.772 "because that law amends Chile's price
band system without changing its essence ".849 Moreover, it noted that the participants did not
object to the Appellate Body ruling on the price band system as currently in force in Chile; namely,
as amended by Law 19.772.850
7.511. The Appellate Body referred with approval to the approach taken by the panel in Argentina
– Footwear (EC) in examining modifications to a safeguard measure during the course of panel

843 Chile had explained to the Appellate Body that, recognizing that Chile had breached its WTO
commitments, it passed Law 19.772 to avoid the possibility of a recurrence of a breach of the tariff binding.
(Appellate Body Report, Chile – Price Band System, para. 126).
844 Appellate Body Report, Chile – Price Band System, para. 131.
845 Appellate Body Report, Chile – Price Band System, para. 131. Chile had argued before the panel that
the amendment "eliminated the measures" that Argentina had challenged because, even if Argentina were
correct in respect of its claims that Chile's price band system violated Article II of the GATT 1994, there was a
"positive solution" to the dispute through the enactment of legislation assuring that the tariff binding would not
be breached in future. (See Appellate Body Report, Chile – Price Band System, para. 128 and fn 108 (quoting
from Chile's oral statement at the Panel's second meeting with the parties, para. 6)).
846 Appellate Body Report, Chile – Price Band System, para. 127. This issue did not arise because of a
challenge by either party to the consideration of the price band system as amended by Law 19.772 as within
the panel's terms of reference, but rather, was the result of a question raised by the Appellate Body, of its own
motion, as to the identity of the measure on appeal given the lack of clarity in the parties' submissions on that
issue and the fact that the panel appeared to have ruled on the price band system as it stood both before and
after the amendment by Law 19.772. (See Appellate Body Report, Chile – Price Band System, paras. 131-133).
847 Appellate Body Report, Chile – Price Band System, para. 135.
848 Appellate Body Report, Chile – Price Band System, para. 137.
849 Appellate Body Report, Chile – Price Band System, para. 139. (emphasis original)
850 Appellate Body Report, Chile – Price Band System, para. 143.

proceedings on the ground that the modifications simply altered the legal form of the original
definitive measure which remained in force in substance and which was the subject of the
complaint.851 It then stated:
We emphasize that we do not mean to condone a practice of amending measures
during dispute settlement proceedings if such changes are made with a view to
shielding a measure from scrutiny by a panel or by us. We do not suggest that this
occurred in this case. However, generally speaking, the demands of due process are
such that a complaining party should not have to adjust its pleadi ngs throughout
dispute settlement proceedings in order to deal with a disputed measure as a "moving
target". If the terms of reference in a dispute are broad enough to include
amendments to a measure – as they are in this case – and if it is necessary to
consider an amendment in order to secure a positive solution to a dispute – as it is
here – then it is appropriate to consider the measure as amended in coming to a
decision in a dispute.852
7.512. It is not entirely clear whether the Appellate Body considered Law 19.772 to be properly
before it on appeal because of the "broad scope" of Argentina's panel request in referring also to
"amendments" to the price band system 853, or because Law 19.772 amended the price band
system without "changing its essence "854, and indeed whether these grounds were cumulative or
each independent and sufficient bases for the Appellate Body 's decision the consider the measure,
as amended, to be the measure before it on appeal. The European Union relies on the last
sentence of the above quota tion from the Appellate Body Report in Chile – Price Band System ,
arguing that similar reasoning applies in this case.855
7.513. However, the Appellate Body 's subsequent discussions of Chile – Price Band System in
cases such as EC – Chicken Cuts and US – Zeroing (Japan) (Article 21.5 – Japan) indicate that the
Appellate Body was not suggesting that, simply because a new measure could be said to "amend"
or "extend" the operation or application of a measure that is identified in a complainant 's panel
request, and the panel request specifies that the challenged measures include any "amendments"
to or "extensions" of identified measures, the new measure will thereby necessarily fall within a
panel's terms of reference. Rather, as the Appellate Body has made clear in sub sequent cases,
where the measure at issue comes into existence after the date of the panel request, the primary
consideration, assuming that the wording of the panel request is "sufficiently broad" so as not to
preclude the identification of the new measur e, is whether the explicitly identified measure could
be said to remain "essentially unchanged" following the enactment of the subsequent measure.
Thus, the focus is on the relationship between the original, explicitly identified measure, and the
subsequent measure.
7.514. In EC – Chicken Cuts , the panel and Appellate Body both concluded that two new
measures could not be considered to be identified in the complaining parties ' panel requests
consistently with Article 6.2 of the DSU. 856 It was undisputed that the tw o "original" measures, EC
Regulation 1223/2002 and EC Decision 2003/97/EC, were within the panel 's terms of reference as

851 Appellate Body Report, Chile – Price Band System, para. 138 (referring to Panel Report, Argentina –
Footwear (EC), para. 8.45). In Argentina – Footwear (EC), the panel interpreted the European
Communities' panel request as clearly identifying the provisional and definitive safeguard measures (rather
than simply the cited resolutions and promulgations in Argentina's Official Journal that imposed the provisional
and definitive measures). Because it was the provisional and definitive safeguard measures in their substance,
rather than the legal acts in their original or modified legal forms, that were relevant to the panel's terms of
reference, the panel concluded that its terms of reference included subsequent resolutions that modified the
definitive safeguard and were not explicitly mentioned in the European Communities' panel request. (Panel
Report, Argentina – Footwear (EC), paras. 8.40-8.46).
852 Appellate Body Report, Chile – Price Band System, para. 144. (emphasis original)
853 Appellate Body Report, Chile – Price Band System, para. 135.
854 Appellate Body Report, Chile – Price Band System, paras. 137-139.
855 European Union's letter to the Panel, dated 31 March 2014, para. 13.
856 One of the new measures was published and entered into force after both Brazil and Thailand's
respective requests for establishment of a panel. The other new measure (1871/2003) was published on
23 October 2003 and entered into force on the twentieth day following its publication. Brazil's panel request
was dated 22 September 2003 and Thailand's 28 October 2003. (Appellate Body Report, EC – Chicken Cuts,
para. 151 and fn 304).

having been explicitly identified in the complaining parties ' panel requests.857 The question was
whether two "subsequent" measures; EC R egulations 1871/2003 and 2344/2003, which had not
been explicitly identified, were also within the panel's terms of reference. The panel had concluded
that the two subsequent measures did not purport to be "amendments" to the two original
measures and that , in contrast to other cases, the panel requests in this proceeding were not
sufficiently broad to include the two subsequent measures. 858 The Appellate Body took a different
approach to the issue. It began by observing:
The term "specific measures at issue " in Article 6.2 suggests that, as a general rule,
the measures included in a panel 's terms of reference must be measures that are in
existence at the time of the establishment of the panel. However, measures enacted
subsequent to the establishment of the p anel may, in certain limited circumstances ,
fall within a panel's terms of reference.859
7.515. The Appellate Body recalled that it had addressed such a situation in Chile – Price Band
System, in which it had examined the relationship between the original measure and the
subsequent amendment to that measure, finding that the original measure (Chile 's price band
system) remained "essentially unchanged " following the enactment of the subsequent measure
(Law 19.772). The Appellate Body described its decision in Chile – Price Band System in the
following way:
Thus, the Appellate Body found that, where an original measure had merely been
amended by a subsequent measure and the amendment did not, in any way, change
the essence of the original measure, the measure in its a mended form could
constitute the "specific measure{} at issue" identified in the panel request.860
7.516. Turning to consider the relationship between the two original measures and the two
subsequent measures before it, the Appellate Body noted that : (a) the two s ubsequent measures
made no explicit reference to the two original measures, which remained in force ; and (b) the two
subsequent measures had "legal implications" different from those of the two original measures.861
7.517. The Appellate Body was not persuaded that the two subsequent measures could be
considered "amendments" to the two original measures in the way that Law 19.772 was
considered an "amendment" to Chile's price band system, or that the two sets of measures were
"in essence, the same".862 Moreover, it did not consider that an argument that the two subsequent
measures nevertheless had the same effect as the two original measures (i.e. the reclassification
of the products at issue) was a sufficient basis for finding the two subsequent measures fell within
the panel's terms of reference, when it would undermine the requirement of specificity and the due
process objective enshrined in Article 6.2 of the DSU.863

857 The first of these measures, EC Regulation 1223/2003, specified a certain classification for frozen
boneless chicken cuts with a salt content of 1.2 to 1.9%. The second, EC Decision 2003/97/EC, required the
withdrawal of binding tariff information (BTIs) providing for a different classification of a product considered to
be a similar product, namely, frozen boneless chicken cuts with a salt content of 1.9 to 3%.
858 Panel Report, EC – Chicken Cuts, para. 7.27 (comparing at fn 61, the panel requests in Chile – Price
Band System, EC – Bananas III, Argentina – Textiles and Apparel, and Australia – Salmon).
859 Appellate Body Report, EC – Chicken Cuts, para. 156. (emphasis added, fn omitted)
860 Appellate Body Report, EC – Chicken Cuts, para. 157. (emphasis added)
861 More specifically, one of the original measures specified a certain classification for a particular
product (i.e. frozen boneless chicken cuts with a salt content of 1.2 to 1.9%), while the other required the
withdrawal of BTIs providing for a different classification of a product considered to be a similar product (i.e.
frozen boneless chicken cuts with a salt content of 1.9 to 3%). By contrast, the two subsequent measures
amended the European Communities' Combined Nomenclature and covered all types of salted meat falling
under a particular heading of the Combined Nomenclature. (Appellate Body Report, EC – Chicken Cuts,
para. 158).
862 Appellate Body Report, EC – Chicken Cuts, para. 159.
863 The Appellate Body similarly considered that the objective of securing a positive resolution to the
dispute reflected in Articles 3.3 and 3.7 of the DSU could not be pursued at the expense of complying with the
specific requirements and obligations of Article 6.2. (Appellate Body Report, EC – Chicken Cuts, paras. 160 and
161). Subsequently, in EC – Selected Customs Matters, the Appellate Body explained the principles it had
articulated in Chile – Price Band System and EC – Chicken Cuts in the following manner. First, it began by
recalling from EC – Chicken Cuts that the term "specific measures at issue" in Article 6.2 suggests that as a

7.518. In US – Zeroing (Japan) (Article 21.5 – Japan), the issue before the panel and the
Appellate Body was whether a periodic review of an anti -dumping duty order on imports of ball
bearings from Japan that had been initiated prior to commencement of the compliance proceeding,
but not completed until the compliance proceeding was underway (Review 9), was within the
compliance panel 's terms of reference. Japan 's panel request had not specifically identified
Review 9, although it had identified prior completed periodic reviews of the same anti -dumping
duty order (all of which were alleged to have involved the use of zeroing, contrary to the DSB
recommendations and rulings in the original proceeding). Japan 's panel request also purported to
cover any amendments to the identified periodic reviews, and closely connected instructions and
notices, as well as "any subsequent closely connected measures ".864 Japan had not referred to or
made any claims with respect to Review 9 in its first or second written submissions to the Panel,
which had been filed prior to the USDOC's publication of the final results of Review 9.865
7.519. Shortly after the USDOC's publication of the final results of Review 9, Japan requested and
obtained leave from the panel to file a supplemental submission in which it argued that Review 9
was inconsistent with Articles 2.4 and 9.3 of the Anti -Dumping Agreement and Article VI:2 of the
GATT 1994 by virtue of the application of zeroing in that review. The United States objected : (a)
that the phrase "subsequent closely connected measures " in Japan's panel request did not cover
Review 9; and (b) that in any event, Review 9 was a "future measure" not in existence at the time
of the panel request and therefore could not fall within the panel's jurisdiction.866
7.520. The Appellate Body rejected the United States ' first objection, concluding that in the
particular circumstances before it, the phrase "subsequent closely connected measures " was not
too broad or vague for purposes of Article 6.2 of the DSU. Analysing the text of Japan 's panel
request, the Appellate Body noted that the term "subsequent closely connected measures "
appeared in paragraph 12 of Japan 's panel request, which was the sub -section entitled "Periodic
Reviews". Paragraph 12 identified five of the 11 periodic reviews that were challenged in the
original proceeding plus three periodic reviews that the United Stat es had argued superseded the
original reviews. The periodic reviews themselves were listed in an annex to the panel request. The
panel request alleged that the United States had used zeroing in each of these periodic reviews,
and had omitted to eliminate zeroing with respect to any of them. It also stated that these periodic
reviews stemmed from three separate anti -dumping duty orders. In the last line of paragraph 12,
Japan stated that the request concerned "any amendments to the eight periodic reviews and the
closely connected instructions and notices, as well as any subsequent closely connected
measures".867 The Appellate Body considered that the plain meaning of the phrase "subsequent
closely connected measures " as it appeared in paragraph 12 of Japan 's pa nel request indicated
that the measures being referred to would have to be enacted after the eight periodic reviews
identified by Japan and would have to relate to those eight periodic reviews. The eight periodic
reviews related to three anti -dumping duty orders that had been identified in Japan 's panel
request, however two of those anti -dumping duty orders had been revoked by the USDOC at the
time of Japan's panel request. Therefore, "any subsequent periodic review could only relate to the
anti-dumping duty order on ball bearings ".868 For this reason, the Appellate Body disagreed with
the United States that the phrase "subsequent closely connected measures " was too broad and
vague for purposes of identifying the measure at issue under Article 6.2 of the DSU.

general rule, the measures included in a panel's terms of reference must be measures that are in existence at
the time of the establishment of the panel. It then said:
This general rule, however, is qualified by at least two exceptions. First, in Chile – Price Band
System, the Appellate Body held that a panel has the authority to examine a legal instrument
enacted after the establishment of the panel that amends a measure identified in the panel
request, provided that the amendment does not change the essence of the identified measure.
Secondly, in US – Upland Cotton, the Appellate Body held that panels are allowed to examine a
measure "whose legislative basis has expired, but whose effects are alleged to be impairing the
benefits accruing to the requesting Member under a covered agreement" at the time of the
establishment of the panel.
(Appellate Body Report, EC – Selected Customs Matters, para. 184 (emphasis added, fn omitted))
864 Appellate Body Report, US – Zeroing (Japan) (Article 21.5 – Japan), para. 97.
865 Japan filed its first and second written submission to the panel on 30 June and 27 August 2008,
respectively. The USDOC published the final results of Review 9 on 11 September 2008.
866 Appellate Body Report, US – Zeroing (Japan) (Article 21.5 – Japan), para. 99.
867 Appellate Body Report, US – Zeroing (Japan) (Article 21.5 – Japan), para. 111. (emphasis added)
868 Appellate Body Report, US – Zeroing (Japan) (Article 21.5 – Japan), para. 112. (emphasis added)

7.521. The Appellate Body recalled that in the original proceeding, the United States was found to
have acted inconsistently with Articles 2.4 and 9.3 of the Anti -Dumping Agreement and
Article VI:2 of the GATT 1994 by : (a) maintaining zeroing procedures in period ic reviews ; and
(b) applying zeroing procedures in the 11 periodic reviews at issue. The Appellate Body stated that
if zeroing were used in Review 9, it would mean that the United States had not ceased the practice
of using zeroing procedures in periodic r eviews, contrary to the DSB recommendations and
rulings.869 Thus, the Appellate Body considered that Review 9 was a measure that had a bearing
on compliance, which also should be taken into account in assessing whether Japan 's panel
request met the requirements of Article 6.2, read in the light of Article 21.5. 870 The Appellate Body
considered that, in this case, the phrase "closely connected measures " was sufficiently precise to
identify Review 9, given that it was a periodic review of the same anti -dumping duty order on
imports of ball bearings from Japan and immediately followed Reviews 1 through 6. 871 This
analysis was sufficient to establish that Japan's panel request met the requirement of Article 6.2 to
"identify the specific measures at issue".872
7.522. The Appellate Body also rejected the United States ' second objection that Review 9 was a
"future measure" that did not exist at the time of Japan's panel request and therefore could not be
within the panel's terms of reference. It noted that aside from the reference in the present tense
to the fact that the complainant must identify the measures "at issue", Article 6.2 does not set out
an express temporal condition or limitation on the measures that can be identified in a panel
request.873 Moreover, it recalled its sta tement in EC – Chicken Cuts that measures enacted
subsequent to the establishment of a panel may, in certain limited circumstances , fall within a
panel's terms of reference. 874 The Appellate Body considered that the proceeding before it
presented circumstances in which the inclusion of Review 9 was necessary for the panel to assess
whether there had been compliance. 875 In this regard, the Appellate Body noted the following
factors:
a. Review 9 was initiated before recourse to the compliance proceeding , and was
completed during the course of that compliance proceeding876;
b. Review 9 was identical in nature and effect to Reviews 4, 5 , and 6 (which had been
specifically identified in Japan 's panel request) and superseded those measures, and
related to the same anti-dumping duty order as Reviews 1, 2, and 3, which were found
to be WTO-inconsistent in the original proceeding. Thus, Review 9 was the latest link in
a chain of assessment incorporating those measures.877
c. Review 9 was alleged to incorporate the use of zeroing, i.e. the same conduct that was
found WTO-inconsistent in the original proceeding.878
7.523. The Appellate Body did not consider that the systemic concerns identified by the
United States879 arose in the particular situation as the United States and third parties were giv en
adequate notice and opportunities to respond to Japan 's allegations concerning Review 9. Nor did
it agree with the United States that inclusion of Review 9 would lead to "asymmetry" in the

869 Appellate Body Report, US – Zeroing (Japan) (Article 21.5 – Japan), para. 114.
870 Appellate Body Report, US – Zeroing (Japan) (Article 21.5 – Japan), para. 114.
871 Appellate Body Report, US – Zeroing (Japan) (Article 21.5 – Japan), para. 116.
872 Appellate Body Report, US – Zeroing (Japan) (Article 21.5 – Japan), para. 117.
873 Appellate Body Report, US – Zeroing (Japan) (Article 21.5 – Japan), para. 121.
874 Appellate Body Report, US – Zeroing (Japan) (Article 21.5 – Japan), paras. 121 and 125 (referring to
Appellate Body Report, EC – Chicken Cuts, para. 156).
875 Appellate Body Report, US – Zeroing (Japan) (Article 21.5 – Japan), para. 125.
876 Appellate Body Report, US – Zeroing (Japan) (Article 21.5 – Japan), paras. 122, 124, and 127.
877 Appellate Body Report, US – Zeroing (Japan) (Article 21.5 – Japan), paras. 123, 124, and 127.
878 Appellate Body Report, US – Zeroing (Japan) (Article 21.5 – Japan), paras. 122, 124, and 127.
879 The United States had identified the following concerns: (a) that Members would be obliged to make
legal claims and undertake an analysis of new or modified measures on short notice, without a meaningful
opportunity to review the measures; and (b) that compliance panels would have to react to such changes after
some or all of the written submissions had been filed and the meetings with the parties had been completed,
placing panels in the position of having to decide whether to restart the proceedings, or make findings without
the full benefit of the views of the parties and third parties. (Appellate Body Report, US – Zeroing (Japan)

treatment of complainants and respondents as regards the inclusi on of subsequent measures that
exacerbate or mitigate non-compliance.880
7.524. We read the Appellate Body Reports in Chile – Price Band System, EC – Chicken Cuts, and
US – Zeroing (Japan) (Article 21.5 – Japan) as clarifying: (a) that the requirements of Article 6 .2
of the DSU are such that the measures included in a panel's terms of reference will ordinarily be in
existence at the time of the establishment of the panel ; and (b) that there are particular, limited
circumstances in which measures coming into existenc e subsequent to the panel request are
within a panel 's terms of reference. These circumstances, in one way or another, involve new
measures that amend, modify, supplement, extend, replace, renew, relate to , or implement the
measures that were explicitly id entified in the panel request without changing th eir essence, in
light of the claims made by the complaining party . The Appellate Body has thus interpreted the
requirements of Article 6.2 of the DSU in a manner that prevents a measure evading review
merely because of amendments or modifications to the legal form of the measure during the
course of dispute settlement proceedings that do not change its essence in light of the nature of
the claims at issue, while still fully respecting the due process rights o f responding parties and
potential third parties to be informed of the specific measures at issue and the nature of the claims
raised by the complaining party.
7.525. This is also borne out by the approach taken by a number of panels. For example, in EC –
IT Products, the complaining parties had identified a number of measures imposing duties on flat
panel displays, including Council Regulation No. 2658/87, as amended. Footnote 4 of the panel
request noted that the Council Regulation included amendments adopted pu rsuant to Commission
Regulation No. 1214/2007, which contained the CN2008. In addition, the panel request identified
as part of the measures at issue "any amendments or extensions and any related or implementing
measures".881 The panel explained that the Com mission adopted a complete updated version of
the CN each year, as an amendment to annex I of Council Regulation No. 2658/87. The CN had
been updated twice, by CN2009 and CN2010, since the complaining parties had filed their panel
request.882 The panel noted that the subsequent amendments to the Council Regulation
No. 2658/87 strictly prolonged its period of application without modifying any of the terms or
headings at issue in the dispute. Thus, the subsequent amendments, including the 2008 -2010
versions, di d not change the essence of the CN2007 version set forth in Council Regulation
No. 2658/87 that was identified in the panel request.883 The panel said:
While we do not consider that the mere incantation of the phrase "any amendments or
extensions and any rel ated or implementing measures " in a panel request will permit
Members to bring in measures that were clearly not contemplated in the Panel
request, it may be used to refer to measures not yet in force or concluded on the date
of the panel request, or measu res that the complainants were not yet aware of, such
as government procedures not yet published that have the same essential effect as
the measures that were specifically identified. This is to prevent the possibility that
the procedural requirements of W TO dispute settlement result in a situation where
measures could completely evade review. This is especially true with the type of
measures we have before us, which are amended annually.884
7.526. The panel concluded that Council Regulation No. 2658/87, as amended , which included in
annex I the currently applicable CN, was the specific measure at issue and was properly identified
in the panel request.885

880 The United States had argued that accepting the panel's approach would mean that complaining
parties would be allowed to challenge subsequent measures while similar requests by respondents have been
rejected by panels. (Appellate Body Report, US – Zeroing (Japan) (Article 21.5 – Japan), para. 129).
881 Panel Report, EC – IT Products, para. 7.130.
882 Panel Report, EC – IT Products, para. 7.128.
883 Panel Report, EC – IT Products, para. 7.142.
884 Panel Report, EC – IT Products, para. 7.140. (fns omitted)
885 Panel Report, EC – IT Products, para. 7.146. The panel took a similar approach with respect to
Council Regulation No. 301/2007, which simply prolonged the period of application a tariff duty suspension
initially provided in an explicitly identified measure (Council Regulation No. 493/2005) without modifying the
scope of applicability of the duty suspension. (See ibid. para. 7.182). It also reached a similar conclusion in
respect of a subsequent measure (Council Regulation No. 179/2009) that not only prolonged the duration of
the initial duty suspension under Council Regulation No. 493/2005, but also expanded the terms of the

7.527. A similar approach was adopted in EC – Fasteners (China), where the panel was required
to determine whether a sub sequent Council Regulation, which repealed and replaced the Council
Regulation that had been explicitly identified in China's panel request, was within the panel's terms
of reference, in circumstances where the repeal of the original measure and entry into effect of the
new measure occurred after the establishment of the panel. 886 The panel noted that it was
undisputed that the new measure was almost identical to the explicitly identified measure it had
repealed and replaced.887 Thus, while the Council Regulati on that China had explicitly identified in
its panel request was subsequently repealed, it was immediately replaced by a new Council
Regulation that contained, in almost identical terms and substance, the same provision that China
had identified in its pan el request.888 The panel concluded that the new measure was within the
panel's terms of reference, and that to sustain the European Union 's objection to the inclusion of
the new measure (which the panel considered to be formalistic rather than substantive) would "not
be consistent with the effective functioning of the WTO dispute settlement system, as it might lead
to inappropriate legal manoeuvres to avoid dispute settlement, inconsistent with the obligation of
Members to engage in dispute settlement 'in good faith in an effort to resolve the dispute'".889
7.528. The European Union has argued that, in assessing whether to include measures that have
come into existence during panel proceedings as falling within the panel 's terms of reference,
panels and the Appellate B ody have assessed whether the panel request was "broad enough" to
include such a measure, noting that a panel request may identify measures or a category of
measures with some breadth while still meeting the requirement of Article 6.2 of the DSU to
"identify the specific measures at issue". In the present case, according to the European Union, the
panel request, through its references to "amendments" and "extensions" as challenged measures
in paragraph 27, is broad enough to encompass the amendments to the Washington State tax
measures effected by SSB 5952. Moreover, the "essence" of the Washington State measures as
amended by SSB 5952, i.e. as tax incentives, remains essentially the same.
7.529. We note that the European Union 's panel request in this proceeding c onsists of two
sections. Section I, entitled "Measures", contains a listing of all of the measures that the
European Union considers to be specific subsidies that cause present adverse effects in the form of
serious prejudice, and a threat thereof, are pro hibited subsidies, and are measures inconsistent
with national treatment obligations, as detailed in section II, entitled "Legal Basis", which purports
to detail the specific claims made against the measures identified in section I. Section I consists of
Parts A through G, which identify distinct categories of measures and list the individual measures
within each such category. Section I.D, entitled "Washington State and Local Subsidies ", lists at
paragraph 17 the Washington State tax incentives enacted pur suant to HB 2294, described in
paragraph 7.462 of these reasons, along with a tax measure maintained by the City of Everett.
Paragraph 17 concludes with the following statement:
Through these measures, the State of Washington a nd its political subdivisions
provide financial contributions within the meaning of Article 1.1(a)(1)(i) -(ii) of the
SCM Agreement, that confer a benefit to Boeing within the meaning of Article 1.1(b)
of the SCM Agreement. These subsidies are specific within the meaning of Articles 1.2,
2.1, and 2.3 of the SCM Agreement.
7.530. Paragraph 27 appears as the last paragraph of Section I.G entitled "South Carolina State
and Local Subsidies". It states:

suspension to include a broader category of products on the basis that, despite the enlarged coverage, the
suspension operated in a near identical manner and with similar legal implications to the explicitly identified
measure, and did not change the essence of its predecessor measures in prolonging the duty suspension. (See
ibid. para. 7.186).
886 Panel Report, EC – Fasteners (China), paras. 7.32 and 7.33.
887 Panel Report, EC – Fasteners (China), para. 7.32.
888 Panel Report, EC – Fasteners (China), para. 7.34.
889 Panel Report, EC – Fasteners (China), para. 7.34 (fn omitted). See also the Panel Reports, US –
Customs Bond Directive, para. 7.22, and US – Shrimp (Thailand), para. 7.48, where the panels emphasized
that the new measure sought to "clarify" the legislation that established the measure at issue and did not
"change the essence" of the original measure into something different from what was in force before its
issuance. Similarly, in the Panel Report in Dominican Republic – Import and Sale of Cigarettes, where the
explicitly identified measure had been replaced by a subsequent measure that did not "change the essence" of
the original measure, the panel determined that it would examine the new legal instrument for purposes of
resolving Honduras' complaint. (See ibid. paras. 7.19-7.21).

In addition to the measures specifically listed above in Section I of this request, the
European Union also considers that any amendments, supplements, extensions,
replacement measures, renewal measures, related measures, or implementing
measures constitute specific subsidies.890
7.531. At first sight, paragraph 27 of the European Union's panel request appears as part of the
section of the panel request identifying the South Carolina State and Local measures that are
alleged to constitute specific subsidies. However, paragraph 27 refers to "the measures specifically
listed above in Section I of this request " suggesting that it is intended to mean that any
amendments, supplements, extensions, replacement measures, renewal measures, related
measures or implementing measures in relation to any of the measures specifically identified in
sections I.A through I.G of the panel request are also included in the European Union 's panel
request.
7.532. Paragraph 27 thus purports to identify practically every conceivable change to any of the
measures under any of the fourteen listed NASA aeronautics R& D programmes in section I.A, the
DOD RDT&E program elements listed in 34 dot points in section I.B, the FAA CLEEN Program
identified in section I.C, Washington state and local measures listed in seven dot points in section
I.D, FSC/ETI legislation and succ essor acts identified in section I.E, state and local property and
sales tax abatements maintained by the State of Kansas and the City of Wichita identified in I.F.
and the South Carolina state and local measures listed in 12 dot points in section I.G, regardless of
the nature of such change or how it relates to the explicitly identified measure.
7.533. The European Union 's panel request is undoubtedly "broad enough " to include
amendments to measures of the nature of the amendments to the Washington State tax measures
effected by SSB 5952. 891 However, the relevant question is whether paragraph 27 is not too
broadly drafted to satisfy the requirement of Article 6.2 to identify the specific measures at issue
in the context of the SSB 5952 amendments to the Washington State tax measures identified in
paragraph 17 of the panel request.
7.534. As we have explained, panels and the Appellate Body have sought to address a concern
that the requirement of Article 6.2 of the DSU to "identify the specific measures at issue " not lead
to measures evading review through subsequent amendments or modifications which do not
change the essence of the measure, merely because those subseq uent measures were not
explicitly identified in the complaining party's panel request. However, in addressing this particular
concern, panels and the Appellate Body should not be considered to have invited complaining
parties to include very general and extensive "catch-all" phrases in their panel request as a
protection against the requirement of Article 6.2 of the DSU to identify the specific measures at
issue. Otherwise, a specific and quite limited set of circumstances in which measures coming into
existence after the request for the establishment of a panel may be found to be within a panel 's
terms of refere nce would be transformed into a situation in which, provided a panel request
includes a sufficiently broad catch -all description, any subsequent measures that come into
existence during the course of a panel proceeding will be within a panel 's terms of ref erence. We
do not consider that such a permissive approach to the requirements of Article 6.2 of the DSU
finds support in the panel and Appellate Body reports we have examined, or as a matter of
principle, given the plain meaning and objectives of Article 6.2 of the DSU.892

890 European Union's request for the establishment of a panel, para. 27.
891 See Appellate Body Report, Chile – Price Band System, para. 144. While the panel in EC – Chicken
Cuts attached some importance to the fact that the panel request was not as broadly drafted as the panel
request in Chile – Price Band System, this did not appear to form a central part of the Appellate Body's
reasoning in concluding that the two subsequent measures in that case were outside the panel's terms of
reference. We note that the panel in EC – Fasteners (China) found the subsequent measure to be within its
terms of reference despite the absence of any reference to "amendments" in the panel request. (See Panel
892 The only case in which a panel has clearly adopted a less restrictive approach to the requirement of
Article 6.2 of the DSU to identify the specific measures at issue when a new measure has arisen subsequent to
the panel request is Australia – Salmon (Article 21.5 – Canada). In that case, the panel found that Canada's
panel request covered a Tasmanian import ban on salmonid products introduced subsequent to the
establishment of the panel even though the panel request only referred explicitly to a decision of the Australian
Quarantine and Inspection Service (AQPM 1999/51) regarding policies for non-viable salmonid products. (See
Panel Report, Australia – Salmon (Article 21.5 – Canada), para. 7.10, at paras. 24-29 therein). It is difficult to

7.535. This is clear from the approach taken by the panel and Appellate Body in US – Zeroing
(Japan) (Article 21.5 – Japan) to construing the phrase "subsequent closely connected measures "
in Japan's panel request. The panel and Appellate Body ea ch undertook a detailed analysis of the
text of Japan 's panel request before concluding that, in the particular context , including the
location of the phrase in the sub -section of the panel request entitled "periodic reviews ", any
"subsequent closely connected measures" could only refer to periodic reviews of the anti -dumping
duty on ball bearings, and Review 9 was a periodic review of the same anti -dumping duty on ball
bearings from Japan which immediately followed Reviews 1 through 6 and which was already
on-going and therefore clearly identifiable at the time of Japan's panel request. If a basic reference
to generic terms such as "subsequent closely connected measures " in a panel request were
sufficient to satisfy the requirements of Article 6.2 of the DS U, such an analysis would not have
been necessary.
7.536. When we examine the relationship between the Washington State tax measures explicitly
identified in the European Union 's panel request, and those measures as amended by SSB 5952,
we are unable to conclude that, in the context of the specific claims made in this dispute, the
Washington State tax measures remain "essentially unchanged " following the enactment of
SSB 5952.
7.537. In the original proceeding, the Washington State tax measures enacted under HB 2294
were part of a package of measures designed to retain and attract the aerospace industry to
Washington State, specifically by providing tax incentives conditioned on Boeing assembling the
787 in Washington State. SSB 5952 extends the availability of those tax incentives later in time,
conditioned, however, on Boeing producing wings and fuselages for a different aircraft, the 777X,
in Washington State and using them in the final assembly of the 777X in Washington State. In
addition, Boeing will only be entitled to claim the B&O tax rate reduction in respect of future
revenues related to the 777X for so long as it conducts wing assembly and final assembly of the
777X exclusively in Washington State. 893 As we explain in Section 7.7.5.5, t he amendments
effected by SSB 5952 change the nature of the Washington State tax measures that will operate
from 1 July 2024 in a significant respect, in that their availability post 1 July 2024 is subject to a
contingency that does not condition their availability prior to 1 July 2024. Moreover, the availability
of the B&O tax rate reduction in respect of future 777X revenues is now subject to a condition that
did not previously apply.894 This is in marked contrast to the new measures in cases such as Chile
– Price Band System, Argentina – Footwear (EC), US – Zeroing (Japan) (Article 21.5 – Japan), EC
– IT Products, and EC – Fasteners (China), where the new measures either "clarified" the measure
or essentially replicated the explicitly identified measures th rough new legislative action, and thus

reconcile the panel's approach to the requirements of Article 6.2 of the DSU in that case with the approach of
panels and the Appellate Body in the other cases we have discussed. Indeed, the Appellate Body in Chile –
Price Band System referred with approval to the reasoning adopted by the panel in the earlier case of
Argentina – Footwear (EC) but did not mention the panel report in Australia – Salmon (Article 21.5 – Canada).
Significantly, the Appellate Body in US – Zeroing (Japan) (Article 21.5 – Japan) also did not refer to the panel
report in Australia – Salmon (Article 21.5 – Canada) notwithstanding its discussion of the requirements of
Article 6.2 in the light of compliance proceedings under Article 21.5 of the DSU and the fact that Japan and one
of the third parties had referred to this panel report in support of their respective arguments. (See Appellate
Body Report, US – Zeroing (Japan) (Article 21.5 – Japan), paras. 47, 49, 91, and 104). From this we conclude
that the approach taken by the panel in Australia – Salmon (Article 21.5 – Canada) to the requirement of
Article 6.2 of the DSU to identify the specific measures in the context of new measures coming into existence
in the course of a proceeding is something of an outlier.
893 See Section 7.7.5.1. The 777X was launched in November 2013, and although Boeing has already
received orders and commitments for the aircraft, production is not scheduled to begin until 2017 and first
deliveries are targeted only for 2020, meaning that it is likely to be some time in the future before Boeing is in
a position to claim B&O tax rate reductions related to 777X revenues. (See Boeing Press Release, "Boeing
Launches 777X with Record-Breaking Orders and Commitments", 17 November 2013, (Exhibit EU-1299)).
894 Indeed, it is because of the ways in which SSB 5952 conditions the availability of the Washington
State tax measures after 1 July 2024, and the availability of the B&O tax rate reduction in respect of future
revenues related to the 777X, that the European Union considers the Washington State tax measures, as
amended or extended by SSB 5952, are prohibited subsidies contingent on the use of domestic over imported
goods, and accord less favourable treatment to imported wings and fuselages over domestically produced
wings and fuselages in a different manner to the way in which those claims against the Washington State tax
measures were presented in its submissions and at the meeting with the Panel. In addition, the overall amount
of the tax incentives is said to be significantly larger, thus further strengthening the causal link between the
Washington State tax measures and the alleged serious prejudice, as well as making Boeing's 777X launch
decision in November 2013 significantly more likely.

concerned the same measure (in a substantive sense) that was either the subject of panel request
or that had been found WTO-inconsistent in the original proceeding.895
7.538. We therefore consider that, in the circumstances, paragraph 27 of the European Union 's
panel request does not provide a basis for including the Washington State tax measures, as
amended by SSB 5952, within the panel 's terms of reference, consistently with the requirements
of Article 6.2 of the DSU to "identify the specific measures at issue".
7.539. As already explained in paragraph 7.506 we are mindful of the importance, in the context
of a compliance proceeding, of interpreting the requirements of Article 6.2 in light of Article 21.5 of
the DSU. In that regard, we note that in the original proceeding, the Washington State B&O tax
rate reduction was found to be a specific subsidy that caused adverse effects. 896 There were no
adverse effects findings in relation to the other Washington S tate tax measures. 897 The panel
found that the European Communities had not demonstrated that the Washington State tax
measures enacted under HB 2294 were inconsistent with Articles 3.1(a) and 3.2 of the SCM
Agreement898 and the European Union did not pursue t his finding on appeal. 899 Finally, the
European Communities did not pursue any claims under Article 3.1(b) of the SCM Agreement or
Article III:4 of the GATT in the original proceeding. 900 This situation is therefore starkly different
from the situation before the Appellate Body in US – Zeroing (Japan) (Article 21.5 – Japan). In
that case, the United States was found to have acted inconsistently with Articles 2.4 and 9.3 of the
Anti-Dumping Agreement and Article VI:2 of the GATT 1994 by maintaining zeroing proce dures in
periodic reviews and by applying zeroing procedures in specifically identified periodic reviews. 901
The new measure, Review 9, was a subsequent periodic review of the same anti -dumping duty
order on which the periodic reviews in the original proceed ing had been based and allegedly
employed the same zeroing procedure that was found to be WTO -inconsistent in the original
proceeding. Review 9 was thus considered to have a direct bearing on compliance, because if
zeroing were used in Review 9, it would m ean that the United States, by maintaining zeroing
procedures in periodic reviews, had not complied with the DSB recommendations and rulings.
7.540. In the case before us, by contrast, there were no findings (or claims) of WTO-inconsistency
in the original proceeding in relation to Articles 3.1(b) of the SCM Agreement or Article III:4 of the
GATT 1994. In relation to the adverse effects claims, the Washington State tax measures as
presently enacted under HB 2294 will continue for almost another ten years in any e vent, and
(subject to our resolution of the preliminary objections to the various claims concerning the
Washington State tax measures and to the inclusion of the Washington State tax measures, other
than the B&O tax rate reduction, within the scope of this proceeding) can be adjudicated upon in
this compliance proceeding.902 In other words, the inclusion of the Washington State tax measures
as amended by SSB 5952 in the Panel 's terms of reference is not necessary to enable the Panel to
assess whether there has been compliance with the DSB recommendations and rulings as regards

895 The European Union is correct that, both before and after the entry into effect of SSB 5952, the
Washington State tax measures remain tax incentives. However, in the context of the claims made in this
proceeding, the conditions to which the Washington State tax measures as amended by SSB 5952 are subject
are of central importance to the nature of the measures. These conditions are significantly different from the
conditions on which the Washington State tax measures were made available under HB 2294. Indeed, it is
these different conditions the European Union has indicated are key to its theory as to why these modified
measures are inconsistent with Article 3.1(b) of the SCM Agreement and Article III:4 of the GATT 1994. As a
result, the "legal implications" of the Washington State tax measures as amended by SSB 5952 are different
from the legal implications of those measures prior to their amendment. (See Appellate Body Report, EC –
Chicken Cuts, para. 158).
896 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1274.
897 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 1341 and 1344-1346.
898 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1590.
899 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 28.
900 The United States has objected to inclusion within the scope of the compliance proceeding of the
European Union's claims under Article 3.1(b) of the SCM Agreement and Article III:4 of the GATT 1994 with
respect to all original measures, on the basis that the European Union did not bring such claims in the original
proceeding. (United States' request for preliminary rulings, dated 13 November 2012, paras. 15-17 and 60;
reply to the European Union's response to the United States' request for preliminary rulings, dated
901 Appellate Body Report, US – Zeroing (Japan), para. 190.
902 We recall that the United States has requested preliminary rulings that the Washington State tax
measures other than the B&O tax rate reduction are outside the scope of this proceeding. The Panel has not
yet ruled whether the challenged measures are within the scope of this proceeding and does not make any
ruling in that regard in these reasons.

the Washington State tax measures in the way that the inclusion of Review 9 was necessary for
the panel to assess whether there had been compliance in US – Zeroing (Japan) (Article 21.5 –
Japan).903 We do not consider that our function under Article 21.5 of the DSU would be frustrated
if the Washington State tax measures as amended by SSB 5952 were excluded from our terms of
reference.
7.541. The European Union has also argued that it challenges "all instances of application of the
Washington State tax incentives", regardless of any amendments to the subsidy programme itself.
Even assuming this were the case, we do not see that this changes our conclusion. The fact
remains that the "instances of ap plication" of the Washington State tax measures explicitly
identified in the European Union 's panel request cease to operate as of 1 July 2024. To the extent
that such tax measures are applied after that date, it is by virtue of SSB 5952, which is not
explicitly identified in the panel request as it only became effective in February 2014. 904 The
European Union suggests that failure to treat the instances of application of the Washington State
tax measures, as amended by SSB 5952 would "make it impossible to s ustain a claim against a
subsidy programme and its instances of application, since by simply amending the programme the
defending Member could remove the continuing flow of subsidies from the scope of the
proceedings".905 We find this reasoning difficult to understand, as the issue is not whether
SSB 5952 removes the continuing flow of subsidies from the scope of the proceeding, but rather,
whether the continuing flow of the Washington State tax measures includes the flow that will
continue beyond 1 July 2024 by virtue of the SSB 5952 amendments, given that SSB 5952 was
not explicitly identified in the panel request and only came into effect at a late stage of the
proceeding.
7.542. We are mindful that our conclusion that SSB 5952 is outside this Panel's terms of reference
means that the European Union would need to commence another proceeding in order to pursue
its claims regarding the Washington State tax measures as amended by SSB 5952. We have
considered carefully whether it would be more expedient to resolve the claims regarding those
measures in this proceeding, especially in light of the principles of satisfactory settlement of a
matter and securing a positive solution to the dispute, reflected in Articles 3.4 and 3.7 of the DSU,
respectively. However, while a positive and effective resolution of a dispute is one of the key
objectives of the WTO dispute settlement system, this objective cannot be pursued at the expense
of complying with the specific requirements and obligations of Article 6.2 906, which are not
discretionary in nature but rather go to the issue of a panel 's jurisdiction, and additionally reflect
the important due process objective of notifying the parties and potential third parties of the
nature of the dispute.
7.543. Given that we have concluded that th e Washington State tax measures, as amended by
SSB 5952, are not within our terms of reference, we do not have to address the issue of whether,
in any case, we would have granted leave to present arguments on the amended measures, given
the very late stage of the proceeding at which this request for leave arose and the significant
delays that would undoubtedly arise in an already extremely complex and protracted proceeding if
the Panel were to grant leave and open the issue to full briefing by the parties a nd third parties.907
Nor is it necessary to address in these reasons the United States ' argument, first raised in its
request for preliminary rulings, that the European Union's claims regarding Articles 3.1(a), 3.1(b),
and 3.2 of the SCM Agreement and Articl es III:1, III:4 , and III:5 of the GATT 1994 fail to meet
the threshold set by Article 6.2 of the DSU and are therefore outside the Panel 's terms of
reference, in order to resolve the question of whether the Washington State tax measures, as

903 This is the case irrespective of whether the Panel allows or declines the United States' request for
various preliminary rulings concerning the inclusion of the Washington State tax measures other than
SSB 5952, and claims under Articles 3.1(b) of the SCM Agreement and Article III:4 of the GATT 1994 within
the scope of the compliance proceeding.
904 To the extent that SSB 5952 changes the conditions according to which Boeing would expect to be
eligible for the B&O tax rate reduction in respect of revenues from the 777X, we note that first deliveries for
this aircraft are targeted only for 2020, meaning that it is likely to be some time in the future before Boeing is
in a position to claim B&O tax rate reductions related to 777X revenues. (See Boeing Press Release, "Boeing
Launches 777X with Record-Breaking Orders and Commitments", 17 November 2013, (Exhibit EU-1299)).
905 European Union's letter to the Panel, dated 31 March 2014, para. 7.
906 See Appellate Body Report, EC – Chicken Cuts, paras. 155 and 161.
907 We note that the United States reserved its right to present its case orally to the "new affirmative
case that the EU has attempted to raise at this late stage of the proceeding". (United States' letters to the

amended by SSB 5952, are within our terms of reference, and whether the European Union should
be granted leave to file an additional submission regarding SSB 5952. We recognize, however, that
these and other preliminary objections remain before us.
7.7.6.3 Conclusion
7.544. We have con cluded for the above reasons that the European Union 's panel request does
not meet the requirements of Article 6.2 of the DSU, read in the light of Article 21.5 of the DSU, to
specifically identify the measures at issue, as regards the Washington State tax measures, as
amended by SSB 5952. We thus find that the Washington State tax measures, as amended by
SSB 5952, are outside the Panel 's terms of reference. As explained earlier, for this reason, we
decided to decline the European Union 's request for leave to file an additional submission
regarding SSB 5952.
7.8 Summary of the Panel's conclusions as to whether certain measures and claims are
outside the Panel 's terms of reference or are otherwise outside the scope of this
proceeding
7.545. In respect of the Panel's rul ings as to whether certain measures, or claims with respect to
certain measures, are within our terms of reference for purposes of Article 6.2 of the DSU, we
make the following rulings:
a. The European Union's claims under Articles 3.1(a), 3.1(b), and 3.2 of the SCM
Agreement, and under Article III :4 of the GATT 1994, are within the Panel's terms of
reference.908
b. The South Carolina Phase II measures are outside the Panel's terms of reference, owing
to the failure of the European Union's panel request to m eet t he requirements of
Article 6.2 of the DSU in respect of such measures.
c. The Washington State tax measures, as amended by SSB 5952, are outside the Panel's
terms of reference, owing to the failure of the European Union's panel request to meet
the requirements of Article 6.2 of the DSU in respect of such measures.
7.546. The United States disputes that it has a compliance obligation with respect to certain
measures that the European Communities unsuccessfully challenged in the original proceeding,
and considers that other measures are not sufficiently closely connected to measures for which it
has a compliance obligation as to warrant their inclusion within the scope of this compliance
proceeding. As regards the particular categories of measures challenged by the Eu ropean Union in
this proceeding for which the United States has sought rulings that these measures are outside the
scope of this proceeding because they are not original measures in respect of which the United
States has a compliance obligation, nor are they measures taken to comply, within the meaning of
Article 21.5 DSU, we have made the following rulings:
7.547. As to the Washington state and local measures:
a. The following measures are within the scope of this proceeding:
i. Washington State B&O tax credits for prepr oduction/aerospace product
development;
ii. Washington State B&O tax credit for property taxes and leasehold excise taxes;
iii. Washington State sales and use tax exemptions for computer software, hardware,
and peripherals; and

908 The Panel's ruling that the European Union's claims under Articles 3.1(a), 3.1(b), and 3.2 of the
SCM Agreement, and under Article III of the GATT 1994, are within its terms of reference is without prejudice
to its further rulings, in Sections 7.6.2, as to whether these claims in respect of certain measures are
nevertheless outside the scope of this compliance proceeding.

iv. City of Everett B&O tax rate reduction.
b. The JCATI measure is outside the scope of this proceeding.
7.548. As to the DOD aeronautics R&D measures:
a. The following measures are within the scope of this proceeding:
i. DOD procurement contracts funded through the 23 original RDT&E program
elements; and
ii. Procurement contracts HR0011 -06-C-0073 and HR -0011-08-C-0044 SOW and
assistance instruments HR0011 -06-2-0008, FA8650 -07-2-7716, and
HR0011-10-2-0001 funded through the Materials Processing Technology Project of
the Materials and Biological Technology program element.
b. The following measures the subject of the European Union's claims in respect of certain
"additional" RDT&E program elements are outside the scope of this proceeding:
i. Air Force Contract F19628-01-D-0016 funded under the DRAGON Project of the
Airborne Warning and Control System (AWACS) (PE 0207417F) program element;
ii. Air Force Contract FA8625-11-C-6600 funded under the KC -46, Next Generation
Aerial Refueling Aircraft (PE 0605221F) program element; and
iii. Measures funded under the Multi -Mission Mari time Air craft (P -8A) (PE 0605500N)
program element, including Navy contracts N00019 -04-C-3146, N00019-09-C-0022,
and N00019-12-C-0112.
c. In addition, measures funded under the Technology Transfer (PE 0604317F) program
element, the Defense Logistics Agency IP ManTech (PE 0708011S) program element and
the Long Range Strike Bomber (PE 0604015F) program element are not further
considered in this proceeding because the Panel is not satisfied of the existence of any
procurement contracts or assistance instruments with Boei ng which the European Union
identifies as relevant to its claims, and which are funded under these program elements.
d. The provision of access to DOD equipment and employees is within the scope of this
proceeding with respect to the post -2006 procurement con tracts and assistance
instruments funded under the 23 original RDT&E program elements and the "additional"
program elements that we have found to be within the scope of this proceeding. The
provision of access to DOD equipment and employees is outside the scope of this
proceeding with respect to the pre -2007 procurement contracts and assistance
instruments funded under the 23 original RDT&E program elements.
7.549. The FAA aeronautics R&D measure is within the scope of this proceeding.
7.550. As to the South Carolina state and local measures , the Project Gemini measures and the
Project Emerald measures are within the scope of this proceeding.
7.551. The aforementioned findings as to the measures that are within the scope of this
proceeding are without prejudice to the independen t issue of whether certain claims relating to
certain measures are nevertheless outside the scope of this proceeding.
7.552. In addition, the United States has requested rulings that certain claims relating to certain
measures are nevertheless outside the scope o f this proceeding. On this separate question of the
claims that may be made against certain measures in this proceeding , we have additionally ruled
that:
a. The European Union is precluded from bringing claims under Articles 3.1(a) and 3.2 of
the SCM Agreeme nt against the following four original Washington State tax measures
enacted under HB 2294 : the Washington State B&O tax rate reduction; the Washington

State B&O tax credits for preproduction/aerospace product development 909, the
Washington State B&O tax cre dit for property taxes 910, and the Washington State sales
and use tax exemptions for computer hardware, peripherals, and software.
b. The European Union is precluded from bringing claims under Article 3.1(b) and 3.2 of the
SCM Agreement, and under Article III:4 of the GATT 1994, in respect of the following
four original Washington State tax measures enacted under HB 2294 : the Washington
State B&O tax rate reduction; the Washington State B&O tax credits for
preproduction/aerospace product development 911, the Washington State B&O tax credit
for property taxes 912, and the Washington State sales and use tax exemptions for
computer hardware, peripherals, and software; as well as the FSC/ETI measures.
c. The European Union is precluded from bringing claims under Articles 3.1(a), 3.1(b), and
3.2 of the SCM Agreement and Article III:4 of the GATT 1994 in respect of:
i. the City of Everett B&O tax rate reduction, the tax abatements related to the City of
Wichita IRBs, and the pre -2007 NASA Space Act Agreements and DOD procurement
contracts as original measures; and
ii. the pre-2007 NASA procurement contracts and DOD assistance instruments at issue
in the original proceeding, as amended by the respective Boeing Patent Licence
Agreements.
7.553. In Section 8 of this Report, we consider whether the European Union has demonstrated
that the United States has failed to withdraw the subsidy, within the meaning of Article 7.8 of the
SCM Agreement.
8 WHETHER THE UNITED S TATES HAS FAILED TO WITHDRAW THE SUBSIDY , WITHIN
THE MEANING OF ARTICLE 7.8 OF THE SCM AGREEMENT
8.1. As explained above 913, in this Section of the Report we exa mine, first, whether the
United States has failed to withdraw the subsidy through the modifications it made to the
particular pre-2007 NASA and DOD aeronau tics R&D subsidies the subject of the DSB
recommendations and rulings (Section 8.1) and, second, whether the United States has failed to
withdraw the subsidy by granting or maintaining seven types of post-2006 measures alleged to
constitute specific subsidies , within the meaning of Articles 1 and 2 of the SCM Agreement
(Section 8.2).
8.1 Whether the United States has failed to withdraw the subsidy by modifying the
terms of the NASA and DO D aeronautics R &D subsidies the subject of the DSB
recommendations and rulings
8.1.1 Introduction
8.2. In this Section of the Report, we evaluate whether the United States has failed to withdraw
the subsidy , within the meaning of Article 7.8 , by amending the pre -2007 NASA procure ment
contracts and DOD assistance instruments the subject of the DSB recommendations and rulings to
grant a commercial use licence to NASA and DOD in respect of Boeing -owned patents developed
under those instruments.
8.3. In the original proceeding, three cate gories of NASA and DOD aeronautics R&D measures
were found to be specific subsidies, within the meaning of Articles 1 and 2 of the SCM Agreement:

909 Including amendments thereto pursuant to SSB 6828.
910 Including amendments thereto pursuant to HB 2466.
911 Including amendments thereto pursuant to SSB 6828.
912 Including amendments thereto pursuant to HB 2466.
913 See Section 6.4 above.

a. payments and access to NASA facilities, equipment, and employees provided to Boeing
pursuant to NASA procurem ent contracts914 funded under eight NASA aeronautics R&D
programmes915 related to R&D applicable to the development, design, and production of
large civil aircraft;
b. access to facilities, equipment, and employees provided to Boeing under Space Act
Agreements916 entered into under these programmes; and
c. payments and access to DOD facilities provided to Boeing under assistance
instruments917 entered into between DOD and Boeing under 23 RDT&E programmes.918
8.4. The Appellate Body based its finding that the financial contrib utions provided through the
NASA procurement contracts and DOD assistance instruments before it conferred a benefit , on a
comparison of the allocation of intellectual property rights, and more specifically, rights in respect
of patents, under the NASA proc urement contracts and DOD assistance instruments , with
corresponding allocations in transactions between two market actors.919
8.5. In its Compliance Communication, the United States advises that:
The National Aeronautics and Space Administration ( "NASA") has mod ified the rights
accorded to the parties under the contracts listed in Annex A so as to make them
consistent with commercial practice. These modifications apply to all of the NASA
contracts covered by the recommendations and rulings of the DSB. NASA has ma de
identical modifications, as necessary, with regard to contracts subsequent to those
covered by the recommendations and rulings of the DSB, without prejudice to the U.S.
view that those contracts were not subsidies causing adverse effects to EU interests .
These contracts are also listed in Annex A.920
The U.S. Department of Defense ( "DoD") has modified the rights accorded to the
parties under the cooperative agreements, technology investment agreements, and
other Transactions listed in Annex B so as to mak e them consistent with commercial
practice. The modifications apply to all of the DoD assistance instruments covered by
the recommendations and rulings of the DSB. DoD made identical modifications with
regard to contracts subsequent to those covered by the recommendations and rulings
of the DSB, without prejudice to the U.S. view that those contracts were not subsidies
causing adverse effects to EU interests. These contracts are also listed in Annex B.921
8.6. The modifications referred to in the Compliance Commun ication were effected through a
Subject Invention and Patent License Agreement concluded between NASA and Boeing on

914 See para. 8.74 below. The panel in the original proceeding observed that there were only three
cooperative agreements between Boeing and NASA, totalling less than USD 5 million, and appears not to have
specifically addressed them in its evaluation of whether the NASA procurement contracts and Space Act
Agreements were specific subsidies. (See Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.945
and fn 2408). The Appellate Body similarly did not refer to any cooperative agreements in its assessment of
the aeronautics R&D measures. We note, however, that the United States included three cooperative
agreements (designated by the identifiers NNC10AA02A, NNC10AA03A, and NNL07AA03A) in Annex A to its
Compliance Communication. We address in Section 8.2.2 below the European Union's argument that post-2006
NASA cooperative agreements confer specific subsidies.
915 The eight NASA aeronautics R&D programmes at issue in the original proceeding were the Advanced
Composites Technology, High Speed Research, Advanced Subsonic Technology, High Performance Computing
and Communications, Aviation Safety, Quiet Aircraft Technology, Vehicle Systems, and Research and
Technology Base programmes. For a description of these programmes, see Panel Report, US – Large Civil
Aircraft (2nd complaint), paras. 7.1709-7.1739.
916 See para. 8.78 below.
917 See para. 8.298 below.
918 By contrast, the original panel and Appellate Body rejected the European Communities' claim that
the allocation of patent rights or data rights under NASA/DOD contracts and agreements constituted a specific
subsidy independently from the payments and access to facilities, equipment, and employees provided under
those contracts and agreements. (Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1294 and
7.1311, Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 789).
919 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 650-666.

23 September 2012 (NASA -Boeing Patent Licence Agreement) 922 and a Supplemental Subject
Invention and Patent License Agreement concluded betwee n DOD and Boeing on
21 September 2012 (DOD-Boeing Patent Licence Agreement).923
8.7. In its request for the establishment of a panel in this proceeding, the European Union asserts
that NASA maintains its subsidies inter alia "by entering into and following the t erms of the
contracts and other agreements (as modified) with Boeing listed in annex A of the
United States' 23 September 2012 notification. Annex A of the 23 September 2012 notification is
attached to this request, and the contracts listed therein are inc orporated into this request ".924
Similarly, the European Union 's panel request states that "DoD also maintains its subsidies to US
LCA producers by entering into and following the terms of the contracts and other agreements (as
modified) with Boeing listed i n annex B of the United States ' 23 September 2012 notification.
Annex B of the 23 September 2012 notification is attached to this request, and the contracts listed
therein are incorporated into this request".925
8.1.2 Main arguments of the parties and third parties
8.8. The European Union argues that the NASA -Boeing Patent Licence Agreement and the
DOD-Boeing Patent Licence Agreement, (the Boeing Patent Licence Agreements) , which grant
NASA and DOD a commercial use licence in respect of Boeing patents arising under the pre-2007
NASA procurement contracts and the pre-2007 DOD assistance instruments, are of no value and
do not constitute a meaningful withdrawal of the subsidies. 926 The European Union submits that
the U.S. Government cannot make practical use of th e commercial use licences because the U.S.
Government "is not in the business of making or selling aircraft -related products for commercial
sale"927, and cannot produce or sell commercial aircraft, or otherwise use the licence s for
commercial purposes, without express statutory authorization from the U.S. Congress, which is not
part of the United States ' compliance measure. Moreover, t he restrictions set forth in the two
Agreements on NASA's or DOD's ability to sublicense to, or otherwise exercise the commercial use
rights in connection with, third parties demonstrate that in reality, Boeing has given up nothing of
value for itself through these Agreements, and NASA/DOD has obtained nothing of value for itself.
The Boeing Patent Licence Agreement s are effectively "sham" transactions that have no effect on
the benefit analysis. 928 The European Union contends that the Boeing Patent Licence Agreement s
have not changed what Boeing and NASA /DOD receive in real terms under the procurement
contracts and assistance instruments and thus, there is no need for the Panel to question the
benefit analysis that was previously undertaken.929
8.9. The European Union recalls the original proceeding, in which the Appellate Body found that
the terms of each of Contracts A through F (four of which h ad been submitted by the
United States), confirmed that the NASA procurement contracts and DOD assistance instruments
provided a benefit to Boeing due to the fact that, in relevant transactions in the market in which
one entity pays another entity to conduc t R&D, the party commissioning research obtains the full
rights to the resulting technology. 930 The European Union submits that the United States cannot
rely on a comparison of the modified terms of these NASA procurement contracts and DOD
assistance instruments with only Contract D in order to rebut the European Union 's demonstration

922 NASA-Boeing Subject Invention and Patent License Agreement (September 2012) (formerly Exhibit
US-13-9) (NASA-Boeing Patent Licence Agreement), (Exhibit EU-251) (BCI).
923 DOD-Boeing Supplemental Subject Invention and Patent License Agreement (21 September 2012)
(formerly Exhibit US-13-10) (DOD-Boeing Patent Licence Agreement), (Exhibit EU-401) (BCI).
924 European Union's request for the establishment of a panel, para. 9.
925 European Union's request for the establishment of a panel, para. 13.
926 European Union's first written submission, paras. 186-190 and 380-384.
927 European Union's first written submission, paras. 187 and 381; second written submission,
paras. 279 and 485.
928 European Union's first written submission, paras. 189, 190, and 383-384. In addition, the
European Union argues that the United States' admission that the U.S. Government does not plan to engage in
purely commercial businesses confirms that the Boeing Licence Agreements have no value, as they cannot
currently be used, and the U.S. Government does not plan to use them, as they provide only for the use of the
patents for a "commercial purpose". (European Union's comments on the United States' response to Panel
question No. 67, para. 12).
929 European Union's second written submission, paras. 293 and 496.
930 European Union's first written submission, paras. 180-185; second written submission, paras. 271,
275, 290-298, and 307-309.

in this proceeding that the NASA procurement contracts and agreements and DOD assistance
instruments confer a benefit.
8.10. First, the European Union considers that Contract D is an "outlier" when compared to the
other five contracts before the Appellate Body and different from what the European Union would
consider a market transaction. In the absence of any further contextual information concerning the
negotiation of Contract D, it should not be considered a legitimate market transaction. 931 Second,
even if Contract D were considered as a benchmark for the benefit analysis, the European Union
disputes that the Boeing Patent Licence Agreement s amend the allocation of patent rights and
related licence rights under the subject NASA procurement contracts and DOD assistance
instruments to bring it into line with the allocation of patent rights and related licence rights under
Contract D. This is because, while the Boeing Patent Licence Agre ements provide for NASA or DOD
to receive a non -exclusive, royalty -free licence to the specified patent rights for commercial
purposes, neither NASA nor DOD can make practical use of that commercial licence because they
do not make or sell aircraft-related products for commercial sale. Moreover, [***].932
8.11. The European Union notes that in concluding that the NASA procurement contracts and DOD
assistance instruments conferred a benefit in the original proceeding, the Appellate Body found
that [***].933 This conclusion is not affected by the Boeing Patent Licence Agreement s, even if
they have the effect claimed by the United States because the Boeing Patent Licence Agreements
do not affect such [***].934 A similar analysis applies in respect of the Appellate Body 's finding
concerning Contract E. 935 Finally, the European Union notes that the Appellate Body found that
under Contract F [***].936 In short, the United States' focus on only Contract D should be taken
as a concession that a comparison of the terms of the procure ment contracts and assistance
instruments with Contracts A -C, E, and F that were before the Appellate Body demonstrates the
existence of benefit.937
8.12. The European Union refers also to a 2002 contract concluded between Boeing as
commissioning party and the Nat ional Institute for Aviation Research (NIAR) at Wichita State
University that was submitted to the original panel as evidence of a market benchmark. 938 The
European Union rejects the assertion by the United States that this contract represents a deviation
from NIAR policy. 939 With reference to the 2002 NIAR Contract and the 2013 NIAR standard
contract terms submitted by the United States as evidence of NIAR 's current contractual practice,
the European Union argues that in both instances, when inventions are mad e jointly or in
collaboration by the commissioning and commissioned parties, the inventions are jointly owned.
By contrast, under the NASA procurement contracts and agreements and the DOD assistance
instruments, inventions made jointly between NASA and Boe ing or DOD and Boeing are owned
solely by Boeing as commissioned party.940 In other words, [***].941
8.13. The European Union also refers to a recent declaration by the Head of Intellectual Property
for Airbus SAS 942 with respect to the distribution of intellectual p roperty rights, articles on
intellectual property rights and stem cell research, an article on collaborative research and

931 European Union's second written submission, paras. 297 and 504. The European Union submits that
[***] (European Union's second written submission, paras. 298 and 505).
932 European Union's second written submission, paras. 304-306 and 511-513.
933 European Union's second written submission, paras. 293 and 500 (referring to Appellate Body
Report, US – Large Civil Aircraft (2nd complaint), para. 655).
934 European Union's second written submission, paras. 293 and 500.
935 European Union's second written submission, paras. 294 and 501 (referring to Appellate Body
Report, US – Large Civil Aircraft (2nd complaint), para. 658).
936 European Union's second written submission, paras. 295 and 502 (referring to Appellate Body
Report, US – Large Civil Aircraft (2nd complaint), para. 659).
937 European Union's second written submission, paras. 290 and 497.
938 European Union's first written submission, para. 184; second written submission, paras. 274 and
307-309. See Contract between Boeing Commercial Airplane Group Wichita Division and Wichita State
University, Contract No. 000051728 (4 November 2002) (Original Exhibit EC-1231), (Exhibit EU-243).
939 European Union's second written submission, para. 308 (referring to United States' first written
submission, para. 240).
940 European Union's second written submission, para. 309.
941 European Union's second written submission, para. 309.
942 Airbus SAS is a société par actions simplifiée (a joint stock or limited liability company) incorporated
under French law. (See Panel Report, EC and certain member States – Large Civil Aircraft, fn 2060).

exclusivity of ownership over inventions and WIPO training materials advising companies to
acquire intellectual property rights when outsourcing R&D.943
8.14. In response to the expert opinion of the United States ' technology licensing expert, Louis
Berneman, the European Union submits the expert opinion of its technology licensing expert,
Richard Razgaitis, as to contracting practices between a n R&D commissioning party and a
commissioned party with respect to ownership of intellectual property and commercial use
rights.944 Mr Razgaitis concludes, contrary to the view expressed by Mr Berneman, that the rights
granted to the commissioned party under the NASA procurement contracts and DOD assistance
instruments (as well as the other aeronautics R&D agreements at issue in this proceeding) are
materially greater than those granted to the commissioned parties in the non -U.S. Government
R&D contracts disc ussed in Mr Razgaitis ' declaration, in which the commissioning party is a
company.
8.15. Finally, with regard to non -reimbursable and partially-reimbursable pre -2007 Space Act
Agreements, the European Union contends that the original Panel found that the pre -2007 Space
Act Agreements provided financial contributions that conferred a benefit, and this finding was not
reversed by the Appellate Body. Thus, it argues that the United States "appears to be challenging
the DSB rulings and recommendations for the same S pace Act Agreements already covered by
those rulings and recommendations, without any allegation that those S pace Act Agreements have
been modified in any way", which it considers is "impermissible". 945 In any event, the
European Union argues that Space Act Agreements confer a benefit for the same reasons as NASA
procurement contracts.946
8.16. The United States argues that the commercial use licence granted to NASA and DOD under
the Boeing Patent Licence Agreements was a compliance step "tailored to close the narrow gap
between commercial practice and government contracts identified by the Appellate Body in this
dispute".947 Accordingly, the amended allocation of intellectual property rights effected by the
Boeing Patent Licence Agreement s withdrew the subsidy previous ly conferred by the pre -2007
NASA procurement contracts and DOD assistance instrument , respectively.948 The United States
considers that the European Union bears the burden to establish that the U .S. measures taken to
comply are insufficient. The European Un ion must therefore show that the pre -2007 NASA
procurement contracts and DOD assistance instruments, as amended by the Boeing Patent Licence
Agreements, are more favourable to Boeing than comparable commercial joint venture
agreements are to the party bein g commissioned to perform the research . According to the
United States, the European Union "must take account of all of the potential benchmarks,
identifying which are relevant, and demonstrat e that the pre -2007 NASA procurement contracts
and DOD assistance instruments, as amended, are more favorable to the non -government party
than all of the valid benchmarks".949
8.17. The United States argues that the European Union misreads the Appellate Body's findings
on benefit as a mandate for a particular approach to the b enefit determination, when in fact the
Appellate Body was completing the analysis "based on a set of findings and evidence with which it
expressed no small discomfort" .950 While the benchmarks in original proceeding "contained valid
observations as to the in tellectual property term of certain transactions "951, the United States
contends that the benchmarks proposed by the European Union in this proceeding are not valid
comparators because they involve a commitment of resources by only one party in exchange for
which the other party receives access to all of the fruits of the research. 952 Even if the Panel were
to consider these benchmarks, the United States submits that the NASA procurement contracts

943 European Union's first written submission, paras. 182-184; second written submission,
paras. 272-274.
944 Declaration of R. A. Razgaitis, Sr., Ph.D., CLP, 23 October 2013 (Razgaitis Declaration), (Exhibit
EU-1262) (BCI).
945 European Union's second written submission, para. 314.
946 European Union's second written submission, para. 314.
947 United States' second written submission, paras. 177, 179, and 194.
948 United States' second written submission, para. 177.
949 United States' second written submission, para. 178.
950 United States' first written submission, para. 236.
951 United States' first written submission, para. 238.
952 United States' second written submission, para. 180. See also United States' first written submission,
paras. 95, 96, and 236.

and agreements and DOD assistance instruments subject to the Boeing Patent Licence Agreements
have eliminated the gap with the benchmark contracts evaluated by the Appellate Body in the
original proceeding, and thus, the modified NASA procurement contracts and agreements and DOD
assistance instruments are no more favourable to Boeing as commissioned party than commercial
transactions.
8.18. The United States argues that the analysis of benefit should start with benchmarks
reflecting the types of collaborative relationships that characterize the pre-2007 NASA
procurement cont racts and DOD assistance instruments, with particular emphasis on joint
ventures.953 One such joint venture created to conduct research with results of interest to both
parties is the arrangement in Contract D examined by the Appellate Body in the original
proceeding.954 The United States rejects the suggestion by the European Union that Contract D is
an "outlier" and unrepresentative of prevailing market practices regarding arm 's-length
collaborative R&D arrangements.
8.19. The United States argues that the amendme nts to the pre-2007 NASA procurement
contracts and DOD assistance instruments effected by NASA- and DOD-Boeing Patent Licence
Agreements bring the allocation of intellectual property rights under those contracts and
instruments into line with the correspo nding terms in Contract D. [***].955 The only salient
difference between the NASA procurement contracts and DOD assistance instruments (as amended
by the applicable Boeing Patent Licence Agreement) and Contract D is that [***].956
8.20. The United States argues in addition that the allocation of intellectual property rights under
the pre-2007 NASA procurement contracts and DOD assistance instruments, as amended by the
Boeing Patent Licence Agreements, is consistent also with Contracts A, B , and C considered by the
Appellate Body, as well as with the intellectual property allocation terms in the 2013 NIAR
standard contract terms. 957 [***].958 The United States contends that the European Union
incorrectly states that NASA and DOD do not obtain ownership rights over inventi ons developed
under NASA procurement contracts or DOD assistance instruments . According to the United
States, under U .S. law, NASA and DOD obtain ownership over inventions made solely by their
employees during work under a procurement contract or assistance instrument and joint
ownership over inventions jointly made with Boeing employees.959 [***].
8.21. The United States submits that statements regarding the allocation of intellectual property
rights under Airbus contracts are irrelevant to transactions that entail a joint venture arrangement,
and instead reflect transaction s where one party walks away with all of the fruits of the
research.960 Moreover, a 2002 contract between Boeing and NIAR, submitted as evidence in the
original proceeding, is irrelevant as a ben chmark, as it represents "a deviation from NIAR policy ",
whereas NIAR 's current standard contract terms confirm that Contract D is an example of a

953 United States' first written submission, paras. 242 and 280.
954 United States' first written submission, paras. 244 and 282.
955 United States' first written submission, paras. 249 and 287. The "field of use" refers to the range of
activities within which the commissioning party can practice its non-exclusive, royalty-free licence to use the
research results. The United States argues that [***] (United States' second written submission, paras. 189
and 190).
956 United States' first written submission, paras. 251 and 289.
957 United States' second written submission, paras. 195-202 (referring to Statement of J. Tomblin,
Executive Director of the National Institute for Aviation Research, (Exhibit USA-263)). Mr Tomblin explains at
paragraph 1 of this statement that NIAR is the largest university aviation R&D institution in the United States,
which provides research, design, testing and certification services to the aviation manufacturing agencies,
government agencies, educational entities, and other entities. The United States submits that NIAR's
intellectual property allocation terms reflect the prevailing intellectual property allocation terms of collaborative
R&D contracts with the largest aviation R&D institution in the United States. (United States' second written
submission, para. 200).
958 See also United States' response to Panel question No. 67, paras. 20-22, where the United States
takes note of Mr Razgaitis' view that the most prevalent allocation of intellectual property rights is for each
party to own any patents for inventions developed solely by its employees, and to own jointly patents for
inventions developed jointly by the commissioning party and commissioned party. The United States says that
by this standard, Boeing's ownership of patents for inventions invented by its employees while working under
DOD and NASA procurement contracts is consistent with commercial practice in the United States.
959 United States' second written submission, para. 195 (referring to European Union's second written
submission, paras. 293 and 500); response to Panel question No. 85, paras. 117-124 and 138-143.
960 United States' first written submission, para. 239.

market-based transaction. 961 In addition, the United States argues that articles cited by the
European Union on intellectual property rights and stem cell research , and on collaborative
research and the importance of exclusivity of ownership over inventions, as well as a WIPO
training course advising companies to acquire rights over intellectual property when they
outsource R&D , are not proper benchmarks for the type of joint ventures described by the
Appellate Body in its assessment of the NASA procurement contracts and DOD assistance
instruments in the original proceeding.962
8.22. The United States supports these argumen ts with the opinion of its technology licensing
expert, Louis Berneman, who opines that the pre -2007 NASA procurement contracts and DOD
assistance instruments, as amended by the applicable Boeing Patent Licence Agreement, are
consistent with prevailing mar ket practices for collaborative R&D arrangements, such as the
arrangement in Contract D considered by the Appellate Body in the original proceeding. 963 The
United States submits that evidence of "prevailing market practices " submitted by Mr Berneman,
such as sample contracts drawn from the pharmaceutical and biomedical research sectors,
confirms that Contract D exemplifies but one type of private, market -based transaction for
collaborative research effort s, and that there are otherwise a "range of commercial market
outcomes" that can be "fair and reasonable", including those that are different from the amended
NASA and DOD contracts and agreements. 964 Mr Berneman additionally emphasizes that the
pre-2007 NASA procurement contracts and DOD assistance instruments were open to bidding by
multiple contractors, and as a result are priced consistently with commercial practices. Mr
Berneman also explains that the absence of compensation for commercialization of technologies
under NASA procurement contracts and DOD assis tance instruments is consistent with market
practice, considering the difficulties faced in estimating potential returns from early -stage
technologies.965
8.23. Finally, in respect of Space Act Agreements, the United States argues that the
European Union fails to identify any relevant benchmark to explain how Space Act Agreements
achieve an equilibrium that is more favourable to Boeing than comparable commercial
transactions. The United States argues that the European Union fails to take into account that
Space Ac t Agreements do not involve any payments by the U.S. Government and sometimes
involve payments by Boeing to NASA, as well as the fact that the intellectual property terms of
Space Act Agreements are not the same as those under the NASA procurement contract s.
Accordingly, there is no basis for the European Union's argument that Space Act Agreements
provide a benefit for the same reason as NASA procurement contracts and cooperative
agreements. As Boeing contributes its own resources under Space Act Agreements , without
receiving any funding from NASA, the United States contends that there is a relationship between
the level of patent rights and the level of contribution to the research effort. Accordingly, a
separate comparison with the relevant benchmark is ne cessary in order to determine whether
Space Act Agreements confer a benefit.966
8.24. Brazil does not consider that the SCM Agreement imposes any particular method for
determining whether a benefit has been conferred, but provides general guidance in Article 14
precisely to enable the inevitable case-by-case approach.967
8.25. Japan submits that the panel in Japan – DRAMs identified two potential approaches to
assessing the existence of benefit. Under one approach, a panel may seek to determine the

961 United States' first written submission, paras. 240 and 241; second written submission, paras. 183
and 197-202.
962 United States' second written submission, para. 184.
963 Declaration of L. P. Berneman, Ed D, CLP, RTTP, 22 August 2013 (Berneman Declaration), (Exhibit
USA-322) (BCI); and United States' second written submission, paras. 179 and 204-208.
964 United States' second written submission, paras. 179 and 204-208. The United States considers that
the evidence of commercial collaborative R&D arrangements before the Panel shows that, except of the issue
of ownership of patent rights "where NASA and DOD contracts mirror the most prevalent commercial practice",
there is no "standard" division of intellectual property rights. Rather, parties to commercial research contracts
delineate patent rights in a variety of ways to suit their interests and objectives. The only "normal market
practice" is for the parties to pay for the intellectual property rights that they require, and not to pay for the
rights they do not require. (United States' response to Panel question No. 67, para. 28).
965 United States' second written submission, para. 207.
966 United States' first written submission, para. 257; second written submission, paras. 239-244.
967 Brazil's third-party response to Panel question No. 7.

existence of a benefit based on available evidence demonstrating the terms that the market would
have offered, and compare those terms with the terms of the financial contribution in question. As
a second approach, a panel may examine whether the financial contribution was provid ed on the
basis of commercial considerations. Under this approach, evidence of reliance on non -commercial
considerations would indicate terms more favourable than those available on the market. 968 Japan
considers that price -discovery mechanisms, such as the use of competitive bidding or negotiated
prices, may not always prove helpful in determining the terms that would be available to the
recipient in the market, such as in situations in which government procurement involves monopoly
suppliers or suppliers exercising significant market power.969
8.26. Korea argues that ordinarily the identification of a benefit under Articles 1.1(b) and 14 of
the SCM Agreement is measured by comparing: (a) the cost incurred by the recipient to obtain the
financing with the government support; and (b) the cost the recipient would have incurred to
obtain equivalent financing from the market, if there had been no government support. Because
the subsidy consists of a financial contribution, the benefit of a subsidy is necessarily equal to a
reduction of the financing costs caused by the government action. 970 While Korea considers that it
might be theoretically possible to define benefit in a different manner, based on the returns to the
recipient from the use of the financial contribution, su ch an approach does not appear to have any
textual support in the SCM Agreement or in past decisions by panels and the Appellate Body. The
European Union's "multiple benefit" theory appears to be based on this faulty approach to benefit
by looking at what the recipient would have done with the governmental financial contribution.
This approach appears to require that financial contributions that are "wasted" confer no benefit,
while financial contributions that happen to generate outsized returns confer a b enefit that is
multiple times the amount of the actual financial contribution. 971 Korea suggests that, before
accepting such a theory, the Panel should at a minimum require that its proponents demonstrate
how it would be consistent with the relevant provisions of the SCM Agreement.
8.1.3 Evaluation by the Panel
8.27. The issue before the Panel is whether the modifications to the pre-2007 NASA procurement
contracts972 and DOD assistance instruments the subject of the DSB recommendations and rulings,
effected by the Boeing Patent Licence Agreements, have failed to remove the benefit conferred by
the financial contributions provided through these contracts and instruments, and whether the
United States has thus failed to withdraw the subsidy, within the meaning of Article 7.8 of the SCM
Agreement.
8.28. In the original proceeding, in the context of completing the analysis of whether the
provision of funding and other support to Boeing under NASA procurement contracts and DOD
assistance instruments at issue conferred a benefit, the Appellate Body treated six contracts in
which Boeing had commissioned universities or educational research institutes to conduct R&D , as
though they were market benchmarks. 973 Those contracts had been submitted by the
United States as BCI and were designated as Contracts A through F. 974 Based on a comparison of
the allocation of the ownership of inventions (and thus rights to obtain patents) and related licence
rights to NASA or DOD as commissioning party, and to Boeing as commissioned party, in the NASA
procurement contracts and DOD assistance instruments, with the corresponding allocations to
commissioning and commissioned parties under Contracts A through F, the Appellate Body

968 Japan's third-party response to Panel question No. 6, paras. 17-22.
969 Japan's third-party response to Panel question No. 7, para. 23
970 Korea's third-party submission, para. 22.
971 Korea's third-party submission, paras. 23 and 24.
972 The United States has included three cooperative agreements (designated by the identifiers
NNC10AA02A, NNC10AA03A, and NNL07AA03A) in annex A to its Compliance Communication, in addition to
identifying NASA procurement contracts. These cooperative agreements are also identified in the NASA-Boeing
Patent Licence Agreement. Although the panel and Appellate Body both acknowledged that certain of the
transactions under the challenged programmes took the form of cooperative agreements, neither refer to
cooperative agreements in their specific findings regarding whether the NASA aeronautics R&D measures are
subsidies.
973 In the original proceeding, the parties had agreed before the panel that, with respect to the financial
contribution that Boeing had received through the NASA procurement contracts and DOD assistance
instruments, the "relevant market benchmark would be the terms of a commercial transaction in which one
entity pays another entity to conduct R&D". (Panel Report, US – Large Civil Aircraft (2nd complaint),
paras. 7.1039 and 7.1184).
974 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), fns 1364-1367 and 1374.

concluded that the NASA procurement contracts and DOD assistance instruments confer red a
benefit.975
8.29. The United States argues that the grant of a commercial use licence to NASA and DOD
under the Boeing Patent Licence Agreements concluded in September 2012 modifies the allocation
of rights granted to NASA and DOD under the pre-2007 NASA pro curement contracts and DOD
assistance instruments, respectively, in such a way that they are now consistent with prevailing
market practices for collaborative R&D arrangements and no longer confer a benefit.
8.30. Given that this is a compliance proceeding, and that the United States ' compliance actions
are based on the Appellate Body's benefit determinations in the original proceeding in respect of
those pre-2007 NASA procurement contracts and DOD assistance instruments, we will evaluate
whether the commercial use licence in respect of Boeing-owned patents granted to NASA pursuant
to the NASA -Boeing Patent Licence Agreement , and to DOD pursuant to the DOD -Boeing Patent
Licence Agreement, results in an allocation of patent rights and related licence rights under the
procurement contracts and assistance instruments to which the se Agreements apply that is
consistent with corresponding allocations in market-based R&D collaborative agreements.
8.31. First, we recall how rights in respect of patents (in terms of ownership of inventions and
licences to practice any resulting patents), as well as data rights, are generally allocated under
NASA procurement contracts and DOD assistance instruments. Given that the legal allocation of
rights in respect of patents arising from work performed under DOD procurement contracts is the
same as for DOD assistance instruments, we include the DOD procurement contracts in the
general summary below for the sake of completeness, although we do not evaluate whether these
measures involve specific subsidies until Section 8.2.3.5 of this Report.
8.1.3.1 The allocation of intellectual property rights and data rights under NASA
procurement contracts and under DOD assistance instruments and procurement
contracts
8.32. In the original pr oceeding the panel observed that the allocation of patents is uniform
across all U.S. Government R&D contracts and agreements.976 Prior to 1980, the United States had
a general policy of taking all rights to patents over inventions produced by contractors un der
federally-funded R&D contracts and granting nonexclusive licenses to any applicant, including the
contractor, that wished to use the subject invention. 977 In 1980, the U .S. Government changed
this policy and began granting certain categories of governmen t contractors ownership of any
inventions made by the contractor under federally -funded R&D contracts. The U .S. Government
would receive a "government use" license which enabled it to use the subject invention without
having to pay the contractor any royal ties.978 This revised policy, implemented through the
Bayh-Dole Act, originally applied only to non -profit organizations and small business firms. It was
subsequently extended to accord the same treatment to all government contractors that,
regardless of siz e and profit/non -profit status, engaged in work under federally -funded R&D
contracts.979

975 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 654-662.
976 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1149.
977 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1277 et seq.
978 The Bayh-Dole Act implemented this policy in 1980. It is codified in Patent Rights in Inventions Made
with Federal Assistance. (United States Code, chapter 35, sections 200-212, (Exhibit EU-220)). Under the
Bayh-Dole Act, a university, other non-profit organization or small business is entitled to retain title to any
invention of the contractor conceived or first actually reduced to practice in the performance of work under a
funding agreement. (Patent Rights in Inventions Made with Federal Assistance, United States Code, chapter 35,
sections 200-212, (Exhibit EU-220), sections 201(c), (e), and (i), and 202(a)). A "funding agreement" includes
any contract, grant or cooperative agreement entered into between any federal agency, other than the
Tennessee Valley Authority, and any contractor for the performance of experimental, developmental or
research work funded in whole or in part by the U.S. federal government. (Patent Rights in Inventions Made
with Federal Assistance, United States Code, chapter 35, sections 200-212, (Exhibit EU-220), section 201(b)).
979 A 1983 Presidential Memorandum instructed all executive branch agencies to extend Bayh-Dole
treatment to all contractors to the extent permitted by law. (U.S. White House, Memorandum to the Heads of
Executive Departments and Agencies on Government Patent Policy, 18 February 1983 (Memorandum on
Government Patent Policy), (Exhibit EU-1062)). A 1987 Executive Order subsequently incorporated the 1983
policy. (Executive Order 12591, "Facilitating access to science and technology", 10 April 1987, (Exhibit
EU-238)). The Bayh-Dole Act and associated legislative instruments and implementing regulations also require

8.33. As the original panel explained, pursuant to the National Aeronautics and Space Act of 1958
(Space Act) , any invention that is patentable made pursuant to a contract wi th NASA shall be
issued to the U.S. Government, unless this right is waived by NASA. To comply with the Bayh-Dole
Act and subsequent related policies, NASA established regulations under which it generally waives
its rights to inventions that are developed pursuant to NASA -funded research to large
companies.980 As in the case of patents retained by contractors pursuant to U.S. patent law, patent
rights waived by NASA pursuant to NASA -specific regulations are not unlimited, as NASA retains
the right to use the patented technology for government purposes. 981 The United States has
indicated that NASA has granted such waiver s "essentially every time a contractor requested to
retain title to an invention" by its employees working under a NASA contact.982
8.34. As a result of the foregoing, where NASA or DOD employees and Boeing employees work
together und er a NASA procurement contract 983 or under a DOD assistance instrument or
procurement contract on a research effort that results in an invention , the allocation of ownership
of patent rights is as follows:
a. Where a NASA (or DOD) employee makes an invention in the course of work under a
NASA procurement contract (or under a DOD assistance instrument or procurement
contract), the U.S. Government will have sole ownership of the pate nt. This is because
the U .S. Government employee who made the invention would be recognized as the
inventor, and his or her interest in the patent that would issue in that employee 's name
would pass to the U.S. Government.984

that federal agencies include certain standard clauses in all such funding agreements. These clauses require:
(a) the contractor to notify the U.S. Government of each invention to which it intends to retain title, and to file
a patent application within the time provided by statute, as well as an authorization for the government to
receive title if the contractor fails to follow those procedures; (b) the provision to the U.S. Government of a
"nonexclusive, non-transferable, irrevocable, paid-up license to practice or have practiced for or on behalf of
the United States any subject invention throughout the world"; and (c) an authorization for the U.S.
Government to file a patent application on behalf of the inventor anywhere in the world that the contractor fails
to do so.
980 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1287-7.1290 (referring to
United States Code, chapter 42, section 2457(a); and United States Code of Federal Regulations, chapter 14,
section 1245.100 et seq.). NASA regulations require that procurement contracts contain a standardized clause
regarding retention of patent rights upon grant of a waiver request in contracts with medium and large
contractors. (National Aeronautics and Space Administration, United States Code of Federal Regulations,
chapter 48, sections 1852.227-70, (Exhibit USA-468), and 1852.227-71, (Exhibit USA-472)). The regulations
do not apply to small business firms or non-profit organizations, which are governed by the U.S. patent law
provisions on government transfer of patents. (See Patent Rights in Inventions Made with Federal Assistance,
United States Code, chapter 35, sections 200-212, (Exhibit EU-220)).
981 Panel Report, US – Large Civil Aircraft (2nd complaint), fn 2914. See National and Commercial Space
Programs, United States Code, Title 51, chapter 201, section 20135, (Exhibit EU-1038), section 20135(f). This
section provides in relevant part that NASA "may waive all or any part of the rights of the United States … with
respect to any invention or class of inventions made or which may be made by an person or class of persons in
the performance of any work required by any contract … if {NASA} determines that the interests of the
United States will be served thereby". This section explains that "{e}ach waiver made with respect to any
invention shall be subject to the reservation … of an irrevocable, nonexclusive, non-transferable, royalty-free
license for the practice of such invention throughout the world by or on behalf of the United States or any
foreign government pursuant to any treaty or agreement with the United States". See also United States Code
of Federal Regulations, chapter 14, sections 1245.103, (Exhibit USA-470), and 1245.107, (Exhibit USA-471).
982 United States' response to Panel question No. 85, para. 126. The United States notes several
occasions on which NASA denied or partially denied a small number of waiver applications. (See United States'
response to Panel question No. 85, fn 178).
983 The allocation of patent rights under NASA cooperative agreements is the same as the allocation of
patent rights under NASA procurement contracts.
984 United States Code of Federal Regulations, chapter 37, section 501.6, (Exhibit USA-310) provides
that:
(1) The Government shall obtain, except as herein otherwise provided, the entire
right, title and interest in and to any invention made by any G overnment
employee:
(i) During working hours, or
(ii) With a contribution by the Government of facilities, equipment, materials, funds
or information, or of time or services of other Government employees on official
duty, or
(iii) Which bears a direct relation to or is made in consequence of the official duties
of the inventor.

b. Where a Boeing employee makes an invention in the course of work under a NASA
procurement contract (or under a DOD assistance instrument or procurement contract),
Boeing has title to the invention and thus the right to ownership of the patent. 985 This
results from the application of the U .S. federal laws and regulations and NASA -specific
waiver provisions discussed above. The U .S. Government receives a government use
license in Boeing inventions made in the performance of a NASA procurement contract or
a DOD assistance instrument and procurement contract.986
c. Where a NASA employee (or DOD employee) and a Boeing employee jointly make an
invention in the course of work under a NASA procurement contract (or under a DOD
assistance instrument or procurement contract), the resulting patent would issu e jointly
in the names of the NASA (or DOD) and Boeing employees, and by operation of the U .S.
federal laws and regulations and NASA-specific waiver provisions discussed above, NASA
(or DOD) and Boeing would each own an undivided share in rights under the patent.987
8.35. As explained by the original panel and highlighted above, under the Bayh -Dole Act, its
related legislative instruments and NASA -specific regulations, the U .S. Government's rights to
patents in respect of inventions developed by Boeing employees in the course of work under a U.S.
Government R&D contract or agreement consist of a "nonexclusive, non-transferable, irrevocable
paid-up licence to practice or have practiced for or on behalf of the United States any subject
invention throughout the world ".988 This government use licence in practice provides the U .S.
Government with the following rights:
a. to use the invention without payment of royalties or other fees, in all future contracts
between Boeing and any agency of the U.S. Government anywhere in the world; and

985 United States Code of Federal Regulations, chapter 14, section 1245.107, (Exhibit USA-471). As
Razgaitis explains, in the United States, patent ownership generally vests with the party whose employees are
its inventors. (Razgaitis Declaration, (Exhibit EU-1262) (BCI), para. 24).
986 See National and Commercial Space Programs, United States Code, Title 51, chapter 201,
section 20135, (Exhibit EU-1038), section 20135(f); and United States Code of Federal Regulations,
chapter 14, section 1245.107, (Exhibit USA-471). The original panel explained that U.S. Government possesses
certain "march-in" rights, which enable the relevant federal agency to compel the contractor in certain
circumstances to grant a license to applicants on terms that are reasonable under the circumstances, or to
grant the license itself. The panel explained that no federal entity has ever exercised these march-in rights.
(Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1286). See also United States Code of Federal
Regulations, chapter 14, section 1245.107, (Exhibit USA-471), section 1245.107(b); and United States'
response to Panel question No. 85, para. 127.
987 In the case of an invention jointly made by a NASA employee and a Boeing employee in the course
of work under a NASA procurement contract, the resulting patent would issue in the name of the NASA
employee, and by operation of 37 CFR § 501.6, the U.S. Government would have title to the patent. The
patent would also list the Boeing employee as one of the inventors and the U.S. Government would take title to
the patent under section 305(a) of the Space Act. However, Boeing would, pursuant to section 305(g) of the
Space Act, request the NASA Administrator to waive title acquired by the Administrator under section 305(g) of
the Space Act. Accordingly, where a waiver is granted pursuant to the NASA waiver provisions, the U.S.
Government (by virtue of the operation of the United States Code of Federal Regulations, chapter 37,
section 501.6), and Boeing (by virtue of the operation of the NASA waiver provisions), jointly take title to the
invention. (See United States Code of Federal Regulations, chapter 37, section 501.6, (Exhibit USA-310);
Inventions Patentable, United States Code, chapter 35, section 101, (Exhibit USA-466); Inventors,
United States Code, chapter 35, section 116, (Exhibit USA-467); Space Act section 305; and National and
Commercial Space Programs, United States Code, Title 51, chapter 201, section 20135,(Exhibit EU-1038)). In
the case of an invention jointly made by a DOD employee and a Boeing employee in the course of work under
a DOD assistance instrument or procurement contract, the resulting patent would issue in the name of the
DOD employee, and by operation of the United States Code of Federal Regulations, chapter 37, section 501.6,
the U.S. Government would have title to the patent. The patent would also list the Boeing employee as one of
the inventors and by virtue of the Bayh-Dole Act and associated legislative instruments and implementing
regulations, ownership of the patent would also vest in Boeing. ( See United States Code of Federal
Regulations, chapter 37, section 501.6, (Exhibit USA-310); Inventions Patentable, United States Code,
chapter 35, section 101, (Exhibit USA-466); Inventors, United States Code, chapter 35, section 116, (Exhibit
USA-467); Patent Rights in Inventions Made with Federal Assistance, United States Code, chapter 35,
sections 200-212, (Exhibit EU-220); Memorandum on Government Patent Policy, (Exhibit EU-1062); and
Executive Order 12591, "Facilitating access to science and technology", 10 April 1987, (Exhibit EU-238)).
988 See Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1286 and fn 2914. See also
United States Code of Federal Regulations, chapter 14, section 1245.103, (Exhibit USA-470),
section 1245.103(a).

b. to authorize other contractors to use the invention, without an obligation to pay royalties
or additional fees, in all future contracts between that contractor and any agency of the
U.S. Government anywhere in the world.989
8.36. As the panel explained in the original proceeding, contractors own all technical data
produced with U .S. Government funding, as a general rule, and may use data for their own
commercial purposes. In exchange , the U .S. Government receives a royalty -free license to use
data produced in the performance of research. 990 In cases of R&D contracts funded solely by the
U.S. Government (e.g. NASA procurement contracts and DOD procurement contracts) the
U.S. Government receives "unlimited rights data ", which enables it to use data for its o wn
purposes, both inside and outside government. Where a contractor also contributes funding toward
research (e.g. DOD assistance instruments) , the U .S. Government may agree to forego certain
rights to data, i.e. the U .S. Government obtains only "limited rights" in data. These limited rights
may apply to data that embody trade secrets or are commercial or financial and confidential or
privileged, to the extent such data pertains to items, components or processes developed at
private expense. Where the U.S. Government acquires "limited rights" data, it may use data for its
own internal purposes, but may not disseminate data outside of government without express
consent.991
8.1.3.2 The commercial use licence granted under the Boeing Patent Licence
Agreements
8.37. The NASA-Boeing Patent Licence Agreement is dated effective as of 23 September 2012. It
is expressed to apply to "large civil aircraft -related aeronautics research and development
contracts and agreements " previously entered into between NASA and Boeing, as listed i n
Attachment A to the NASA -Boeing Patent Licence Agreement. 992 Attachment A also sets forth the
U.S. patents covering inventions made under the listed NASA "contracts and agreements" in which
Boeing has title and NASA has a non -exclusive government use licen ce. Under the NASA -Boeing
Patent Licence Agreement, Boeing as licensor grants to NASA as licensee:
{A}n irrevocable, non -exclusive, non -transferable, royalty -free license under the
Patent Rights to use, make, offer for sale, sell, and import each Subject Invention for
commercial purposes, without the right to : (A) sublicense this right; (B) exercise this
right in a commercial venture of any type with a third party; or (C) have the Subject
Invention made or sold by a third party for a commercial purpose.993
8.38. The "Subject Invention" covered by the above -referenced grant of additional licence rights
is expressed as:
{A}ny Invention, present or future, conceived or first actually reduced to practice by
Boeing in the performance of work under one of the Agreements , and for which a
waiver of the rights of the Government of the United States was, or will be, granted in
accordance with 14 CFR Section 1245, Subpart 1.994
8.39. The DOD-Boeing Patent Licence Agreement is dated 21 September 2012. It is expressed to
apply to assis tance instruments previously entered into between DOD and Boeing, as listed in
Attachment A to the DOD -Boeing Patent Licence Agreement. 995 Attachment A also sets forth the

989 Third-party contractors are thereby provided with a licence defence against an infringement
proceeding covering the contractor's use of the patented invention in the performance of a contract for the
U.S. Government.
990 This includes data of a scientific or technical nature. See Panel Report, US – Large Civil Aircraft (2nd
complaint), paras. 7.1296-7.1299. See also fn 1173 below.
991 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1300 and 7.1301.
992 NASA-Boeing Patent Licence Agreement, (Exhibit EU-251) (BCI), section 1.a. Section 7.i. of the
NASA-Boeing Patent Licence Agreement permits NASA and Boeing by mutual agreement to modify Attachment
A to include other agreements entered into by the parties prior to 23 September 2012 that had been
inadvertently omitted from Attachment A.
993 NASA-Boeing Patent Licence Agreement, (Exhibit EU-251) (BCI), section 2.a.
994 NASA-Boeing Patent Licence Agreement, (Exhibit EU-251) (BCI), section 1.d.
995 In response to a question from the Panel, the United States confirms that the DOD-Boeing Patent
Licence Agreement applies only to the agreements listed in Attachment A thereto and does not affect the
allocation of intellectual property rights in respect of any other DOD assistance instruments.

U.S. patents covering inventions made under the listed DOD assistance instruments in w hich
Boeing has title, and DOD has a non -exclusive government use licence. Under the DOD -Boeing
Patent Licence Agreement, Boeing as licensor grants to DOD as licensee:
{A}n irrevocable, non-exclusive, non-transferable, paid-up licence under the Licensed
Intellectual Property to use, make, offer for sale, sell, and import each Subject
Invention Made under the Agreements for commercial purposes, without the right to :
(i) sublicense this right; (ii) exercise this right in a commercial venture of any type
with a third party; or (iii) have the Subject Invention made or sold by a third party for
a commercial purpose.996
8.40. The "Licensed Intellectual Property " covered by the above -referenced grant of additional
licence rights is expressed as:
All Subject Inventions and all U.S. patents and/or patent applications that cover or
may cover the Subject Inventions, past and future, Made under an Agreement listed
in Attachment A, including the U.S. patents or patent applications listed in Attachment
A to this License, and any re-examined or reissued version of same, and including any
patent issuing from any continuation, continuation -in-part or divisional application
claiming priority from the application that issued as such U.S. patent or patent
application, and any foreign counterpart … .997
8.41. Thus, the Boeing Patent Licence Agreement s grant to NASA and DOD additional rights
beyond the government use licence in respect of Boeing inventions made under the NASA
procurement contracts and DOD assistance instruments listed in the annexes to the Agreements.
The non -exclusive, commercial use licence granted to each of NASA and DOD does not permit
NASA or DOD to sublicense this right, exercise this right in a commercial venture with a third
party, or have the subject invention made or sold by a third party for a commercial purpose.
8.42. As a result of the commercial use licence granted to each of NASA and DOD in respect of
Boeing-owned patents, Boeing's rights to exploit patents developed by its employees in the course
of work under a relevant NASA procurement contract or DOD assistance instrument are subject
not just to NASA/DOD's government use rights998, but also to NASA/DOD's commercial use rights.
NASA/DOD's rights under both the government use licence and the commercial use licence are
non-exclusive, and NASA/DOD as licensee is relieved of the obligation to pay royalties to the
patent owner in relation to the government uses and commercial uses, respectively. However,
Boeing retains the right to grant licences to third parties to practice it s patents and to receive
royalties therefrom.
8.43. The parties have each submitted to the Panel a number of R&D contracts which they
consider serve as relevant market benchmarks for the allocation of rights to own and use patents
in collaborative R&D arrangements. These private R&D agreements include Contracts A through F ,
which were also submitted in the original proceeding. We review and explain the rights granted to
the commissioning and commissioned parties in respect of "project" intellectual property unde r
those agreements, in light of their evaluations by the parties ' respective technology licensing
experts, in a BCI Appendix to this Report.999

(United States' response to Panel question No. 87, para. 158). Section 4.e. of the DOD-Boeing Patent Licence
Agreement permits DOD and Boeing by mutual agreement to modify Attachment A to include other funding
instruments or other transaction agreements entered into by the parties prior to 23 September 2012 that had
been inadvertently omitted from Attachment A.
996 DOD-Boeing Patent Licence Agreement, (Exhibit EU-401) (BCI), article 1.a. (emphasis original)
997 DOD-Boeing Patent Licence Agreement, (Exhibit EU-401) (BCI), article 2.a. (emphasis original)
998 See para. 8.35 above.
999 See Appendix 1. Our evaluation in the BCI Appendix covers: (a) the six BCI contracts between
Boeing as commissioning party and research institutes and for-profit entities as commissioned parties that
were submitted in the original proceeding (designated by the Appellate Body as Contracts A through F); (b) 18
private commercial collaborative R&D agreements; (c) two private collaborative agreements in which the
commissioning party is not a commercial actor but a for-profit foundation; (d) the standard terms and
conditions of the Wichita State University National Institute for Aviation Research (NIAR); and (e) a research
and technology framework agreement between Airbus SAS and an unnamed university in which Airbus is the
commissioning party.

8.44. As we explain in the BCI Appendix1000, [***1001].
8.45. Although the Boeing Patent Licence Agreement s grant NASA and DOD limited commercial
use licences in respect of Boeing -owned patents obtained in the course of work under a relevant
NASA procurement contract or DOD assistance instrument (which is in addition to the government
use licence NASA and DOD already possess by virtue of the Bayh -Dole Act and associated
legislative instruments and implementing regulations and NASA -specific waiver provisions
discussed above), the fundamental balance remains one in which NASA and DOD lack the right to
obtain an exclusive licence to pract ice Boeing -owned patents. Boeing 's ability to commercially
exploit its patents is not contingent on NASA's or DOD's election not to exercise exclusive rights to
licence those patents for itself. In this respect, the allocation of patent rights and related licence
rights under the amended procurement contracts and assistance instruments remains more
favourable to Boeing as commissioned party than the corresponding allocations to commissioned
parties under the private collaborative R&D agreements before the Panel.
8.46. Even if we were to compare the rights granted to NASA and DOD in respect of inventions
resulting from work performed under the NASA procurement contracts and DOD assistance
instruments, as modified by the applicable Boeing Patent Licence Agreement s, with the rights
granted to commissioning parties with respect to inventions as the res ult of work under
Contract D, we would conclude that the allocation under the former grouping is more favourable to
Boeing as commissioned party than the allocation to th e commissioned party under Contract D,
based on the differences in the scope of the commercial use licences granted to the commissioning
parties under the respective instruments.
8.47. The commercial use licence granted to NASA and DOD by the Boeing Patent Lice nce
Agreements [***]. It appears to us that the commissioning party under Contract D is granted
more extensive rights to use the commissioned party 's patents than NASA and DOD are granted
under the modified NASA procurement contracts and DOD assistance instruments, notwithstanding
the grant of the limited commercial use licence to NASA and DOD by virtue of the Boeing Patent
Licence Agreements. As a corollary, the rights in respect of patent s retained by the commissioned
party under Contract D are less exten sive in a commercial sense than those retained by Boeing
under the modified NASA procurement contracts and the DOD assistance instruments.
8.48. The United States argues that, in granting the commercial use licence to NASA and DOD,
Boeing has effectively assumed the risk that U.S. Government policy may change in such a way as
would permit DOD and NASA to produce commercial aircraft in competition with Boeing. 1002 We do
not discount the possibility that, in particular contexts, the assumption of the risk of a future
occurrence could have a meaningful impact on the balance of rights between parties. However, in
the present context, we consider the possibility that NASA or DOD would at some time in the near
future decide to embark on the production of large civil aircr aft in competition with Boeing to be
quite remote, and we therefore do not consider that Boeing 's assumption of this theoretical risk
has any meaningful practical impact on its rights under the NASA procurement contracts and DOD
assistance instruments More over, the United States acknowledges that it does not engage in
"purely commercial businesses" and does not plan to do so.1003
8.49. In conclusion, we do not consider that the grant to NASA and DOD of commercial use rights
in respect of Boeing -owned patents under t he pre -2007 NASA procurement contracts and DOD
assistance instruments, effected by the Boeing Patent Licence Agreement s, brings those contracts
and instruments into line with prevailing market practices for collaborative R&D arrangements in
such a way as to remove the benefit that the Appellate Body had found was conferred through the
pre-2007 contracts and instruments in the original proceeding.
8.50. We therefore find that the European Union has established that the amendments
made by the United States through the Boeing Patent Licence Agreements to the terms
of the pre-2007 NASA procurement contracts and DOD assistance instruments that were

1000 Appendix 1, para. 49.
1001 See Razgaitis Declaration, (Exhibit EU-1262) (BCI), paras. 81 and 117; and Supplemental
Declaration of R. A. Razgaitis, Sr., Ph.D., CLP, 18 December 2013 (First Supplemental Razgaitis Declaration),
(Exhibit EU-1327) (BCI), para. 17.
1002 United States' first written submission, para. 281.
1003 United States' response to Panel question No. 87, para. 15 and fn 8.

the subject of the DSB recommendations and rulings in the original proceeding do not
constitute a withdrawal of the subsi dy, within the meaning of Article 7.8 of the SCM
Agreement.
8.1.3.3 NASA Space Act Agreements at issue in the original proceeding
8.51. It is not in dispute that t he terms of pre-2007 Space Act Agreement s have not been
modified through the NASA-Boeing Patent Licence Agr eement, nor has the United States argued
that it has taken action with respect to the pre-2007 Space Act Agreements that were before the
original panel. The main issue before the Panel in this compliance proceeding is whether this is
therefore sufficient t o conclude that the United States has failed to withdraw the subsidy with
respect to the pre-2007 Space Act Agreements.
8.52. Notwithstanding the European Union 's view that the original p anel finding of benefit should
be sustained in respect of pre-2007 Space Ac t Agreements, we do not consider it appropriate to
treat the fact that the United States has not taken any action with respect to the pre -2007 Space
Act Agreements as sufficient to conclude that the United States has failed to withdraw the subsi dy
with res pect to the pre -2007 Space Act Agreements . We recall, i n the original proceeding , the
United States appealed the finding of the panel that payments and access to NASA facilities,
equipment, and employees provided to Boeing through "research contracts and a greements at
issue" constituted financial contributions that conferred a benefit.1004 When addressing the issue of
benefit in relation to Space Act Agreements on appeal, the Appellate Body expressed the view that
the United States' appeal of the panel's benefit finding was "merely consequential"1005 to its appeal
of the panel 's finding of financial contribution . For this reason, the Appellate Body limited its
review of the panel's finding of benefit relating to the NASA aeronautics R&D measures to the
NASA procurement contracts at issue and did not review the panel's finding of benefit related to
NASA Space Act Agreements. The Appellate Body expressed various reservations concerning the
panel's assessment of benefit related to the NASA procurement contracts and DO D assistance
instruments, including with respect to the panel's consideration of the evidence on record. 1006 In
circumstances in which the Appellate Body has overturned the benefit determination with respect
to NASA procurement contracts which is the same ben efit analysis that the panel had also applied
with respect to Space Act Agreements, we do not consider it appropriate to simply rely on the
panel's finding of benefit as applied to Space Act Agreements as a basis to conclude that the
United States has fail ed to withdraw the subsidies. Therefore, in order to determine whether the
United States has complied with its obligations under Article 7.8, we must first determine whether
Space Act Agreements confer a benefit. In this regard, the principal question raised by the parties
is whether the benefit analysis in respect of NASA procurement contract s and DOD assistance
instruments is relevant, or whether Space Act Agreements are sufficiently distinct from those
measures such that a different analysis would be req uired. If a different analysis is required, the

1004 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), annex II, Notification of an Other
Appeal by the United States, paras. 2 and 3. In its assessment of benefit in relation to the NASA measures, the
original panel assessed pre-2007 NASA procurement contracts and Space Act Agreements together and
concluded that the financial contributions provided to Boeing under its aeronautics R&D contracts and
agreements with NASA confer a benefit, within the meaning of Article 1.1(b) of the SCM Agreement. The basis
for the panel's reasoning was that "no commercial entity … acting pursuant to commercial considerations,
would provide payments (and access to its facilities and personnel) to another commercial entity on the
condition that the other entity perform R&D activities principally for the benefit and use of that other entity".
(Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1039 and 7.1040).
1005 The Appellate Body expressed the view that the United States "does not appeal the Panel's finding
of financial contribution concerning the Space Act Agreements challenged by the European Communities",
based on the fact that "the Panel noted that during the Panel proceedings the United States had 'accept{ed}
that the provision of (access to) facilities, equipment, and employees provided to Boeing through the Space Act
Agreements at issue constitutes a provision of goods or services, within the meaning of Article 1.1(a)(1)(iii) of
the SCM Agreement'". (Appellate Body Report, US – Large Civil Aircraft (2nd complaint), fn 1300 (referring to
Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.976)).
1006 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 644-647. The Appellate Body
also expressed reservations at the panel's use of a test for benefit that, like its test for whether the financial
contributions at issue were purchases of services, revolved around the question of which party to the
transaction derives the "principal benefit and use" from the research (Appellate Body Report, US – Large Civil
Aircraft (2nd complaint), para. 641), and what it regarded as its reasoning regarding the behaviour that would
be expected of a commercial actor, for which the panel had failed to provide an underlying economic rationale.
(Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 642 and 643).

European Union has not provided evidence of relevant commercial benchmarks, and we would
have no basis to conclude that Space Act Agreements confer a benefit.
8.53. The European Union's and United States' arguments as to whether the pre -2007 Space Act
Agreements confer a benefit under Article 1.1(b) are the same as their respective arguments in
relation to post -2006 Space Act Agreements. Accordingly, we will c onduct an evaluation in
Section 8.2.2.4.2.3 below of whether any financial contributions that have been provided to Boeing
pursuant to the Space Act Agreements before us confer a benefi t within the meaning of
Article 1.1(b).
8.2 Whether the United States has failed to withdraw the subsid y, within the meaning
of Article 7.8 of the SCM Agreement , by granting or maintaining certain post -2006
subsidies
8.2.1 Introduction
8.54. In this Section of the Report, we evaluate whether certain post -2006 subsidies allegedly
granted or maintained by the United Sta tes demonstrate that the United States has failed to
withdraw the subsidy, within the meaning of Article 7.8 of the SCM Agreement.1007
8.55. The European Union identifies seven categories of "post-2006 subsidies to Boeing 's LCA
Division", which it alleges the Unit ed States grants or maintains after the end of the
implementation period as set forth below.1008
Table 1: Post-2006 Subsidies to Boeing's LCA Division
Category of
Subsidy Name of Subsidy Programme Description
NASA
Aeronautics
R&D
Fundamental Aeronautics NASA programme with subsonic and supersonic
fixed-wing R&D projects
Integrated Systems Research NASA programme with Environmentally
Responsible Aviation Project
Aviation Safety NASA programme with air vehicle-level,
system-level, and environmental safety R&D
projects
Aeronautics Strategy &
Management
NASA programme containing aeronautics R&D
cross-programme support and Innovative
Concepts for Aviation Project
Aeronautics Test Program NASA programme funding aeronautics ground and
flight test infrastructure
Strategic Capabilities
Assets Program
NASA programme managing test, flight
simulation, and computing infrastructure
High-End Computing Program NASA programme funding supercomputing
resources used for aeronautics R&D
Federal
Aviation
Administration
R&D
Continuous Lower Energy,
Emissions, and Noise
(CLEEN) Program
FAA programme funding research into near-term
LCA energy-, emissions-, and noise-reducing
technologies, as well as with demonstrator flights
Department of
Defense
Aeronautics
R&D
Research, Development, Test &
Evaluation (RDT&E) Program
DOD programme funding R&D into dual-use
aircraft technologies

1007 See Section 6.3 above for a discussion of the distinction between the European Union's arguments
regarding the alleged failure of the United States to withdraw the subsidy in respect of certain pre-2007 NASA
and DOD aeronautics R&D subsidies, on the one hand, and alleged post-2006 subsidies, on the other. Our
evaluation of the post-2006 DOD aeronautics R&D measures in Section 8.2.3 also covers the pre-2007 DOD
procurement contracts funded under the original 23 RDT&E program elements, which we have found to be
within the scope of this proceeding in Section 7.3.2, given the common legal issues that arise for our
evaluation of both the pre-2007 procurement contracts and the post-2006 procurement contracts.
1008 European Union's first written submission, para. 56, figure 1.

Category of
Subsidy Name of Subsidy Programme Description
FSC/ETI FSC/ETI Legislation
and Successor Acts
Federal income tax exemptions/exclusions on
certain LCA produced and sold for use outside the
United States
State of Kansas Tax abatements provided
through Wichita IRBs
Property and sales tax breaks for LCA component
production facilities associated with industrial
revenue bonds issued by the City of Wichita
State of
Washington
State B&O Tax Rate Reduction Washington State business & occupation (B&O)
tax rate reduction for production and sales of LCA
State B&O Tax Credit for
Preproduction/Aerospace
Product Development
Tax credit for LCA-related R&D
State B&O Tax Credit for
Property Taxes
Tax credit for property taxes on LCA production
facilities
State B&O Tax Credit for
Leasehold Excise Taxes
Tax credit for leasehold excise taxes on LCA
production facilities
Sales and Use Tax Exemptions Exemption from sales and use taxes on computer
hardware, software, and peripherals used in
developing LCA
City of Everett B&O Tax Rate
Reduction
City of Everett B&O tax rate reduction for Boeing
LCA
Joint Center for Aerospace
Technology Innovation
State office advancing public university research
for Boeing LCA
State of South
Carolina
Project
Gemini-
Related
Subsidies
Project Site Lease Lease to the site of Boeing's
South Carolina 787 production facilities at
USD 1 per year
Project Gemini
Facilities &
Infrastructure
Provision of facilities and infrastructure for
Boeing's 787 final assembly
facility at no cost
Sales and Use Tax
Exemptions
Exemptions for Boeing from sales and use taxes
on aircraft fuel, construction materials, and
computer equipment
Income Allocation
and Apportionment
Agreement
Method of calculating Boeing's state income taxes
that excludes revenue from the sales of LCA for
export
Project Gemini MCIP
Job Tax Credits
Tax credits for hiring due to location in a
multi-county industrial park
Large Cargo
Freighter Property
Tax Exemption
Property tax exemption for Boeing's "Dreamlifter"
Large Cargo Freighters
Workforce
Programme
State-run workforce hiring, training, and
development programme for Boeing's 787 final
assembly facility
Boeing FILOT
Agreement
Reduction of property taxes on Boeing's 787 final
assembly facility under a Fee-in-Lieu-of Taxes
(FILOT) Agreement
Project
Emerald-
Related
Subsidies
Project Emerald
Facilities &
Infrastructure
Provision of facilities and infrastructure for
Boeing's fuselage fabrication and integration
complex at no cost
Project Emerald
MCIP Job Tax Credits
Tax credits for hiring due to location in a
multi-county industrial park
Project Emerald
FILOT Agreement
Reduction of property taxes on Boeing's 787
fuselage fabrication and integration complex
under a FILOT Agreement

8.56. In our analysis of the European Union's allegations that the United States grants or
maintains specific subsidies after the end of the implementation period, we address the various
measures at issue in the following order:
a. NASA aeronautics R&D measures involving payments and access to government
facilities, equipment, and employees provided to Boeing pursuant to procurement

contracts, cooperative agreements, and access to government facilities, equipment , and
employees provided to Boeing pursuant to Space Act Agreements (Section 8.2.2);
b. DOD aeronautics R&D measures involving payments and access to government facilities
provided to Boeing pursuant to pre -2007 DO D procurement contracts, and payments
and access to government facilities, equipment, and employees provided to Boeing
pursuant to post -2006 DOD procurement contracts and assistance instruments
(Section 8.2.3);
c. FAA aeronautics R&D measure involving payments and allegedly involving access to
government facilities, equipment, and employees to Boeing pursuant to the Boeing
CLEEN Agreement (Section 8.2.4);
d. tax exemptions and exclusions un der FSC/ETI legislation and successor legislation
(Section 8.2.5 );
e. tax abatements provided through IRBs issued by the City of Wichita (Section 8.2.6 );
f. Washington state and local subsidies, including Washington State and City of Everett
B&O tax rate reductions, Washington State B&O tax credits for preproduction/aerospace
product development, property taxes and leasehold excise taxes, and Washington State
sales and use tax exemptions for computer software, hardware, and peripherals
(Section 8.2.7); and
g. South Carolina measures , comprising the packages of financial incentives under Project
Gemini and Project Emerald (Section 8.2.8).
8.2.2 Post-2006 NASA aeronautics R&D measures
8.2.2.1 Introduction
8.57. In this Section of the Report, we evaluate the European Union 's allegations that certain
post-2006 NASA aeronautics R&D measures are specific subsidies, within the meaning of Articles 1
and 2 of the SCM Agreement and that, by granting or maintaining these subsidies after the end of
the implementation period, the United States has failed to withdraw the subsidy within the
meaning of Article 7.8 of the SCM Agreement.1009
8.58. The European Union asserts in this proceeding that the a ctions identified by the
United States in its Compliance Communication have not withdrawn the subsidy. 1010 NASA has
continued to provide the same type of funding and support to Boeing as was provided to Boeing
under the NASA aeronautics R&D programmes challenged in the original proceeding and has
introduced additional subsidies pursuant to "successor and closely related programmes ". The
United States argues that it has withdrawn the subsidy through the actions identified in its
Compliance Communication, including by terminating most of the aero nautics R&D programmes at
issue in the original proceeding and making certain general changes in NASA 's research
contracting practices.
8.59. Our analysis proceeds as follows:
a. In Section 8.2.2.2 we clarify aspects of the NASA aeronautics R&D measures identified
by the European Union as specific subsidies which it alleges the United States grants or
maintains after the end of the implementation period and provide relevant background
information.
b. We evaluate in Section 8.2.2.3 whether the post-2006 NASA aeronautics R&D measures
challenged by the European Union involve financial contributions , within the meaning of

1009 We recall that with regard to the pre-2007 NASA procurement contracts at issue in the original
proceeding we find that the NASA-Boeing Patent Licence Agreement does not constitute a withdrawal of the
subsidy, within the meaning of Article 7.8 of the SCM Agreement. See Section 8.1.3.2 above.
1010 See United States' Compliance Communication, paras. 3 and 4.

Article 1.1(a)(1) of the SCM Agreement and evaluate in Section 8.2.2.4 whether any
such financial contributions confer a benefit, within the meaning of Article 1.1(b).
c. To the extent that we find that the measures in question are financial contributions and
confer a benefit, we evaluate in Section 8.2.2.5 whether any such subsidies are specific ,
within the meaning of Article 2 of the SCM Agreement.
d. We address the question of the amount of the subsidy and the amount of the financ ial
contribution in relation to any unwithdrawn post -2006 NASA aeronautics R&D subsidies
in Section 8.2.2.6.
8.2.2.2 The measures at issue
8.2.2.2.1 The European Union's panel request
8.60. In its panel request in this proceeding, the European Union alleges that NASA maintains
subsidies benefiting U.S. LCA producers through: (a) 14 programmes (as reflected in NASA 's
annual Budget Estimates for Fiscal Years 1989 through 2013); (b) contracts, assistance
instruments, and other agreements (as modified) entered into under these programmes; or (c) the
terms of the contracts and other agreements (as modified) with Boeing listed in annex A of the
United States' 23 September 2012 Compliance Communication.1011
8.61. The forms of the subsidies are described as: (a) the provision to Boeing of funding and
access to government facilities, equipment, and employees for R&D applicable to the development,
design, and production of LCA, on terms more favourable than would be available on the
commercial market; as well as (b) the provision to Boeing of royalty -free use of the technologies
developed with such funding and support or use of such technologies on preferential terms.1012
8.62. Although the European Union 's panel request suggests that the European Union seeks to
challenge both the NASA aeronautics R&D programmes as a whole 1013 and "funding and access to
government facilities, equipment, and employees " provided directly to Boeing, it is clear from the
European Union's submissions that its challenge is confined to particular "funding" and "access to
government facilities, equipment and employees " provided to Boeing under specified NASA
aeronautics R&D programmes , rather than the NASA aeronautics R&D programme budgets more
generally.1014 Hence, the "funding" and "access to government facil ities, equipment, and
employees" under the challenged aeronautics R&D programmes refer to payments made, and
access to NASA facilities, equipment, and employees provided, to Boeing, and not to payments or
access allocated to other recipients or NASA 's own research efforts under the challenged NASA
aeronautics R&D programmes. Moreover, the payments and access to government facilities,
equipment, and employees occur through particular legal instruments entered into between NASA
and Boeing, namely NASA procurement contracts, cooperative agreements, and Space Act
Agreements, which are funded under the challenged NASA aeronautics R&D programmes.1015
8.63. The European Union's panel request identifies 14 "programs (as reflected in NASA 's annual
Budget Estimates for Fiscal Years 1989 through 2013)", including the eight NASA aeronautics R&D

1011 European Union's request for the establishment of a panel, paras. 8 and 9. The panel request
indicates that "Annex A of the 23 September 2012 notification is attached to this request, and the contracts
listed therein are incorporated into this request". (European Union's request for the establishment of a panel,
1012 European Union's request for the establishment of a panel, paras. 8 and 10.
1013 In this regard, the European Union has at times in its submissions argued that the value of Boeing's
access to NASA facilities, equipment, and employees under NASA contracts and agreements is affected by the
amount of funds and resources that NASA invests in and uses in its own research. (See e.g. European Union's
second written submission, para. 264 and fn 413). The Panel addresses the issue of the amount of the subsidy
and the amount of the financial contribution in respect of any subsidies provided through the NASA aeronautics
R&D measures in Section 8.2.2.6.
1014 In addition, the European Union's panel request states that the European Union's challenge concerns
only such "funding" and "access to government facilities, equipment, and employees" provided to Boeing for
"R&D applicable to the development, design, and production of LCA".
1015 See paras. 8.74, 8.77, 8.78, and 8.79 below. Panel Report, US – Large Civil Aircraft (2nd complaint),
paras. 7.944 and 7.945. See also our analysis below in Section 8.2.2.6 of the amount of the relevant financial
contributions.

programmes that were the subject of the European Communities ' challenge in the original
proceeding. We note that in the post -2006 period, NASA has consolidated and restructured its
research efforts, terminating some of the original aeronautics R&D programmes and continuing
work previously conducted under others, under consolidated or new programmes.1016
8.64. We note, in this regard, that in the request it made in October 2012 to the Panel to seek
information pursuant to Article 13 of the DSU , the European Union identified seven of the 14
programmes listed in its panel request as involving "post-2006 NASA aeronautics R&D subsidies:
a. Fundamental Aeronautics Program1017;
b. Integrated Systems Research Program1018;
c. Aviation Safety Program1019;
d. Aeronautics Test Program1020;
e. Strategic Capabilities Assets Program1021;
f. Aeronautics Strategy and Management Program1022; and

1016 The United States indicates in its Compliance Communication that "NASA has terminated the
Advanced Composites technology, High Speed Research, Advanced Subsonic Technology, High Performance
Computing and Communications, Quiet Aircraft Technology, Vehicle Systems, and Research and Technology
Base programs". (United States' Compliance Communication, para. 4). The United States explains that it
"describes a NASA program as 'terminated' when NASA ends the program as a separate organizational activity
and ceases to use funds budgeted for that program to pay employees, pay contractors, or conduct other NASA
activities". (United States' response to the Panel's request for information pursuant to Article 13 of the DSU,
dated 28 February 2013, response to question No. 2, para. 7).
1017 Beginning in 2006, NASA established Fundamental Aeronautics as the successor to Vehicle Systems,
creating NASA's largest programme, (NASA Fundamental Aeronautics Budget Estimates for FY 2007-FY 2013,
(Exhibit EU-40), FY 2013, p. AERO-1) with the aim to "develop technology to enable revolutionary capabilities
for the future of aviation"; (ibid. p. SAD ARMD 2-14; and NASA Fundamental Aeronautics Budget Estimates,
FY 2007, (Exhibit USA-13)). See para. 7.279 above.
1018 NASA established the Integrated Systems Research Program in 2010 with the objective of "maturing
and integrating technologies in major vehicle systems and subsystems for accelerated transition to practical
application". (NASA Integrated Systems Research Budget Estimates for FY 2010-FY 2013, (Exhibit EU-41),
FY 2010, AERO-39).
1019 NASA transitioned research conducted under Aviation Safety and Security to the renamed Aviation
Safety Program with the goal to "conduct research to improve the intrinsic safety attributes of future aircraft
and to eliminate safety related technology barriers". (NASA Aviation Safety Budget Estimates for
FY 2007-FY 2013, (Exhibit EU-42), FY 2007, SAE ARMD 2-7).
1020 NASA established the Aeronautics Test Program as a separate programme in 2007 in conjunction
with the Strategic Capabilities Assets Program, with the objective "to ensure the continuous availability of a
portfolio of NASA owned wind tunnels/ground test facilities and flight operations/test infrastructure which are
strategically important to meeting national aerospace program goals and requirements". (NASA Aeronautics
Test Program Budget Estimates for FY 2007-FY 2013, (Exhibit EU-44), FY 2008, p. ARMD 36). An identified
major benefit of this program is to maintain stable user pricing at its facilities, which includes NASA's
programmes across the Agency as well as other government agencies and U.S. Industry. (NASA Aeronautics
Test Program Budget Estimates for FY 2007-FY 2013, (Exhibit EU-44), FY 2008, p. ARMD 37). See also NASA
Aeronautics Test Program Budget Estimates for FY 2007-FY 2013, (Exhibit EU-44), FY 2007, SAE ARMD 2-18.
1021 NASA established the Strategic Capabilities Assets Program in 2006, followed by the launch of the
Aeronautics Test Program and High-End Computing Capability, to manage and maintain core operational
aeronautics test facilities and infrastructure in support of NASA current and future programmes. (NASA
Strategic Capabilities Assets Program Budget Estimates for FY 2007-FY 2013, (Exhibit EU-45), FY 2008, SAE
CASP 5-2, CASP-47 to 48, and CASP-52 to 54; NASA Aeronautics Test Program Budget Estimates for
FY 2007-FY 2013, (Exhibit EU-44), FY 2007, SAE ARMD 2-18). See also NASA Aeronautics Test Program
Budget Estimates for FY 2007-FY 2013, (Exhibit EU-44), FY 2008, p. ARMD 36; NASA Fact Sheet, "Aeronautics
Test Program", 2009, (Exhibit EU-195); NASA High End Computing Program Budget Estimates for FY 2009-
FY 2013, (Exhibit EU-46), FY 2013, ES-6; NASA Fundamental Aeronautics Budget Estimates, FY 2007, (Exhibit
USA-13), p. SAE CASP 5-1. See also NASA Ames Research Center, NAS Division 2008: 25 Years of Innovation,
2008, (Exhibit EU-208), p. 3; NASA, High-End Computing at NASA 2007-2008, 1 June 2009, (Exhibit EU-212),
FY 2007, p. CASP 5-2; NASA, High-End Computing at NASA 2007-2008, 1 June 2009, (Exhibit EU-212),
FY 2007, p. CASP 5-3 to 4; NASA High End Computing Program Budget Estimates for FY 2009-FY 2013,
(Exhibit EU-46), FY 2009, p. Sci-21; NASA, "High-End Computing Capability, Pleiades Supercomputer",
available at: <http://www.nas.nasa.gov/hecc/resources/pleiades.html>, accessed 29 August 2016, (Exhibit
EU-206).

g. High End Computing Program.1023
8.65. In its first written submission, the European Union argues that NASA "continues to provide
funding and support to Boeing through certain of the Original NASA Programmes in the same or
substantively similar manner as before the original panel " and that NASA "also currently maintains
additional subsidies for Boeing in the form of funding and access to government facilities,
equipment and employees provided under successor and other closely related programmes".1024
8.66. The European Union states that the seven programmes that it identifies as involving
post-2006 NASA aeronautics R&D subsidies "include both Original NASA Programmes and
successor and other closely related programmes ".1025 Thus, it would appear that, as far as the
alleged post-2006 NASA aeronautics R&D subsidies are concerned, the original NASA aeronautics
R&D programmes are at i ssue only insofar as they may have been "included" in the seven
programmes identified by the European Union.1026
8.2.2.2.2 The existence of the measures
8.67. In its first written submission, the United States indicate s that neither the Aeronautics
Strategy and Management P rogram nor the High -End Computing Program had funded any
payments, or provided any facilities, equipment or employees, to Boeing for non -engine
aeronautics research in the post-2006 period.1027 The United States' assertions suggest that in fact
there are no r elevant NASA aeronautics R&D measures in existence as regards these two
aeronautics R&D programmes. The European Union responds that the United States mistakenly
defines the measure solely by identifiable contracts and agreements. 1028 The European Union then
refers to arguments it makes in the context of estimating the amount of the financial contributions
represented by the alleged NASA aeronautics R&D subsidies, that the value of the subsidy extends
beyond the "four corners " of the specific legal instruments that are the "mechanisms by which
NASA provides subsidies for Boeing LCA".1029
8.68. In our view, the European Union 's arguments erroneously conflate the issue raised by the
United States, which goes to the existence of the measure, with the question of how to va lue the
amount of a subsidy, assuming that the measure said to constitute the subsidy in fact exists. We
recall in paragraph 8.62 above that the payments and access to government facilities, equipment,
and employees occur through particular legal instruments entered into between NASA and Boeing,
namely NASA procurement contracts, cooperative agreements, or Space Act Agreements which are
funded under the challenged NASA aeronautics R&D programmes. 1030 In the absence of any
evidence that the Aeronautics Strategy and Management Program or the High -End Computing
Program funded any procurement contracts, cooperative agreements , or Space Act Agreements

1022 NASA formed Aeronautics Strategy and Management in 2012 to "conduct{} research and provide{}
programmatic support that does not fit well into the current five programs", including information technology
expenses, studies, and administrative functions for other NASA aeronautics R&D programmes. (NASA
Aeronautics Strategy and Management Budget Estimates for FY 2012-FY 2013, (Exhibit EU-43), FY 2012,
pp. AERO-44 and AERO-45). See also Memorandum of Understanding Among the Department of
Transportation, Department of Commerce, Department of Defense, Department of Homeland Security, and
National Aeronautics and Space Administration for the Next Generation Air Transportation System Joint
Planning And Development, 9 June 2008, (Exhibit EU-192).
1023 With funding from the Strategic Capabilities Assets Program, the High End Computing Program
supports the operation, maintenance, and upgrade to NASA supercomputing facilities at the Ames Research
Center, including NASA's "Pleiades" supercomputer, which supports NASA's aeronautics, exploration, space
operation and science missions. (NASA High End Computing Program FY 2009-FY 2013, (Exhibit EU-46),
FY 2010 Budget, SCI-18).
1024 European Union's first written submission, para. 60.
1025 European Union's first written submission, para. 72.
1026 As explained in Section 8.1, the European Union additionally argues that the pre-2007 NASA
aeronautics R&D subsidies at issue in the original proceeding, which include "NASA R&D support to Boeing"
provided through the original NASA aeronautics R&D programmes have not been withdrawn and continue to
benefit Boeing at present. (European Union's first written submission, para. 1181).
1027 United States' first written submission, paras. 192 and 194.
1028 European Union's second written submission, para. 211.
1029 European Union's second written submission, para. 262.
1030 See paras. 8.74, 8.77, 8.78, and 8.79 below. Panel Report, US – Large Civil Aircraft (2nd complaint),
paras. 7.944 and 7.945. See also our analysis of the amount of the subsidy and the amount of the relevant
financial contribution in Section 8.2.2.6 below.

with Boeing in the post-2006 period, we consider there to be insufficient evidence that the relevant
measures under these aeronautics R&D programmes exist.
8.69. In addition, with respect to the Strategic Capabilities Assets Program, the United States
asserts that the only contract that Boeing received under this programme that wa s related to
aeronautics research was a n open-market, commercial purchase of a licence for NASA to use
Boeing's proprietary flight training simulator (Contract NNL12AA55P).1031 The United States argues
that this contract did not involve any research on Boeing 's part or the provision of facilities,
equipment or employees to Boeing and that it is therefore not within the Panel 's terms of
reference, which cover only NASA "funding and access to government facilities, equipment, and
employees for R&D applicable to the development, design and production of LCA ".1032 The
European Union responds that the United States erroneously considers that "only contracts or
agreements funded by the programme can constitute a subsidy ".1033 The European Union states
that its claims with respect to the Strategic Capabilities Assets Program address the aeronautics
test and simulation capabilities funded by this programme. 1034 However, to the extent that the
United States has fully and accurately described this particular contract, the European Union
submits that such a purchase of goods would not appear to be among the aspects of the NASA
aeronautics R&D programmes that it is challenging.1035
8.70. We observe that Contract NNL12AA55P relates to the purchase of a simulator licence for use
of Boeing 's pr oprietary 737NG -800W/winglets flight simulator data 1036, and consistent with the
views of the parties, this should not be examined among the NASA aeronautics R&D measures
before us. Accordingly, as there is no evidence that any procurement contracts, cooperat ive
agreements, or Space Act Agreements with Boeing were funded by the Strategic Capabilities
Assets Program, we do not consider the Strategic Capabilities Assets Program as part of our
assessment.
8.71. Finally, with respect to the Integrated Systems Research P rogram, the United States argues
that certain funds were used by NASA to make purchases of items from Boeing, which it describes
as "commercial, open -market items " that did not involve any research on Boeing 's part or the
provision of facilities, equipment or employees to Boeing.1037 It submits that these transactions are
not within the Panel 's terms of reference. The European Union does not appear to dispute this.
Accordingly, we find that these transactions should also not be examined as part of the measures
at issue under the NASA aeronautics R&D programmes before us. As the United States has
identified obligations with Boeing pursuant to other procurement contracts funded under the
Integrated Systems Research Program, our assessment of the measures will add ress those
contracts.
8.72. Accordingly, in light of the explanations in paragraphs 8.68-8.71 above, the NASA
aeronautics R&D measures that we examine in this Section are payments and acce ss to facilities,
equipment, and employees provided to Boeing under post -2006 procurement contracts,
cooperative agreements, and Space Act Agreements between NASA and Boeing funded under the
four NASA aeronautics R&D programmes identified in (a) through (d) of paragraph 8.64 above, i.e.
the Fundamental Aeronautics Research Program, the Integrated Systems Research Program, the
Aviation Safety Program and the Aeronautics Test Program.

1031 United States' first written submission, para. 193. Contract NNL12AA55P was initially identified as
Exhibit USA-103 and was subsequently submitted as Exhibit USA-576. (See United States' comments to
European Union's response to Panel question No. 89).
1032 United States' first written submission, para. 193.
1033 European Union's second written submission, para. 217.
1034 European Union's second written submission, para. 217 (referring to the amount of the annual
budgeted NASA aeronautics R&D programme funding that it allocates to Boeing as its "top-down" estimate of
the value of the financial contribution provided to Boeing). See NASA Subsidies to Boeing's LCA Division
(Exhibit EU-36), p. 8.
1035 European Union's response to Panel question No. 89, para. 99.
1036 See NASA Purchase Order NNL12AA55P, (Exhibit USA-576) (BCI), pp. 1 and 15.
1037 United States' first written submission, para. 187. The United States refers to: (a) a ceramic matrix
composite sandwich structure test coupon for [[HSBI]] (NASA Purchase Order NNC11QA17P, (Exhibit
USA-98) (HSBI), pp. 1 and 18); (b) a ceramic matrix composite sandwich structures for exhaust systems for
[[HSBI]] (allegedly purchase pursuant to Purchase Order NNC11VA84P, which was not submitted as an
exhibit); and (c) an additional order of ceramic matrix composite sandwich structures for [[HSBI]] (NASA
Purchase Order NNC11VA99P, (Exhibit USA-99) (HSBI), p. 2).

8.2.2.2.3 The instruments and processes through which R&D is commissioned under
NASA's aeronautics R&D programmes
8.73. The Space Act authorizes NASA to enter into certain types of instruments to fund R&D with
contractors and academic institutions, including awards made in the form of grants, coopera tive
agreements, or contracts depending on the nature of the submitting organization or other specific
requirements.1038
8.74. NASA procurement contracts are the appropriate instrument in cases where the principal
purpose is to acquire goods and services for the d irect bene fit or use of the United States
Government.1039 Procurement c ontracts are subject to the U.S. Federal Acquisition Regulation
(FAR).1040
8.75. Indefinite Delivery/Indefinite Quantity ( IDIQ) procurement contracts are "umbrella"
contracts that provide for the p rocurement of an indefinite quantity of supplies and/or services
when the exact time or quantity of futu re deliveries are not known at the time of the award of the
contract. These arrangements contain statements of work that describe the general scope, nat ure,
complexity and purpose of the contract. Work is awarded under IDIQ contracts pursuant to
particular "task orders" (or "delivery orders"), which typically contain more detailed statements of
work.1041 Task orders and delivery orders are not themselves ind ependent contracts, as they rely
on the body of the IDIQ contract for many of their provisions. 1042 Single or multiple task orders
may be awarded under IDIQ contracts.
8.76. NASA also awards contracts through Basic Ordering Agreements (BOAs) , which are
framework agreements setting certain terms of an acquisition in advance of the issuance of the
requirements applicable to the acquisition. 1043 Such terms may cover a description of supplies and
services to be procured and the method for pricing, issuing, and delivering contracts/orders under
the agreement. This mechanism enables NASA to focus on the critical contract terms for each work
package and implement them through a task order, rather than go through the expense of
negotiating a new contract each time NASA contrac ts for research.1044 As a legal matter, however,
BOAs are not contracts by themselves because there is no consideration until the first task is
awarded.1045
8.77. NASA cooperative agreements are used where the "principal purpose is the transfer of
anything of value to the recipient to accomplish a public purpose of support or stimulation " and
where "substantial involvement is anticipated between NASA and the recipient ".1046 "Substantial
involvement" may include an "active NASA role in collaborative relations, access to a NASA site or
equipment, or sharing NASA facilities and personnel ".1047 Cooperative agreements also provide for
the possibility of "joint funding " by NASA and participating private entities as well as non -cash
contributions.1048

1038 NASA Policy Directive on Authority to Enter into Space Act Agreements, NPD 1050.1I
(23 December 2008), (Exhibit USA-303).
1039 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 593 and accompanying
fns; and Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.945 and accompanying fns.
1040 See e.g. NASA, Grant and Cooperative Agreement Handbook, Part 1260, (November 2014), (Exhibit
EU-1369), p. A-10.
1041 United States' first written submission, para. 108.
1042 United States' response to Panel question No. 95, para. 166.
1043 United States' first written submission, para. 122; response to Panel question No. 95, para. 166.
1044 United States' first written submission, para. 122.
1045 United States' response to Panel question No. 95, para. 166.
1046 NASA, Grant and Cooperative Agreement Handbook, Part 1260, (November 2014), (Exhibit
EU-1369), p. A-11 (referring to United States Code of Federal Regulations, Title 14, section 12.60.12(d)). In
identifying the contracts and agreements at issue between NASA and Boeing in the original proceeding, the
panel noted that "in a few cases", transactions between NASA and Boeing under the original NASA aeronautics
R&D programmes were undertaken pursuant to cooperative agreements. (Panel Report, US – Large Civil
Aircraft (2nd complaint), fn 2408, para. 7.945).
1047 NASA, Grant and Cooperative Agreement Handbook, Part 1260, (November 2014), (Exhibit
EU-1369), p. A-11 (referring to United States Code of Federal Regulations, Title 14, section 12.60.12(d)(1)).
1048 United States' second written submission, fn 220, para. 158 ("cooperative agreements are the only
instruments used by NASA that provide for 'joint funding,' and they did not represent a significant share of
NASA's payments to Boeing at any point from 1989 to the present"). See also NASA, Grant and Cooperative

8.78. NASA may enter into Space Act Agre ements pursuant to its "other transactions" authority
under the Space Act, in order to "utilize the broad authority granted to the Agency in the Space
Act to further the Agency 's missions".1049 Policy Directive 1050.1H describes these arrangements
as follows:
Space Act Agreements … Establish a set of legally enforceable promises between
NASA and the other party to the Agreement (herein "Agreement Partner "). Such
Agreements constitute Agency commitments of resources (including personnel,
funding, services, equipment, expertise, information, or facilities) to accomplish stated
objectives of a joint undertaking with an Agreement Partner. The Agreement Partner
can be a U .S. or foreign person or entity, an educational institution, a Federal, state ,
or local governmental unit, a foreign government, or an international organization.1050
8.79. As the panel explained in the original proceeding, NASA may enter into reimbursable,
non-reimbursable and partially-reimbursable Space Act Agreements. Under fully reimbursable
Space Act Ag reements, full reimbursement is required for goods , services or facilities provided,
while alternatively, NASA has authority to accept partial reimbursement, or no reimbursement
where activities undertaken pursuant to the agreement offer corresponding "benefits to NASA", or
NASA and an agreement partner undertake mutually beneficial activity that furthers the Agency 's
missions.1051
8.80. NASA solicits proposals for research from contractors and universities through various
mechanisms depending on the objectives of research, including through the issuance of NASA
Research Announcements (NRAs). NRAs may be used to solicit proposals for foundational research
in areas relevant to enhancing NASA's core competencies, including through the award of
contracts, grants or cooperative agreements. NRA solicitations are released by NASA Headquarters
through the Web-based NASA Solicitation and Proposal Integrated Review and Evaluation System.
All NRA technical work is defined and managed at NASA centr es by project teams within NAS A
programme areas (e.g. Aviation Safety, Fundamental Aeronautics, and Aeronautics Test Program).
NRA awards originate from the centr es. Competition for NRAs awards is described as "full and
open" to educational institutions, industry and non -profit organiz ations.1052 Under this process,
NASA issues requests for information (RFIs) relating to research goals identified in connection with
technological roadmaps. NASA develops feedback based on RFIs it receives to develop NASA
centre technical proposals. Thereafte r, an NRA is issued to solicit proposals from the external
community to undertake research identified in NASA centr e proposals, after which NASA selects
proposals for funding. 1053 The United States has identified discrete NRAs that NASA has issued in
relation to the challenged aeronautics R&D programmes since 2006. 1054 The United States has
explained that NRAs are only one of the vehicles that NASA uses to solicit offers from contractors
and universities (for instance, the United States explains that procurement contracts such as IDIQ
contracts are used to acquire services or goods for the U.S. Government). The United States notes
that a number of solicitations by NASA outside the NRA process resulted in the award of contracts
with Boeing during the 2007-2012 period.1055

Agreement Handbook, Part 1260, (November 2014), (Exhibit EU-1369), p. A-14 (referring to United States
Code of Federal Regulations, title 14, section 12.60.14) ("non-monetary (zero dollar) grants or cooperative
agreements shall not be used, except for no-cost extensions").
1049 NASA Policy Directive on Authority to Enter into Space Act Agreements, NPD 1050.1I
(23 December 2008), (Exhibit USA-303); and Panel Report, US – Large Civil Aircraft (2nd complaint),
para. 7.945 and accompanying fns. See also NASA, Space Act Agreements Guide, Advisory Implementing
Instruction NAII 1050-1C, (25 February 2013), section 2.2.10, (Exhibit EU-1037), pp. 5 and 6.
1050 NASA Policy Directive on Authority to Enter into Space Act Agreements, NPD 1050.1I
(23 December 2008), (Exhibit USA-303).
1051 See Panel Report, US – Large Civil Aircraft (2nd complaint), fn 2410, para. 7.945. See also NASA,
Space Act Agreements Guide, Advisory Implementing Instruction NAII 1050-1C, (25 February 2013),
section 2.2.10, (Exhibit EU-1037), pp. 13-16; NASA Policy Directive on Authority to Enter into Space Act
Agreements, NPD 1050.1I (23 December 2008), (Exhibit USA-303).
1052 See NASA website, available at <http://www.aeronautics.nasa.gov/nra.htm>, accessed
29 August 2016.
1053 United States' first written submission, para. 105.
1054 United States' first written submission, paras. 105-107.
1055 United States response to Panel question No. 95, paras. 167 and 168.

8.2.2.3 Whether there is a financial contribution
8.2.2.3.1 Main arguments of the parties and third parties
8.81. The European Union argues that NASA has made "no significant changes since 2006 "1056 to
the nature of procurements contracts and agreements that it enters into with Boeing under the
challenged aeronautics R&D programmes, and thus, the Panel should conclude that the payments
and access to government facilities, equipment, and employees provided to Boeing under the
post-2006 NASA aeronautics R&D measures at issue are s imilarly financial contributions under
Article 1.1(a)(1) of the SCM Agreement.1057
8.82. The European Union argues that the NASA aeronautics R&D measures share many of the
same characteristics that led the Appellate Body to conclude that the NASA procurement contra cts
and DOD assistance instruments before the original panel constitute d transactions that were "akin
to a species of joint venture ", which were analogous to a type of equity infusion, and therefore
constituted financial contributions within the meaning of Article 1.1(a)(1) of the SCM Agreement.
Specifically, the European Union considers that payments under the challenged NASA aeronautics
R&D measures qualify as a direct transfer of funds within the meaning of Article 1.1(a)(1)(i) , while
the provision of access to facilities, equipment, and employees qualifies as a government provision
of goods and services other than general infrastructure under Article 1.1(a)(1)(iii) of the SCM
Agreement.1058
8.83. The European Union contends that, l ike the NASA procurement contrac ts and DOD
assistance instruments before the original panel, the transactions under the current NASA
aeronautics R&D measures involve payments by NASA , in the case of procurement contracts, as
well as the commitment of non -monetary resources by both NASA a nd Boeing under procurement
contracts, cooperative agreements, and Space Act Agreements . In addition, the subjects to be
researched are often determined collaboratively between NASA and Boeing, and the fruits of the
research are shared between the parties. Thus, the European Union considers that the transactions
under the post-2006 NASA aeronautics R&D measures are akin to a species of joint venture. The
European Union disputes the United States ' contention that an alleged overhaul 1059 of NASA
aeronautics R&D practices should have any impact on the Panel 's assessment of whether the
post-2006 NASA aeronautics R&D measures involve financial contributions. Contrary to the
United States' assertions, the European Union argues that NASA continues to support the needs of
the U.S. aviation industry with the goal of accelerating the development of advanced technologies
for practical application. 1060 The E uropean Union rejects the suggestion that there is no longer
collaboration in determining research to be undertaken. 1061 The European Union additionally
disputes that the United States has made any changes to its dissemination policies and asserts
that NASA continues to restrict the disclosure of data .1062 The European Union also contests that
there have not been any meaningful changes to NASA policies to enable foreign companies access
to NASA facilities. 1063 Finally, it submits that the value of payments and support to Boeing has
increased since the end of the implementation period and any suggestion otherwise is based on a
flawed and overly-narrow conception that is inconsistent with the approach followed by the panel
and the Appellate Body.1064
8.84. In addition, the European Union contends that the transactions in question possess the
same features that led the Appellate Body to conclude t hat the NASA procurement contracts and
DOD assistance instruments before the original panel were analogous to equity infusions. In this

1056 European Union's second written submission, para. 242.
1057 European Union's first written submission, para. 60.
1058 European Union's first written submission, paras. 169-177; second written submission,
paras. 231-238 and 242-249. See also European Union's response to Panel question No. 14, paras. 98 and 99.
1059 The European Union submits that the various changes the United States has identified as
compliance measures were part of a process that culminated in January 2006, "in the middle of the original
reference period – and yet had no effect on the findings of the original panel or Appellate Body".
(European Union's second written submission, paras. 177 and 178).
1060 European Union's second written submission, paras. 177-187.
1061 European Union's second written submission, para. 185; comments on United States' response to
Panel question No. 94, paras. 243-250.
1062 European Union's second written submission, paras. 190-193.
1063 European Union's second written submission, para. 198.
1064 European Union's second written submission, paras. 258-269.

regard, under the post -2006 NASA aeronautics R&D measures, funding is provided in expectation
of some kind of return in the form of scientific and technical information, discoveries, and data
expected to result from the research performed; there is no certainty that research will be
successful; the funder's risks are limited to the amount of money it commits and the opportunity
cost of other support it provides; and NASA as the funder contributes to the project by providing
access to facilities, equipment, and employees, as some equity investors would also do.1065
8.85. In light of its position that the NASA aeronautics R&D measures at issue are akin to a
species of joint venture and analogous to a type of equity infusion and that therefore the
payments and access to facilities, equipment , and employees provided under these measures are
financial contributions within the meaning of A rticle 1.1(a), the European Union submits that the
Panel need not consider the United States' arguments that the transactions may be characterized
as purchases of services, or that transactions properly characterized as "purchases of services" are
excluded from the scope of the SCM Agreement.
8.86. Moreover, the European Union argues that the United States has failed to demonstrate on
the basis of a proper Vienna Convention analysis of Article 1.1(a)(1) that transactions properly
characterized as purchases of se rvices are excluded from the scope of that provision. In light of
the Appellate Body 's decision to declare the original panel's interpretation of Article 1.1(a)(1)
"moot and of no legal effect ", there is no basis for the United States to argue that the App ellate
Body would have agreed with the panel 's reasoning as to why purchases of services are excluded
from the scope of Article 1.1(a)(1).1066
8.87. The European Union also argues, in the alternative, that "the transfer to Boeing of patent
and other intellectual pr operty rights in the technologies and data developed under the NASA
aeronautics R&D programmes additionally constitutes a provision of 'goods … other than general
infrastructure' within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement ".1067 The
European Union requests the Panel not to consider this "alternative" conception of the financial
contribution "unless it rejects the European Union 's primary contentions, with respect to the
characterisation of the challenged aeronautics R&D measures".1068
8.88. The United States argues that the post-2006 cooperative agreements and Space Act
Agreements should be treated as joint ventures for purposes of the financial contribution analysis ,
while the transactions between NASA and Boeing under post -2006 procurement contra cts are
properly characterized as purchases of services, which are not financial contributions and therefore
are outside the scope of the SCM Agreement.
8.89. The United States argues that the Appellate Body in the original proceeding identified six
features of the pre -2007 NASA procurement contracts that warranted their characterization as
"joint ventures" and submits that post -2006 Space Act Agreements and cooperative agreements
share many of the se same attributes. 1069 This includes the pooling of non -monetary resources,
with Boeing sometimes making payments to NASA, while NASA provides Boeing with access to
NASA facilities and equipment. In addition, although NASA no longer uses "limited exclusive rights
data" ( LERD) clauses, Boeing has an opportunity to exploit technology resulting from work
performed under agreements .1070 Accordingly, the post -2006 Space Act Agreements are best
characterized as transactions that are "akin to a species of joint venture ". The United States
confirms that NASA cooperative agreements are the only NASA arrangements that provide for
"joint funding" by NASA and participating private entities as well as non -cash contributions1071 and

1065 European Union's first written submission, para. 174; second written submission, paras. 165-186,
234, and 244-246.
1066 See European Union's second written submission, paras. 250-252; response to Panel question
No. 14, para. 101; and comments on United States' response to Panel question No. 14, paras. 60-62.
1067 European Union's first written submission, para. 177 (emphasis added). The European Union has
indicated that it is not challenging the provision of patent rights as a separate subsidy distinct from the NASA
aeronautics R&D contracts from which they arise, as it did before the original panel. (European Union's second
written submission, para. 257).
1068 European Union's response to Panel question No. 32, para. 197. The European Union explains that
this is an alternative manner of bringing the R&D contracts within the scope of Article 1.1(a)(1) of the SCM
Agreement.
1069 United States' first written submission, paras. 214-221.
1070 United States' first written submission, paras. 214-219.
1071 United States' second written submission, fn 220 and para. 158.

as such, payments under these arrangements constitute a direct transfer of funds within the
meaning of Article 1 .1(a)(1)(i) of the SCM Agreement, while any provision s of goods and services
constitute financial contributions under Article 1.1(a)(1)(iii). The United States notes that NASA
makes only in -kind contri butions under Space Act Agreements , and thus, these arr angements
constitute financial contributions in the form of provisions of goods and services under
Article 1.1(a)(1)(iii), but there is no direct transfer of funds under Article 1.1(a)(1).1072
8.90. As to the post -2006 NASA procurement contracts , the United States argues that the
characteristics of these measure s differ in a number of significant respects from the pre -2007
NASA procurement contracts , and that a thorough analysis of all of the evidence demonstrates
that the post -2006 NASA procurement contracts are pu rchases of services. 1073 The United States
argues, to begin, that most of the features of the pre -2007 NASA procurement contracts that led
the Appellate Body to characterize them as "akin to a species of joint venture " do not apply to the
post-2006 NASA procu rement contracts.1074 The United States argues in this regard that: (a) the
subjects to be researched are no longer determined collaboratively between NASA and industry,
rather, the reformulation of ARMD research programme through the NRA process means that
NASA decides research topics on its own; (b) the value of any access to NASA equipment,
facilities, and employees is far lower under the post -2006 NASA procurement contracts than the
panel found under the pre -2007 procurement contracts, and the European Uni on has provided no
evidence that research teams engaged under post -2006 NASA procurement contracts mixed
industry and NASA employees; (c) there is no evidence of any post -2006 procurement contract in
which the value of any access to NASA facilities, equipm ent or employees is significantly higher
than the value of the payments; (d) while the pre -2007 procurement contracts were found to
involve NASA and Boeing pooling non -monetary resources and employees, most of the post -2006
procurement contracts do not pro vide for facilities or equipment, and none of them refer to a
"pooling" of employees; (e) while Boeing still does not pay any royalties to NASA for commercial
rewards arising from the scientific and technical output of the research where the Boeing
employee, working alone or jointly with a NASA employee, performs the work that results in the
invention, this is not the case where a NASA employee invents the invention. In that case, NASA
owns the invention and Boeing would have to pay a royalty; and (f) NASA has discontinued the
use of LERD clauses . In the original proceeding such clauses were found to give Boeing the
exclusive right s to exploit technology resulting from pre -2007 NASA procurement contracts in
which Boeing was contributing a significant amount of its own resources to the research efforts.1075
8.91. The United States argues, based on the above differences between the characteristics of the
pre-2007 NASA procurement contracts that led to the Appellate Body 's characterization of them as
"akin to a species o f joint venture ", and the characteristics of the post -2006 NASA procurement
contracts, that the European Union has failed to meet its burden of proof to establish that the
post-2006 NASA procurement contracts are financial contributions. Moreover, the abov e
considerations, along with other evidence, as described in greater detail below, support a
conclusion that the transactions are most appropriately characterized as purchases of services.
8.92. In this regard, the United States argues that, following an "overhaul" of NASA research
practices in 2006, NASA changed its approach to research contracting, both in terms of the nature
of the research commissioned and the way it is conducted. According to the United States, NASA 's
research contracting is no longer the collaborative, industry-centric model that led to the Appellate
Body's findings in the original proceeding. 1076 NASA has shifted its research focus away from

1072 United States' first written submission, para. 221.
1073 United States' first written submission, para. 223.
1074 United States' first written submission, para. 224. The six features are: (a) the subjects to be
researched are determined collaboratively between NASA and the U.S. aeronautics industry; (b) some of the
transactions involved NASA providing Boeing with access to its equipment, facilities and employees, and some
contracts awarded to Boeing provided for research teams that included NASA employees; (c) the value of the
access to NASA facilities, equipment, and employees was significantly higher than the value of payments under
the procurement contracts; (d) the transactions involve NASA and Boeing pooling non-monetary resources and
employees; (e) scientific and technical information, discoveries and data are among the expected outcomes of
the research jointly undertaken by Boeing and NASA and Boeing is not required to pay any royalties to NASA
for any resulting commercial rewards; and (f) LERD clauses give Boeing an exclusive right to exploit technology
resulting from contracts in which they were contributing a significant amount of their own resources to contract
research efforts. (United States' first written submission, paras. 103 and 213)
1075 United States' first written submission, para. 224.
1076 United States' second written submission, paras. 104, 124, and 220.

technology demonstration toward longer -term fundamental research. NASA has also removed
references to increasing industry competitiveness as an evaluation criterion and has reformulated
the NASA aeronautics research objectives as aiming at "producing broad public goods of the kind
that governments routinely seek, with a substantial focus on building and im proving
infrastructure".1077 NASA has reduced the role of contractors in setting research priorities under
the NRA process. 1078 In addition, NASA has changed its dissemination policies to remove
restrictions that had in the past limited dissemination of NASA -funded research; for example, by
eliminating the use of LERD clauses under post -2006 procurement contracts. NASA has also
changed its facilities policies to permit access by foreign entities on the same basis as U.S.
companies.1079 The United States also asserts that NASA has "more than halved " funding for
aeronautics research in the FY 2007-FY 2012 period compared to FY 1989-FY 2006. Moreover,
NASA has reduced the value of access to equipment, facilities, and employees in post -2006
procurement contracts such tha t the "primary contribution" from NASA involves payments, while
on the contractor side, Boeing 's contribution now "consists of services, as witnessed by the
description of the work in the contracts ".1080 As a result of these changes, the United States
maintains that the transactions under the challenged post -2006 procurement contracts differ in
critical respects from the characteristics the Appellate Body identified with respect to the pre -2007
NASA procurement contracts.
8.93. The United States argues that, in ligh t of the above factors, the European Union has failed
to establish that the payments and provision of facilities, equipment, and employees to Boeing
through any of the post-2006 procurement contracts constitute financial contributions within the
meaning of Article 1.1(a)(1) of the SCM Agreement. The United States argues that the
European Union's analysis addresses only whether the NASA procurement contracts can possibly
be characterized as joint ventures, without also examining whether they would more appropriately
be characterized as purchases of services. The United States considers that, following the guidance
from the Appellate Body, a panel should take account of all of the relevant characteristics of the
measure, and the features which are most central to the measure itself. As the Appellate Body
acknowledged in Canada – Renewable Energy / Canada – Feed-in Tariff Program, one transaction
may have multiple aspects and a panel 's analysis must take those complexities into account. 1081
Thus, even if the Europe an Union were correct that the NASA procurement contracts had
characteristics that were akin to a joint venture, the Panel would still need to weigh the relative
merits of each possible characterization, which the European Union's arguments fail to do.1082
8.94. The United States argues that the post -2006 NASA procurement contracts are most
appropriately characterized as purchases of services. This is because, on the NASA side of the
transaction, the primary contribution consists of payments to Boeing, with provisio ns of facilities
and equipment being minimal, and with no provision for input from NASA personnel other than as
reviewers of results produced by the contractors. On the Boeing side of the transaction, the
primary contribution consists of services, as witne ssed by the descriptions of the work in the
contracts.1083 The United States refers to the acceptance by the panel and Appellate Body in
Canada – Renewable Energy / Canada – Feed-in Tariff Program that a purchase of goods occurs
when a government or public bo dy obtains possession (including in the form of an entitlement)
over a good by making a payment of some kind (monetary or otherwise). 1084 Under the same
logic, when a government obtains an entitlement to the supply of a service, by making a payment
of some ki nd, there is a purchase of a service. This is what happens under the post -2006 NASA
procurement contracts: NASA pays money and obtains entitlement to the performance of services.

1077 United States' first written submission, para. 104; second written submission, paras. 124-126.
1078 United States' response to Panel question No. 15, para. 41.
1079 This change was effected by NASA Policy Directive 1370.1, issued on 26 October 2007, under which,
according to the United States, Airbus has entered into reimbursable Space Act Agreements for the use of wind
tunnels. (United States' first written submission, paras. 1 and 110; second written submission, paras. 124 and
224; and NASA Policy Directive 1370.1 (26 October 2007), (Exhibit USA-256)).
1080 United States' first written submission, paras. 224 and 225; second written submission, paras. 218
and 224.
1081 United States' second written submission, para. 216 (referring to Appellate Body Report, US – Large
Civil Aircraft (2nd complaint), para. 586).
1082 United States' second written submission, para. 216.
1083 United States' first written submission, para. 225; second written submission, paras. 214 and 225.
1084 United States' first written submission, para. 226 (referring to Appellate Body Reports, Canada –
Renewable Energy / Canada – Feed-in Tariff Program, para. 5.123).

The post -2006 NASA procurement contracts are therefore purchases of services. 1085 The
United States considers that the original panel 's analysis of the scope of Article 1.1(a)(1) of the
SCM Agreement, as excluding transactions properly characterized as purchases of services,
provides compelling reasons to conclude that the post -2006 NASA procurement contracts are not
financial contributions within the meaning of Article 1.1(a)(1) of the SCM Agreement.1086
8.95. Finally, the United States argues that the European Union has failed to establish that
intellectual property rights accruing to Boeing pursuant to activities conducted under NASA
contracts and agreements are financial contributions. First, as a factual matter, the United States
argues that there is no transfer of intellectual property rights to Boeing under U.S. law, as the
patent is the property of the person who makes the invention, and NASA does not transfer any
patent to Boeing. Second, intellectual property is not a "good" and therefore cannot be the subject
of a financial contribution in the form of a government provision of goods w ithin the meaning of
Article 1.1(a)(1)(iii) of the SCM Agreement. Third, any intellectual property rights developed as a
result of work under a NASA procurement contract are an effect of the contract, not an
independent financial contribution.1087
8.96. Brazil considers that an interpretation of Article 1.1(a)(1) of the SCM Agreement that
excludes a priori government R&D measures that involve purchases of services from the scope of
the SCM Agreement would potentially undermine the effectiveness of the SCM Agreement. 1088
Brazil argues that "monetary contributions" clearly fall within the meaning of a direct transfer of
funds under Article 1.1(a)(1)(i). A monetary contribution does not become something else simply
because the funds may be repaid at a later date (such as f or a loan) or because other
consideration may be provided in return (such as equity or intellectual property). The significance
and potentially distortive nature of a monetary contribution does not change by virtue of the fact
that the contribution is made in exchange for a service, as opposed to something else of value. In
this case, the Panel may, depending on the facts and circumstances surrounding the relevant
transactions, find that some or all of the monetary payment s by the U.S. Government to Boeing
under a particular R&D contract constitute a de facto grant or other type of direct transfer of
funds, and therefore a financial contribution under Article 1.1(a)(1)(i) of the SCM Agreement.1089
8.97. Canada argues that, where a measure can be properly characteriz ed as the purchase of a
service, it should be excluded from the scope of financial contribution in Article 1.1(a)(1).1090 There
may be instances, however, where a measure that can properl y be characterized as a purchase of
a service has more than that one asp ect, and where the other aspect or aspects may fall within
Article 1.1(a)(1). To determine whether a measure includes additional aspects or elements, apart
from the purchase of a service, a panel should consider the rights and obligations of the
government and the private entity, the financial conditions of the transactions under the measure
and the balance of advantages between the parties.1091
8.98. Japan argues that government measures involving payments in exchange for a provision of
services are not a priori excluded from the scope of Article 1.1(a)(1) of the SCM Agreement, as
such an interpretation could create an "enormous loophole" in coverage and thereby undermine
the effectiveness of the SCM Agreement.1092 Japan argues that the drafters of the SCM Agreement,

1085 United States first written submission, para. 226. The United States argues that the changes in the
relevant characteristics of the post-2006 procurement contracts compared to their pre-2007 counterparts
"shifted the balance of the transactions to the point where for most contracts, NASA's contribution consisted
almost exclusively of funds, and Boeing's contribution almost exclusively of services. This balance is
characteristic of a purchase of services". (United States' second written submission, para. 214).
1086 United States' first written submission, paras. 93-97, 102, 104-111, 211, and 222-230; second
written submission, paras. 226-231. While recognizing that the Appellate Body declared the original panel's
interpretation of Article 1.1(a)(1) "moot", owing to the Appellate Body's characterization of pre-2007 NASA
procurements and DOD assistance instruments as similar to joint ventures, the United States argues that the
panel's interpretation of Article 1.1(a)(1) as regards purchases of services may nevertheless be considered in
this proceeding for the persuasiveness of the reasoning. (United States' first written submission, para. 230;
second written submission, paras. 210 and 231).
1087 United States' first written submission, paras. 231-235; second written submission, paras. 443-447.
1088 Brazil's third-party submission, para. 88; third-party statement, para. 7; third-party response to
Panel question No. 2.1, para. 4.
1089 Brazil's third-party submission, para. 92; third-party statement, paras. 9-13.
1090 Canada' third-party response to Panel question No. 2.1, para. 18.
1091 Canada' third-party response to Panel question No. 2.1, para. 19.
1092 Japan's third-party statement, paras. 6-9; third-party response to Panel question No. 5, para. 15.

either in the travaux préparatoires or elsewhere, did not indicate any intention to exclude
purchases of services from the scope of Article 1.1(a)(1). 1093 Japan considers that a composite
transaction that could potentially be a direct transfer of funds, in addition to a purchase of services
would involve financing beyond the remuneration or the cost paid in exchange for the provision of
a service.1094
8.99. Korea argues that aspects of a transaction may be considered a financial contribution within
the meaning of Articl e 1.1(a)(1) of the SCM Agreement to the extent that those aspects are
substantively comparable to at least one of the categories of government actions that are
identified within the meaning of Article 1.1(a)(1). In assessing the existence of a financial
contribution, Korea submits that a panel should look beyond the formal financial structure of a
government measure and assess the underlying characteristics and design of the measure.1095
8.2.2.3.2 Evaluation by the Panel
8.100. The question before us is whether payments and ac cess to facilities, equipment, and
employees provided by NASA to Boeing pursuant to post-2006 NASA procurement contracts,
cooperative agreements and (non-reimbursable and partially-reimbursable) Space Act Agreements
funded through four NASA aeronautics R&D programmes (the Fundamental Aeronautics Program;
the Integrated Systems Research Program; the Aviation Safety Program; and the Aeronautics Test
Program) constitute financial contributions within the meaning of Article 1 of the SCM Agreement.
8.101. The United States has not included these measures in its request for preliminary rulings of
13 November 2012 and t here is no disagreement between the parties that the post -2006 NASA
aeronautics R&D measures are within the scope of this proceeding. Moreover, the United States
refers to actions taken by NASA with respect to the post -2006 measures in its substantive
argumentation as to how it has withdrawn the subsidies at issue. In its Compliance
Communication, the United States indicates that NASA has modified the right s accorded to the
parties under all of the NASA contracts covered by the DSB recommendations and rulings and that
"NASA has made identical modifications, as necessary, with regard to contracts subsequent to
those covered by the recommendations and rulings of the DSB, without prejudice to the U.S. view
that those contracts were not subsidies causing adverse effects to EU interests". 1096 The
United States considers that "NASA has withdrawn the subsidies determined to exist, both with
regard to the pre -2007 contracts covered by the recommendations and rulings of the DSB and
with regard to subsequent contracts and agreements."1097 Although the United States regards only
the pre-2007 NASA procurement contracts as being covered by the DSB recommendations and
rulings, it is clear that it views the steps it has taken with respect to the post -2006 contracts as a
withdrawal of the subsidies determined to exist. In any event, we consider that, in light of the
similarity and continuity that exist between the pre -2007 and post -2006 NASA aeronautics R&D
measures, in terms of legal instruments and legal basis, the objectives pursued and the
programmes under which they are funded, a review of whether the United States has complied
with Article 7.8 that excluded the post -2006 NASA a eronautics R&D measures would not be
meaningful.
8.2.2.3.2.1 Post-2006 NASA cooperative agreements and Space Act Agreements
8.102. It is not in dispute between the parties that the post -2006 cooperative agreements and
Space Act Agreements at issue in this proceeding are properly characterized as joint ventures, and
that transactions pursuant to these agreements constitute financial contributions within the
meaning of Article 1.1(a)(1) of the SCM Agreement. 1098 The United States does not argue that it
has withdrawn the subsidy by taking actions that would affect the legal characterization of these
transactions as financial contributions. Rather, the United States argues that these transactions do

1093 Japan further notes that Article XV:1 of the GATS mandates negotiations on multilateral disciplines
"to avoid distortive effects of subsidies on trade in services", and given this obligation, Japan considers that
purchases of services "may have been omitted from Article 1.1(a)(1) of the SCM Agreement out of precaution
so as not to prejudge the outcomes of prospective negotiations on subsidies disciplines pursuant to Article XV
of the GATS". (Japan's third-party statement, para. 8).
1094 Japan's third-party response to Panel question No. 5, para. 16.
1095 Korea's third-party submission, paras. 16 and 17; third-party statement, paras. 10 and 11.
1097 United States' second written submission, para. 108.
1098 See, para. 8.88 above.

not confer a benefit within the meaning of Article 1.1(b). More specifically, we cons ider that :
(a) payments made to Boeing under the post -2006 cooperative agreements at issue are direct
transfers of funds within the meaning of Article 1.1(a)(1)(i); and (b) the provision of access to
NASA facilities, equipment, and employees to Boeing purs uant to the post -2006 cooperative
agreements and Space Act Agreements at issue constitutes the provision of goods or services
other than general infrastructure within the meaning of Article 1.1(a)(1)(iii) of the SCM
Agreement.
8.103. We therefore find that the pa yments provided by NASA to Boeing under
post-2006 cooperative agreements , and the access to facilities, equipment, and
employees provided by NASA to Boeing under the post-2006 cooperative agreements
and Space Act Agreements , funded under four NASA aeronaut ics R&D programmes
(Fundamental Aeronautics Program; Integrated Systems Research Program; Aviation
Safety Program; and Aeronautics Test Program) , are financial contributions within the
meaning of Article 1.1(a)(1) of the SCM Agreement. Specifically, the pa yments provided
by NASA constitute financial contributions as direct transfer s of funds , within the
meaning of Article 1.1(a)(1)(i) of the SCM Agreement , and the provision of access to
facilities, equipment, and employees qualifies as a government provisio n of goods or
services other than general infrastructure, within the meaning of Article 1.1(a)(1)(iii) of
the SCM Agreement.
8.2.2.3.2.2 Post-2006 NASA procurement contracts
8.104. The parties disagree as to whether transactions under the post-2006 NASA procurement
contracts between NASA and Boeing constitute financial contributions.
8.105. We will examine the post -2006 NASA procurement contracts to determine their relevant
characteristics, based on an evaluation of the competing arg uments advanced by the
European Union and the United States. More specifically, we will examine the respects in which the
post-2006 NASA procurement contracts are said to differ from their pre -2007 counterparts and
determine whether, as argued by the United States, the differences are such that the trans actions
are now most appropriately characterized as purchases of services even if, based on certain
characteristics, they could also possibly be characterized as joint ventures. 1099 We will then
determine whether, based on the outcome of this exercise, we con sider that these measures fall
within the scope of Article 1.1(a)(1).
8.106. Before undertaking this exercise, we recall the salient aspects of the Appellate Body 's
characterization of the pre -2007 NASA procurement contracts and DOD assistance instruments as
transactions that were "akin to a species of joint venture ", which were "analogous to equity
infusions", such that the payments and access to facilities, equipment, and employees provided to
Boeing under the pre -2007 procurement contracts constituted financia l contributions within the
meaning of Article 1.1(a)(1) of the SCM Agreement.
8.107. The Appellate Body first examined the pre -2007 NASA procurement contracts to identify
their relevant characteristics, and thereafter considered whether the measures properly
characterized fell within the scope of Article 1.1(a)(1). 1100 In assessing the pre -2007 NASA
procurement contracts, the Appellate Body made a number of observations regarding their
relevant features. It noted that on the "input" side of the transactions, NASA provided Boeing with
funding to conduct research, while NASA and Boeing both contributed the use of facilities,
equipment, and employees for purposes of conducting research. 1101 In other words, the
transactions involved not just funding by NASA, but also NASA a nd Boeing pooling non -monetary
resources and employees. 1102 The Appellate Body also emphasized that the subjects to be
researched were often determined collaboratively.1103
8.108. On the "output" side of the transactions, which involved scientific and technical
information, discoveries and data, the Appellate Body noted that Boeing could take title to

1099 United States' first written submission, para. 216.
1100 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 585-589.
1101 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 595 and 606.
1102 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 595.
1103 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 595.

inventions discovered, as well as rights over certain types of data derived from research, while the
U.S. Government retained a royalty -free license to use the subject in vention or data for
government purposes. 1104 Moreover, pursuant to LERD clauses in certain NASA procurement
contracts, the U.S. Government's rights in data developed in the course of the contracted research
were limited.1105 In other words, on the "output" side, there was not a "straightforward exchange
of monetary resources for some kind of non -monetary consideration".1106 Rather, the "fruits of the
research are shared between Boeing and NASA".1107
8.109. Based on the foregoing considerations, the Appellate Body considered:
The transactions are collaborative arrangements that are composite in nature in that
they involve various elements that are interlinked. The arrangements are akin to a
species of joint venture.1108
8.110. The Appellate Body then referred to statements by NASA offic ials that emphasized the
"partnership" between NASA and the U.S. LCA industry , which further supported the conclusion
that the transactions between Boeing and NASA were comprised of a number of elements and
were collaborative in nature1109 and to the panel's description of the transactions in its analysis of
serious prejudice which highlighted the composite nature of the pre -2007 NASA procurement
contracts and the collaborative relationship between NASA and Boeing.1110
8.111. In determining whether the pre -2007 NASA procurement contracts, properly characterized
as composite arrangements that are "akin to a species of joint venture ", fell under any of the
subparagraphs of Article 1.1(a)(1), the Appellate Body began by noting several similarities
between the "collaborative undertakings" that were the pre-2007 NASA procurement contracts and
equity infusions, which are one of the examples of transactions covered by the more general
reference to direct transfer of funds u nder Article 1.1(a)(1)(i).1111 First, NASA provides funding to
Boeing in the expectation of some kind of return. The return in question is not financial, but
rather, takes the form of scientific and technical information, discoveries, and data expected to
result from the research performed.1112 NASA, like an equity investor, has no certainty at the time
it commits the funding that the research will be successful. NASA 's risks are limited to the amount
of money it contributes and the opportunity cost of other support it provides to the project, much
like an equity inv estor.1113 Finally, like some equity investors, NASA contributes to the project by
providing access to equipment, facilities, and employees. On the basis of these characteristics, the
Appellate Body concluded that the "joint venture arrangements " between NASA and Boeing had
characteristics "analogous to equity infusions ".1114 The commonality between the NASA joint
venture arrangements and equity infusions was sufficient to enable the Appellate Body to conclude
that the measures in question fell within the concept of "direct transfer of funds " in
Article 1.1(a)(1)(i)1115, such that the payments under the pre -2007 NASA procurement contracts
were a direct transfer of funds within the meaning of Article 1.1(a)(1)(i) and the provision of
access to NASA facilities, equipment, and employees constituted a provision of goods or services
other than general infrastructure within the meaning of Article 1.1(a)(1)(iii).1116
Whether the post -2006 NASA procurement contracts are appropriately
characterized as collaborative R&D arrangements or as purchases of services
8.112. The United States refers to a number of principal features of the post -2006 NASA
procurement contracts which it considers support a different characterization of those instruments
to the Appellate Body 's assessment of the p re-2007 NASA procurement contracts. We address

1104 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 596 and 606.
1105 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 596.
1106 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 596.
1107 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 596.
1108 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 597.
1109 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 598.
1110 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 610.
1111 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 621 and 622.
1112 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 623.
1113 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 623.
1114 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 624.
1115 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 624.
1116 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 624.

each of these features, along with the European Union 's responses, before engaging with the
question of whether overall, it is most appropriate to characterize the post -2006 NASA
procurement contracts not as collaborative joint ventures, but as purchases of services.
8.113. First, the United States argues that the nature of aeronautics research commissioned by
NASA has changed, with a shift in focus from technology demonstration to longer -term
fundamental research. T he United States submits that, following an overhaul of its research
practices in 2006, NASA shifted the focus of its research toward "foundational research ",
developing "core competencies" and "producing broad public goods of the kind that governments
routinely seek".1117 The United States considers that evidence submitted by the European Union
equally supports the conclusion that basic research is targeted toward serving the needs of the
broader community, including in areas of national security, transportat ion safety and efficiency
improvements.1118 Regardless of any references to achieving "specific technology demonstration
goals" or "system-level objectives", the United States contends that it is up to industry to leverage
research for commercial applications. The European Union responds that the alleged overhaul was
undertaken to improve NASA 's effectiveness in supporting the needs of Boeing and the U.S.
aviation industry so as to improve their competiveness, including maturing technologies for
transition to practical application.1119
8.114. We first explain the context in which the alleged overhaul of NASA 's research contracting
practices occurred in 2006. In 2001, the U.S. Congress established a Commission on the Future of
the United States Aerospace Industry to study issues associated with the future of this industry
and to recommend potential actions by the U.S. Government to support the maintenance of a
robust industry. The Commission made a number of recommendations in 2002, many of which
required federal agencies such as NASA to take actions. 1120 Of particular relevance in the field of
U.S. aerospace R&D, the Commission had identified as a challenge the lack of sufficient and
sustained public funding for research and associated infrastructure for research, development ,
testing, and evaluation, which it considered to limit the United States ' ability to address critical
national challenges and to enable breakthrough aerospace capabilities. 1121 The Commission had
therefore recommended that the U.S. Government "significantly increase its investment in basic
aerospace research, which enhances national security; enables breakthrough capabilities; and
fosters an efficient, secure and safe aerospace transportation system".1122
8.115. NASA addressed the Commission 's recommendations to focus on basic research by
restructuring NASA's ARMD to give greater priority to fundamental research. 1123 Accordingly,
ARMD's three aeronautics R&D programmes became Fundamental Aeronautics, Aviation Safety and
Airspace Systems, to replace previous aeronautics R& D programmes in Vehicle Systems, Aviation
Safety and Security, and Airspace Systems, respectively. 1124 Within those programmes, the most
significant change occurred with respect to the Fundamental Aeronautics Program, which focuses

1117 United States' first written submission, para. 104.
1118 United States' first written submission, paras. 128-130. See also Commission on the Future of the
United States Aerospace Industry, Final Report, (November 2002), (Exhibit EU-1029); National Research
Council of the National Academies, Decadal Survey of Civil Aeronautics: Foundation for the Future, (2006),
(Exhibit EU-1030); and U.S. Government Accountability Office, Aerospace Industry, Progress in Implementing
Aerospace Commission Recommendations, and Remaining Challenges, Report No. GAO-06-920,
(September 2006), (Exhibit EU-1031), pp. 10 and 24.
1119 European Union's second written submission, paras. 177-187.
1120 Commission on the Future of the United States Aerospace Industry, Final Report, (November 2002),
(Exhibit EU-1029).
1121 U.S. Government Accountability Office, Aerospace Industry, Progress in Implementing Aerospace
Commission Recommendations, and Remaining Challenges, Report No. GAO-06-920, (September 2006),
(Exhibit EU-1031), p. 10.
1122 U.S. Government Accountability Office, Aerospace Industry, Progress in Implementing Aerospace
Commission Recommendations, and Remaining Challenges, Report No. GAO-06-920, (September 2006),
(Exhibit EU-1031), p. 10.
1123 U.S. Government Accountability Office, Aerospace Industry, Progress in Implementing Aerospace
Commission Recommendations, and Remaining Challenges, Report No. GAO-06-920, (September 2006),
(Exhibit EU-1031), p. 22. NASA uses the term "fundamental research" to refer to research that includes
continued long-term, scientific study in core areas such as physics, chemistry, materials, experimental
techniques, and computational techniques to enable new capabilities and technologies for individual and
multiple disciplines.
1124 The European Union does not challenge the Airspace Systems Program as involving any subsidies to
Boeing in this proceeding.

on fundamental aeronautics research rather than on development projects. NASA has indicated
that these programmes give priority to fundamental research that is applicable to a broad range of
air vehicles, whereas previously, NASA had emphasized "bringing specific projects to higher
technological maturity, often focusing on these narrowly defined demonstration projects and not
on developing technology that would be transferable to other types of systems or projects".1125
8.116. The United States indicates that the majority of the work that Boei ng performed under the
Fundamental Aeronautics Program in the post -2006 period was organized under two BOAs. One
was a 2004 BOA that had previously been part of the Vehicle Systems Effort to research structure
and materials for aerospace vehicles and aerod ynamic, aerothermodynamic and acoustics
technology for aerospace vehicles and passed to the Fundamental Aeronautics Program in
2006.1126 We have reviewed the task orders issued under the 20 04 BOA identified by the
United States, along with the United States ' descriptions of the work that Boeing performed under
these instruments, which it argues produce a "variety of public goods ".1127 It is not evident to us
that this work was focused solely on fundamental research. Indeed, some of the tasks were part of
an effort to develop prototypes, and others involved the design, analysis and fabrication of tooling
for a large test article made primarily of PRSEUS materials. Even the United States ' description of
the ways in which Boeing's work under these instruments produced public goods does not preclude
them also being of value and interest to Boeing. Indeed, the United States admits that the PRSEUS
studies, while providing knowledge useful to safety regulators, also provided information useful to
"any entity planning to build a composite aircraft".1128 We reach a similar conclusion regarding our
review of the tasks Boeing carried out under the 2008 BOA between NASA and Boeing that was
funded by the Fundamental Aeronautics Program. The United States acknowledges that one task
was aimed at development of N+3 and N+4 technologies for entry into service in the 2030 -2035
and 2040 -2050 periods, respectively, while another called for a "generalized prediction of the
challenges faced by commercial aircraft operators and the types of v ehicle capabilities needed to
meet those needs".1129 Another task called for a study of the technologies necessary to produce a
supersonic aircraft capable of carrying 35 -70 passengers for entry into service in the 2018 -2020
period.1130 Indeed, the statements of work under certain contracts are classified, which also
suggests that the work in question involves far more than a focus on purely fundamental research.
In short, while we do not disagree that NASA refocused the research efforts under certain of its
aeronautics R&D programmes t o place greater emphasis on fundamental research rather than
technology demonstration, we are not persuaded that the work that Boeing performed under
procurement contracts funded through the Fundamental Aeronautics Program in the po st-2006
period involved only fundamental research.
8.117. We reach a similar conclusion with respect to the procurement contracts funded under the
Aviation Safety Program. Our review of the tasks Boeing performed under the 2006 and 2007
BOAs funded under the Aviation Safety Program indicates that, while the work had use "far beyond
Boeing and far beyond the development and production of large civil aircraft "1131, it was also
clearly not confined to fundamental research.
8.118. The Integrated Systems Research Program did no t result from NASA 's 2006
reorganization. Rather, it was created in 2010 with an initial focus on developing new vehicle
concepts and enabling technologies that will simultaneously reduce fuel burn, noise , and
emissions.1132 The United States in its first wri tten submission identified the relevant BOAs, task
orders, and contracts between NASA and Boeing that were funded under this programme. It is not
evident to us that the work that Boeing performed under these instruments was confined to
fundamental research and the United States does not suggest otherwise.1133

1125 U.S. Government Accountability Office, Aerospace Industry, Progress in Implementing Aerospace
Commission Recommendations, and Remaining Challenges, Report No. GAO-06-920, (September 2006),
(Exhibit EU-1031), p. 23.
1126 United States' first written submission, para. 123. 2004 BOA, (Exhibit USA-24) (HSBI).
1127 United States' first written submission, para. 132.
1128 United States' first written submission, para. 132.
1129 United States' first written submission, para. 134.
1130 United States' first written submission, para. 135.
1131 United States' first written submission, para. 159.
1132 NASA Budget Estimates for FY 2010, (Exhibit USA-92), p. AERO-2.
1133 See United States' first written submission, paras. 181-191. The Aeronautics Test Program is an
infrastructure maintenance and development programme for NASA's large aeronautics ground test facilities,

8.119. In summary, our review of the procurement contracts funded by the relevant NASA
aeronautics R&D programmes suggests that, notwithstanding NASA 's 2006 shift in focus to
longer-term fundamental research in a general sense, at least under the Fundamental Aeronautics
Program, the work performed by Boeing under the procurement contracts at issue is not confined
to fundamental research in the sense of "long term, scientific study in core areas such as physics,
chemistry, materials, experimental techniques, and computational techniques to enable new
capabilities and technologies for individual and multiple disciplines ".1134 Rather, even if these
procurement contracts did not always involve Boeing in specific develop ment projects, it appears
that much of the work could be generally described as applied research.1135
8.120. Moreover, we note that the realignment of NASA's research activities was, according to the
U.S. Government Accountability Office (GAO), nevertheless underta ken to implement the
recommendations of the Commission on the Future of the United States Aerospace Industry, which
were aimed at supporting the maintenance of a robust U.S. aerospace industry in the 21 st century.
In this respect, NASA 's aeronautics R&D ac tivities, even where focused on basic and applied
research rather than advanced stages of development, appear ultimately to be designed, through
collaborative efforts with industry, to advance the interests of the U.S. aerospace industry. For
example, a 2008 NRA under the Fundamental Aeronautics Program explains that NASA 's focus on
foundational research through partnerships with universities and industry and the development of
system-level solutions will "support U.S. leadership in aerospace":
NASA has def ined four distinct levels to describe its approach to Fundamental
Aeronautics technology development: (1) conduct foundational research to further our
fundamental understanding of the underlying physics and our ability to model that
physics, (2) leverage the foundational research to develop technologies and analytical
tools focused on discipline-based solutions, (3) integrate methods and technologies to
develop multi -disciplinary solutions, and (4) solve the aeronautics challenges for a
broad range of air vehicles with system-level optimization, assessment and technology
integration.
Interaction with the aeronautics community aligns with the four levels: (1) NASA will
advance the state of knowledge of the underlying physics and its modelling by
partnering wi th universities and companies engaged in foundational research, (2)
NASA will investigate discipline -related challenges and will interact with the
aeronautics community through published reports and direct technology transfer, (3)
NASA will develop multidi sciplinary methods and technologies, and disseminate them
in published reports and direct technology transfer, and (4) NASA will collaborate with
industry by means of non -reimbursable cooperative agreements to address system -
level challenges at the precompetitive level.1136
8.121. NASA elsewhere explains the objective of "partnering with universities and companies
engaged in foundational research " as a way "to provide value to industry of a more enduring
nature"1137:

primarily wind tunnels. The European Union's challenges involving this programme relate only to Space Act
Agreements and therefore we do not further consider it here. (See European Union's first written submission,
paras. 133 and 134).
1134 U.S. Government Accountability Office, Aerospace Industry, Progress in Implementing Aerospace
Commission Recommendations, and Remaining Challenges, Report No. GAO-06-920, (September 2006),
(Exhibit EU-1031), p. 22 and fn 33.
1135 While "basic research" works to expand fundamental knowledge in areas such as physics, chemistry
and mathematics without specific applications in mind, "applied research" aims to gain knowledge applicable to
solving specific and identified needs, building on the general work of the basic sciences, e.g. activities to
develop better propulsion and power technology and crew and personnel protection technology. Applied
research can be distinguished from development projects, which use the knowledge and understanding to build
new, or improve existing, systems. (U.S. Government Accountability Office, Aerospace Industry, Progress in
Implementing Aerospace Commission Recommendations, and Remaining Challenges, Report No. GAO-06-920,
(September 2006), (Exhibit EU-1031), p. 39).
1136 NASA, Research Opportunities in Aeronautics – 2008 (ROA-2008), NASA Research Announcement
NNH08ZEA001N, (7 March 2008), (Exhibit USA-61), appendix A, pp. A1 and A2.
1137 NASA, "Fundamental Aeronautics", Solicitation No. NNH060000L (3 January 2006), (Exhibit
USA-14), pp. 6 and 7.

The interaction with the aeronautics community at the systems level is unique
because NASA typically does not design and build air vehicles for operational use. We
look toward collaboration with industry to provide insight into issues associated with
flight, manufacturing and design. NASA 's role at this leve l is to develop
multidisciplinary design, analysis, and optimization tools based on the underlying
physics. NASA intends to collaborate with industry consortia to provide value to
industry of a more enduring nature, rather than immediate design and manufac turing
problem-solving.1138
8.122. In other words, even where NASA undertook efforts to shift the focus of its aeronautics
research activities to fundamental research, this is still consistent with supporting collaborative
efforts with industry, in order to advance the interests of the U.S. aerospace industry.
8.123. Second, the United States argues that NASA has removed references to increasing industry
competitiveness as an evaluation criterion and has reformulated the NASA aeronautics research
objectives as aiming at producing broad public goods designed to build and improve infrastructure.
We note, however, that NASA retains the statutory objective of "preserv{ing} the role of the
United States as a leader in aeronautical and space science and technology ".1139 Moreover, our
review of NASA's 2014 Budget Estimates indicates that NASA still acknowledges the continued role
of the NASA aeronautics R&D programmes in promoting the competitiveness of the U.S.
aeronautics industry:
NASA's investment in aeronautics research is critica lly important to advance the
Nation's global leadership in aviation, to grow the economy and increase jobs, and to
continue to provide safe and efficient air travel to the flying public.
ARMD brings innovation to aeronautics through the seedling fund; expa nds
knowledge, and develops concepts, tools, and methods in the fundamental research
programs; and assesses and matures the integrated benefits of the most promising
technologies in the Integrated Systems Research Program. ARMD conducts this
cutting-edge r esearch through partnerships with academia, industry, and other
government agencies. The partnerships foster a collaborative research environment
across which multiple communities can exchange ideas and knowledge. These
collaborations help ensure the future competitiveness of the Nation's aviation industry
and strong future workforce.1140
8.124. The objective of promoting competitiveness is also recognized in the context of particular
programme budgets such as the Fundamental Aeronautics Program:
NASA research is inh erent in every major modern U.S. aircraft, and the type of
research performed by the FA program will prime the technology pipeline, enabling
continued US leadership, competitiveness, and jobs in the future.1141
8.125. NASA budget materials provide that "many of the tools and technologies that are
developed have an immediate impact to industry "1142 and identify specific technologies and
projects that maintain the competitiveness of the U.S. LCA industry, such as work conducted
under the Advanced Composites Project "to focus on reducing the timeline for development and
certification of innovative composite materials and structures … will boost American industry and
help maintain a U.S. global leadership in the field of composite materials which is a major element
of all new aircraft development".1143

1138 NASA, "Fundamental Aeronautics", Solicitation No. NNH060000L (3 January 2006), (Exhibit
USA-14), p. 7.
1139 Section 102(d) of the National Aeronautics and Space Act of 1958, as codified and restated by Public
Law No. 111–314, Stat. 3 (18 December 2010), United States Code, Title 51, section 20102(d) (current
through 7 December 2012), (Exhibit EU-252), sections 20102(d)(5) and (9).
1140 NASA Programme Budgets for FY 2014, (Exhibit EU-1015), pp. AERO-2 and AERO-3.
1141 NASA Programme Budgets for FY 2014, (Exhibit EU-1015), p. AERO-20.
1142 NASA Programme Budgets for FY 2014, (Exhibit EU-1015), p. AERO-20.
1143 NASA Programme Budgets for FY 2014, (Exhibit EU-1015), p. AERO-3.

8.126. Moreover, specific projects under the Fundamental Aeronautics and Integrated Systems
Research programmes still retain the explicit objective of promoting the competitiveness of U.S.
industry. In this regard, the subsonic fixed wi ng research conducted under the Fundamental
Aeronautics Program has the explicit goal of "enabl{ing} future generations of transport aircraft "
through fundamental research that "will prime the technology pipeline enabling continued U.S.
leadership, competi tiveness, and jobs in the long term ", noting that "much of the scientific
knowledge, technologies and concepts necessary to enable these longer -term vehicles may have
benefit to aviation much sooner".1144
8.127. NASA describes opportunities for commercialization of technology, including for the U.S.
LCA industry, from work conducted under the Active Aeroelastic Wing Project under the
Fundamental Aeronautics Program as follows:
With the successful demonstration of actively controlled "wing warping" techniques for
aircraft roll control at transonic speeds in the Active Aeroelastic Wing project,
engineers will now have more freedom in designing more efficient, thinner, higher
aspect-ratio wings for future high -performance aircraft while reducing the structural
weight of the wings by 10 to 20 per cent. This will allow increased fuel efficiency or
payload capability, along with potentially reduced radar signature. The technology also
has application to a variety of other future aircraft, such as high -altitude, long -
endurance unmanned aircraft, transports, and airliners.1145
8.128. NASA explains that the work under this project, "helps ensure that new aerospace
concepts are transferred quickly to the U.S. aerospace industry so they can be applied to
technologies for commercial and mil itary aircraft and space vehicles ".1146 This includes "advanced
power-by-wire concepts and fly -by-light (fiber optic cable) systems, as well as electric -powered
actuators and advanced flight-control computer software".1147
8.129. Similarly, RFIs and NRAs issued in con nection with particular aeronautics R&D projects
under the Fundamental Aeronautics Program specifically acknowledge the ongoing benefit of the
commissioned R&D to industry and the collaborative relationship between NASA and industry. A
2006 solicitation under the Fundamental Aeronautics Program states:
Under this RFI, NASA solicits interest primarily from industry to collaborate at the
systems level in Fundamental Aeronautics. NASA seeks to enter into research
collaborations that benefit both industry and NASA …
…
NASA intends to focus its resources on fundamental technology and build upon that
investment to develop system -level, multidisciplinary capabilities that enable both
civilian and military platforms of the future. As NASA does not typically build or
operate military or commercial aircraft, we seek partnerships with industry at the
systems level.1148
8.130. The Integrated Systems Research Program also recognizes the goal to ensure that
promising technologies are made available to the U.S. industry:
The Integrat ed Systems Research Program 's goal is to demonstrate integrated
concepts and technologies to a maturity level sufficient to reduce risk of

1144 NASA Fundamental Aeronautics Budget Estimates for FY 2007-FY 2013, (Exhibit EU-40), FY 2013,
AERO-21.
1145 NASA Armstrong Fact Sheet, "F/A-18 Active Aeroelastic Wing", 28 February 2014, (Exhibit
EU-1374), pp. 2 and 3. NASA explains that work on the F/A-18 Active Aeroelastic wing research was
undertaken at NASA's Dryden Flight Research Center in Edwards, CA, "in cooperation with the US Air Force
Research Laboratory (AFRL) and Boeing Phantom Works". (Ibid. p. 1).
1146 NASA Armstrong Fact Sheet, "F/A-18 Systems Research Aircraft", 28 February 2014, (Exhibit
EU-1375), p. 1.
1147 NASA Armstrong Fact Sheet, "F/A-18 Systems Research Aircraft", 28 February 2014, (Exhibit
EU-1375), p. 1.
1148 NASA, "Fundamental Aeronautics", Solicitation No. NNH060000L (3 January 2006), (Exhibit
USA-14), p. 2.

implementation for stakeholders in the aviation community … The program conducts
integrated system -level research on those promising concepts and technologies to
explore, assess, and demonstrate the benefits in an operationally relevant
environment. The program matures and integrates technologies for accelerated
transition to practical application.1149
8.131. Therefore, despite th e United States ' assertions to the contrary, advancing the
competitiveness of the U.S. aviation industry remains an important objective for NASA 's
aeronautics R&D activities.
8.132. Third, the United States argues that, through the NRA process introduced in 2006, NASA
has reduced the role of contractors in setting research priorities and thus the scope for
collaboration in determining the technologies to be researched. According to the United States, in
early 2006, NASA undertook a process to reformulate its aeron autics research objectives to aim at
producing broad public goods with a substantial focus on building and improving infrastructure.
This process included the issuance of RFIs by each of NASA 's ARMDs relating to fundamental
aeronautics, aviation safety and airspace objectives consistent with previously -identified
milestones in NASA 's ten-year technological roadmap. According to the United States, the
responses to RFIs helped to identify "areas of research that stakeholders considered to be of
primary interest".1150 NASA researchers then created teams to develop refined technical proposals
to achieve the objectives of each programme, incorporating the feedback from the RFI process.
These NASA centre proposals were then submitted "to a rigorous review process to ensure
technically credible and relevant research objectives ".1151 Finally, in May 2006, NASA issued an
NRA for Research Opportunities in Aeronautics to solicit proposals from the "external community"
for foundational research in the areas outlined in the NAS A centre proposals. 1152 NASA issued a
second NRA in 2008, followed by further NRAs in 2009, 2010, and 2011, respectively.1153
8.133. The United States argues that NASA 's reliance on NRAs to award some of the grants,
cooperative agreements and research contracts during the FY 2007-FY 2012 period represents "a
new approach to identifying research topics and choosing suppliers of research services "1154, and
constitutes a "significant" change from the way in which "NASA's big aeronautics projects were
typically supported".1155 The United States characterizes this as an "open process", wherein any
participation by industry in helping to identify areas of research is "completely voluntary ", has
resulted in "many bids from individual organizations as well as teams ", and has reduced the role
that the LCA industry plays in setting research priorities and designing research program mes.1156
The United States considers that the significance of the changes effected through the introduction
of the NRA process is evident from a comparison of th e 1989-2006 period, in which NASA 's large
aeronautics projects were typically awarded through IDIQ contracts, which had general statements
of work covering one or more aeronautics -related technical disciplines, with the more detailed
statements of work bei ng contained in the task order requests for proposals ( RFPs). In contrast,
the NRAs contain more general statements of task and are broadly open to the "community",
resulting in many bids from individual organizations as well as teams.1157

1149 NASA Programme Budgets for FY 2014, (Exhibit EU-1015), p. AERO-32.
1150 United States' first written submission, para. 105.
1151 United States' first written submission, para. 105.
1152 United States' first written submission, para. 105.
1153 United States' first written submission, para. 105. The 2009 and 2010 NRAs included funding for
projects derived from the American Recovery and Reinvestment Act, which the United States says included
heightened requirements on transparency regarding the spending of government funds. The 2010 NRA
additionally solicited proposals for research under the new Integrated Systems Research Program.
1154 United States' first written submission, para. 102.
1155 United States' first written submission, para. 108. The United States indicates that IDIQ contracts,
which were awarded during the 1989-2006 period, "typically had general statements of work covering one or
more aeronautics-related technical disciplines, with much more detailed statements of work being provided in
task order requests for proposals".
1156 The United States contends that "seeking and accepting input from interested persons is a standard
way for governments to ensure good decision making". (United States' second written submission, para. 131).
See also United States' first written submission, paras. 93, 105, and 108; response to panel question Nos. 93,
fn 229 and para. 164, 94, para. 165, and 95, paras. 166-168; and comments on European Union's response to
Panel question No.15, para. 88.
1157 United States' first written submission, para. 108.

8.134. The European Union disputes "the extent and effect" of NASA's use of NRA procedures for
selecting research. In particular, it argues that the notion that there is no longer collaboration in
determining technologies to be researched is contradicted by the United States ' own factual
descriptions of how the process works, including the fact that NASA issues RFIs to identify areas of
research of primary interest to external stakeholders such as the U.S. aviation industry, and then
uses their responses to set the content of resea rch solicited through NRAs. Additionally, the fact
that NRAs allow participants to make requests that are not "as precise" as requests for proposals
required under IDIQ contracts suggests that NRAs provide more room for input from
contractors.1158 The European Union further argues that the RFIs themselves expressly confirm the
collaborative nature of the process. 1159 The European Union concludes that in any case , the
United States has confirmed that only some of the post -2006 R&D was procured pursuant to the
NRA process (leaving the remainder to be procured outside the NRA framework) , thereby
undermining the significance of any alleged changes to NASA's practices.1160
8.135. We do not consider that the mere fact that NASA solicits work pursuant to the NRA process
on certain occasions1161 necessarily supports the conclusion that the setting of research priorities
for the NASA aeronautics R&D programmes can no longer be considered a collaborative effort
between NASA and industry. On the contrary, evidence before us suggests that collaboration with
industry, even if occurring through a different set of procedural mechanisms, is still an integral
part of NASA's aeronautics R&D agenda.
8.136. We note that, notwithstanding the introduction of the NRA process in 2006, a significant
number of procurement contracts, task orders and cooperative agreements were in fact awarded
by NASA since FY 2006 outside the NRA process. 1162 Second, we are not persuaded that the
issuance of NRAs containing more general statements of tasks necessarily reduces the op portunity
for contractors to provide input into the research solicited.1163 Finally, it remains the case that both
NASA and the U.S. LCA industry retain a mutual interest in the research commissioned by NASA,
as acknowledged by the United States:
Both parties expect{} to use the result s of this work, and if any intellectual property
rights result{}, to split them in a way that each party could use them in its sphere of
activity. They also recognize that, whatever the results, the knowledge gained would
be useful in their further activities.1164

1158 European Union's second written submission, para. 185.
1159 See European Union's comments on United States' response to Panel question No. 94, para. 246
(referring to NASA, "Fundamental Aeronautics", Solicitation No. NNH060000L (3 January 2006), (Exhibit
USA-14), p. 2: "{u}nder this RFI, NASA solicits interest primarily from industry to collaborate at the systems
level in Fundamental Aeronautics. NASA seeks to enter into research collaborations that benefit both industry
and NASA …"). The European Union additionally notes the description by the U.S. GAO that RFIs were used in
2006 "to solicit information on key areas of interest for private industry and determine opportunities for
collaboration with NASA's planning and research efforts". (European Union's comments on
United States' response to Panel question No. 94, para. 243 (referring to U.S. Government Accountability
Office, Aerospace Industry, Progress in Implementing Aerospace Commission Recommendations, and
Remaining Challenges, Report No. GAO-06-920, (September 2006), (Exhibit EU-1031), p. 69)).
1160 European Union's comments on United States' response to Panel question No. 94, paras. 248-250.
1161 United States' response to Panel question No. 95, para. 168. The United States refers to five
occasions between 2006 and 2011 where NASA issued NRA solicitations. (See United States' first written
submission, paras. 105-107 (referring to NASA, Research Opportunities in Aeronautics – 2006 (ROA-2006),
NASA Research Announcement NNH06ZNH001, (23 May 2006), (Exhibit USA-17); NASA, Research
Opportunities in Aeronautics – 2008 (ROA-2008), NASA Research Announcement NNH08ZEA001N,
(7 March 2008), (Exhibit EU-91); NASA, Research Opportunities in Aeronautics – 2009 (ROA-2009), NASA
Research Announcement NNH10ZEA001N, (13 April 2009), (Exhibit EU-184); NASA, Research Opportunities in
Aeronautics – 2010 (ROA-2010), NASA Research Announcement NNH10ZEA001N, (2 June 2010), (Exhibit
EU-133); and NASA, Research Opportunities in Aeronautics – 2011 (ROA-2011), NASA Research
Announcement NNH11ZEA001N, (2011), (Exhibit USA-255) (HSBI))).
1162 In response to a question from the Panel, the United States indicated that since FY 2006, NASA has
awarded Boeing 51 contracts, task orders and cooperative agreements outside the NRA process, compared
with only 29 through the NRA process. (United States' response to Panel question No. 95, para. 168).
1163 We agree with the European Union that the more generally defined NRA solicitations arguably leave
more scope for input from contractors than the more precisely defined RFPs under IDIQ contracts.
(European Union's second written submission, para. 185).
1164 United States' second written submission, para. 225 (arguing that these characteristics support the
conclusion that the transactions are purchases of services).

8.137. This is similarly reflected in the language of a 2006 RFI issued in connection with the
Fundamental Aeronautics Program:
Interaction with the aeronautics community aligns with the {four -level approach to
technology developm ent}. The first three levels reflect relationships with the
aeronautics community in which NASA seeks to ensure the national aeronautical
technical expertise: (1) NASA will advance the state of knowledge of the underlying
physics and its modeling by partne ring with universities and companies engaged in
foundational research where that partnership supplements NASA capabilities, (2)
NASA will investigate discipline -related challenges and will interact with the
aeronautics community through published reports a nd direct technology transfer, and
(3) NASA will develop multi -disciplinary methods and technologies, and disseminate
them in published reports and direct technology transfer.
The interaction with the aeronautics community at the systems level is unique
because NASA typically does not design and build air vehicles for operational use. We
look toward collaboration with industry to provide insight into issues associated with
flight, manufacturing and design. NASA's role at this level is to develop
multidisciplinary design, analysis, and optimization tools based on the underlying
physics. NASA intends to collaborate with industry consortia to provide value to
industry of a more enduring nature, rather than immediate design and manufacturing
problem-solving.1165
8.138. In our view, it is not credible that in issuing RFIs to external stakeholders, including the
U.S. LCA industry, as a pre -cursor to NASA's development of NASA centre proposals and eventual
issuance of NRAs, NASA is simply soliciting the views of industry (or academia) as to how best to
meet NASA's needs as a purchaser of research services. Rather, as previously noted, NASA retains
the statutory objective of preserving the U.S. LCA industry 's role as a leader in aeronautical and
space science and technology, an d in doing so, seeks input from those who stand to benefit from
the output of collaborative work as to how best to achieve this. This conclusion is supported by the
U.S. GAO's 2006 review of NASA 's efforts to implement selected Aerospace Commission
recommendations (discussed above). The GAO noted that, prior to issuing a 2006 research
announcement, NASA had issued three RFIs "to solicit information on key areas of interest for
private industry and determine opportunities for collaboration with NASA 's planning and research
efforts".1166 The GAO explained that the NRAs that were subsequently issued "were influenced by
the response to the requests for information ".1167 Similarly, a 2010 NRA indicates that "external
input" was provided at the "formulation" phase of co nceiving the Environmentally Responsible
Aviation Project under the Integrated Systems Research Program. 1168 The Environmentally
Responsible Aviation Project has the identified objective to "serve as a technology transition bridge
between the lower technology readiness level (TRL) efforts on -going in the fundamental ARMD
Programs and higher TRL needs of potential users".1169
8.139. Fourth, the United States argues that NASA has changed its dissemination policies to
remove restrictions that had previously limited the di ssemination of NASA -funded research,
including through the elimination of LERD clauses in the post -2006 procurement contracts. The
European Union disputes that the United States has made any changes to its dissemination policies
since 2001 (i.e. before the conclusion of the original proceeding) and argues that NASA continues

1165 NASA, "Fundamental Aeronautics", Solicitation No. NNH060000L (3 January 2006), (Exhibit
USA-14), pp. 6 and 7. (emphasis added)
1166 U.S. Government Accountability Office, Aerospace Industry, Progress in Implementing Aerospace
Commission Recommendations, and Remaining Challenges, Report No. GAO-06-920, (September 2006),
(Exhibit EU-1031), p. 69.
1167 U.S. Government Accountability Office, Aerospace Industry, Progress in Implementing Aerospace
Commission Recommendations, and Remaining Challenges, Report No. GAO-06-920, (September 2006),
(Exhibit EU-1031), p. 69. The GAO referred to NASA's research "strategy" as "a new approach for establishing
partnerships with universities and the private sector".
1168 NASA, Research Opportunities in Aeronautics – 2010 (ROA-2010), NASA Research Announcement
NNH10ZEA001N, (2 June 2010), (Exhibit EU-133), appendix D.2 Environmentally Responsible Aviation-1,
p. D-4, embedded chart.
1169 NASA, Research Opportunities in Aeronautics – 2010 (ROA-2010), NASA Research Announcement
NNH10ZEA001N, (2 June 2010), (Exhibit EU-133), appendix D.2 Environmentally Responsible Aviation-1,
p. D-2.

to include provisions in contracts restricting the disclosure of "limited rights data", and other data
labelled as sensitive information and technical data determined to be trade secrets.1170
8.140. In characterizing the pre-2007 NASA procurement contracts in the original proceeding, the
Appellate Body observed that "some" of the procurement contracts contained LERD clauses. 1171
Moreover, the Appellate Body 's discussion of the limitations on the U.S. Government's rights in
data owing to the presence of LERD clauses in certain of the pre -2007 NASA procurement
contracts occurred in the context of noting that on the "output" side of the transactions there was
a sharing of the fruits of the research betwe en NASA and Boeing. 1172 Despite changes to NASA 's
dissemination policies that pre -date the findings in the original proceeding, in certain instances, it
appears that Boeing retains rights to the data derived from performing research under certain
contracts1173, as well as rights to inventions discovered as part of the research.1174 In sum, NASA's
decision to no longer use LERD clauses in its procurement contracts does not change the fact that
Boeing retains rights to the data and inventions derived from performing r esearch under those
contracts, which led the Appellate Body to conclude that on the "output" side of the transactions,
there was not merely a "straightforward exchange of monetary resources for some kind of
non-monetary consideration".
8.141. Fifth, the United S tates argues that NASA has changed its facilities policies to permit
access by foreign entities on the same basis as U.S. companies. The European Union disputes this,
asserting that the policy document that the United States cites to support this position, NASA

1170 European Union's second written submission, paras. 190-193.
1171 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 596.
1172 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 596.
1173 As explained in the original proceeding, under U.S. law, the U.S. Government generally obtains
"unlimited rights" in any data first produced in the performance of a contract between the U.S. Government
and a contractor, for government purpose uses, while a contractor obtains the right to "use, release to others,
reproduce, distribute, or publish any data first produced or specifically used by the Contractor in the
performance of this contract". A contractor may also restrict from disclosure and use any "data, other than
computer software, that embody trade secrets or are commercial or financial and confidential or privileged, to
the extent that such data pertain to items, components, or processes developed at private expense". (See
Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1297-7.1301; and United States Code of
Federal Regulations, Title 48, section 52.227-14, (Exhibit EU-1034), sections 52.227-14(a)(2)(iv), (b)(1)(i),
and (2)(ii)). The European Union has submitted evidence of at least one procurement contract that restricts
from disclosure any data produced under the contract "that will contain or reveal data which was developed
exclusively at Private Expense". (NASA Task Order NNL11AA00T, (Exhibit EU-126), attachment J-2, p. 11), and
a procurement contract designating "special license rights data", which is required to be withheld from public
disclosure for a period between five and 15 years. (Contract between Boeing and NASA, NND11AG03C
(9 December 2010), (Exhibit EU-176), pp. 12 and 16, and exhibit 1 (3-1 and 3-2)). The United States contends
that the use of "special license rights data" is an "exceptional" case that occurred "several years ago near the
outset of the new program formulation" and "is not representative of standard practice". (United States' first
written submission, fn 358 and para. 186; see also second written submission, para. 136). Finally, we note
that the United States has also acknowledged that data may, in certain cases, be subject to limited distribution
to NASA or other government agencies or government contractors only, or publication may be delayed. The
List of NASA Technical Reports submitted by the United States indicates that, in certain cases, no report was
provided or "required" "due to the nature and requirements of the contract{}". Other reports are identified as
"classified" or subject to International Traffic in Arms Regulations (ITAR). Finally, other reports are labelled as
"Releasable, not published", which the United States explains, means the report is "in the process of
pre‐publication internal review". (See List of NASA Technical Reports, (revised) (formerly Exhibit US-13-312),
(Exhibit EU-214)).
1174 We note that, pursuant to the NASA-Boeing Patent License Agreement, Boeing grants to the U.S.
Government "an irrevocable, non-exclusive, non-transferable, royalty-free license under the Patent Rights to
use, make, offer for sale, sell, and import each Subject Invention for commercial purposes, without the right
to: (A) sublicense this right; (B) exercise this right in a commercial venture of any type with a third party; or
(C) have the Subject Invention made or sold by a third party for a commercial purpose". (NASA-Boeing Patent
Licence Agreement, (Exhibit EU-251) (BCI), para. 2). While the U.S. Government receives such a license in
cases where Boeing patents a technology, Boeing as patent owner nevertheless retains the right to use the
patented technology for commercial purposes and license that technology to other entities for commercial
endeavours, without paying the U.S. Government anything in return. As the parties have discussed, in cases
where Boeing obtains title to an invention conceived in the course of work under an R&D contract, the U.S.
Government retains "march-in" rights, under which the U.S. Government may compel a contractor to grant a
commercial license to applicants on terms that are reasonable, or otherwise grant the licence itself. In this
dispute, neither party has argued that the U.S. Government has exercised "march-in" rights. In any case, the
fact remains that Boeing gains access and particular rights over the results of the research.

Policy Directive 1370.1 (NPD 1370.1), applies only to the reimbursable use of NASA facilities by
foreign companies, which is not at issue in this proceeding.1175
8.142. NASA Policy Directive 1370.1 is entitled "Reimbursable Utilization of NASA Facilities by
Foreign Entities and Foreign-Sponsored Research". It was originally effective 26 October 2007 and
expires on 26 October 2017. NPD 1370.1 provides a general policy direction and identifies
principles to be considered by NASA officials in connection with "reimbursable use of NASA
facilities by, or for the benefit of foreign entities, or conducting of research on a reimbursable basis
in collaboration with, or for the benefit of, foreign entities ".1176 We therefore agree with the
European Union that it is not obvio us from NPD 1370.1 that NASA has in fact changed its facilities
usage policies regarding non -reimbursable or partially -reimbursable use of NASA facilities by
foreign companies. Moreover, NPD 1370.1 sets forth specific guidelines for the use of NASA
facilities by foreign entities bearing in mind that NASA 's cooperation and collaboration with foreign
entities are subject to "important standards and safeguards, reflecting the significant investment
made by the Congress and the people of the United States in NA SA's world-class facilities and
expertise".1177 We are not persuaded, on the basis of the evidence submitted by the United States,
that foreign entities are entitled to use NASA facilities "on the same basis as U.S. companies".1178
8.143. Sixth, the United States asser ts that NASA has more than halved funding for aeronautics
research in the FY 2007-FY 2012 period compared to FY 1989-FY 2006, as illustrated in Chart 1
below1179:
Chart 1: NASA Aeronautics Research Spending, 1990-2012

Source: NASA Subsidies to Boeing's LCA Division, (Exhibit EU-36); NASA/DOD/DOC Aeronautics R&D
Subsidies to Boeing's LCA Division, (Exhibit USA-19); and NASA, Fiscal Year 2004 Budget Estimates,
pp. S&AP 2-1 to 2-6, (Exhibit USA-20).
8.144. The United States argues that while the European Union asserts that NASA paid Boeing
USD 1.8 billion for non -engine aeronautics research under the challenged aeronautics R&D
programmes from FY 2007 through FY 2012, the real value of payments is vastly lower at
approximately USD 118 million, while the value of the provision of NASA equipment under the
post-2006 procurement contracts was approximately USD 6 million. Space Act Agreements

1175 European Union's second written submission, para. 198.
1176 NASA Policy Directive 1370.1 (26 October 2007), (Exhibit USA-256), section 1(a). (emphasis added)
1177 NASA Policy Directive 1370.1 (26 October 2007), (Exhibit USA-256), section 1(c).
1178 United States' first written submission, para. 110.
1179 United States' first written submission, para. 94. The United States explains that the broken and
unbroken lines in Chart 1 reflect that NASA moved to full cost accounting in 2004. At that time, NASA
published 2003 data under the previous programme cost methodology and the full-cost methodology, which
allows construction of a 1990-2003 index series for program cost and a 2003-2012 index series for full cost.
The United States indicates that these data reflect the European Union's adjustments to remove certain
expenditures that it has not challenged. According to the United States, the real change in resource
commitment is even more stark, as these figures do not account for inflation.

provided access to facilities, equipment, and employees of approximately USD 12 mill ion.1180 The
European Union considers the United States' estimate is based on a flawed and overly narrow
conceptual notion of what should be counted and valued, and is inconsistent with the approach
followed by the panel and the Appellate Body in the original proceeding.1181
8.145. In Section 8.2.2.6.2.2 of this Report, we conduct a detailed evaluation of the amount of
the financial contribution s provided to Boeing through the post -2006 NASA aeronautics R&D
subsidies. We conclude that the more credible estimate of the amount of the financial contributions
provided to Boeing through the post -2006 NASA procurement contracts, cooperative agreements,
and Space Act Agreements between 2007 and 2012 is approximately [***].
8.146. Although it does appear t hat NASA's aeronautics R&D funding has declined, and that the
amounts of payments and the value of the access to facilities, equipment, and employees to
Boeing over the 2007-2012 period appear to be significantly less than over 1989-2006, in our view
this is not relevant to the characterization of the measures as financial contributions. Finally, the
United States argues that NASA has reduced the value of access to equipment, facilities, and
employees in post -2006 procurement contracts such that the primary contribution from NASA
involves payments, while on the contractor side, Boeing 's contribution consists of services. The
European Union considers the United States ' estimate is based on flawed , narrow categories of
information defined by U.S. Government contracting regulations, and that the United States has
failed to provide a source of the listed data to confirm the accuracy of amounts.1182
8.147. In Section 8.2.2.6.2.2 of this Report, we estimate the value of the provision of access to
NASA facilities, equipment, and employees under the post -2006 NASA procurement contracts. As
we explain in that Section, of all the NASA procurement contracts under the challenged
aeronautics R&D programmes through which Boeing received funding since 2006 , less than half
provided for access to facilities, equipment or employees. We have estimated that the value of the
provision of access to such facilities (including the value of Boeing's use of NASA's computers) and
equipment is approximately [***].1183 Additionally, the value of Boeing's access to NASA
employees under the NASA procurement contracts is [***], for a total value of access to facilities,
equipment, and employees under these instruments of [***] between 2007 and 2012 . The
original panel found that the value of Boeing's access to NASA facilities, equipment and employees
under contracts and agreements was USD 1.55 billion between 1989 and 2006.1184 This equates to
approximately USD 91 million per year. The United States is therefore correct that the va lue of
facilities, equipment, and employees provided to Boeing has decreased during the 2007-2012
period as compared with the 1989 -2006 period. However, the value of facilities, equipment, and
employees must be considered with the other aspects discussed a bove to determine whether,
overall, the relevant characteristics of the post -2006 NASA procurement contracts differ in such
significant respects from the characteristics that led the Appellate Body to characterize the pre -
2007 procurement contracts as composite transactions that were collaborative joint ventures.
8.148. Summarizing our evaluation of the ways in which the relevant characteristics of the
post-2006 NASA procurement contracts are said to differ from those of the pre -2007 procurement
contracts which l ed to the Appellate Body 's characterization of them as "collaborative
arrangements" that were "composite in nature " and were "akin to a species of joint venture "1185,
we have concluded as follows:
a. While there may have been a shift in focus in very general ter ms to fundamental
research and away from technology development under at least some of the NASA
aeronautics R&D programmes (e.g. the Fundamental Aeronautics Program), we are not
persuaded that this shift is necessarily reflected in the nature of the work t hat Boeing
performed under the post -2006 procurement contracts between NASA and Boeing that
were funded under the relevant aeronautics R&D programmes. Our review of the nature

1180 United States' first written submission, para. 113.
1181 European Union's second written submission, paras. 258-269.
1182 European Union's second written submission, paras. 262-269.
1183 See paras. 8.263, 8.264 and 8.266-8.268 for explanations of the Panel's estimate of the value of
access to NASA facilities (including the value of Boeing's use of NASA's computers) and equipment under the
NASA procurement contracts and cooperative agreements, and paras. 8.246 and 8.270-8.274 regarding the
estimate of the value of access to NASA employees under the NASA procurement contracts.
1184 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1109.
1185 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 597.

of the work performed by Boeing under these contracts suggests that, notwithstan ding
how the research is characterized, it is clearly of independent commercial interest to
Boeing, i.e. over and above that as a provider to research services to NASA as a client.
In any case, it appears from a number of programme and project materials th at NASA's
realigned research focus in 2006 was undertaken with the ultimate goal of supporting
U.S. leadership in aerospace.
b. While NASA may have removed references to increasing the competitiveness of U.S.
industry as an evaluation criterion and reformulat ed the NASA aeronautics research
objectives as aiming at producing broad public goods in certain respects, NASA retains
the statutory objective of preserving the role of the United States as a leader in
aeronautical and space science and technology. It also continues to acknowledge the role
of the NASA aeronautics R&D programmes in promoting the competitiveness of the U.S.
aeronautics industry in a number of budget materials, as well as project descriptions,
RFIs and NRAs under particular programmes.
c. We are not persuaded that NASA's issuance of NRAs rather than RFPs as a means to set
research priorities and solicit research proposals from industry and academia necessarily
reduces the role of contractors in setting research priorities and thus the scope for
collaboration in determining the technologies to be researched. In any case, it would
appear that, notwithstanding the NRA process introduced in 2006, a significant number
of procurement contracts, task orders and cooperative agreements awarded by NASA to
Boeing since FY 2006 in fact occurred outside the NRA process.
d. While certain post-2006 procurement contracts do not include LERD clauses or restrict
the dissemination of data, this does not mean that there is no longer the sort of sharing
of the research ou tcomes that led the Appellate Body to conclude that there is not a
simple exchange of the outputs of the research (e.g. scientific and technical information,
discoveries, and data) for monetary consideration.
e. The United States has not adequately substantiated its assertion that NASA has changed
its facilities usage policies to permit access by foreign entities on the same basis as U.S.
companies.
f. The amounts of funding and value of provision of access to facilities, equipment, and
employees to Boeing through the relevant procurement contracts have declined over the
2007-2012 period compared with 1989 -2006, and it appears more generally that NASA
has significantly reduced its aeronautics research spending in FY 2007-FY 2012
compared to FY 1989-FY 2006. However, we do not consider this factor to be relevant to
the appropriate characterization of the post -2006 NASA procurement contracts that is
undertaken as part of the financial contribution analysis.
g. It appears that the value of the provision of access to NASA facilities, equipment, and
employees under the post -2006 NASA procurement contracts is significantly lower than
the amount of payments. However, it is not apparent to us why this should determine
our characterization of the post -2006 NASA procurement cont racts for purposes of the
financial contribution analysis in light of the other factors we have discussed above.
8.149. We therefore are not persuaded of the United States' position that almost all of the facts
that led to the Appellate Body's conclusion that th e pre-2007 NASA procurement contracts were
"akin to a species of joint venture" are no longer applicable with respect to the post -2006 NASA
procurement contracts.1186 Rather, the differences between the two sets of instruments (which the
Panel considers are less significant than the United States contends), taken together, are not such
that it would no longer be accurate to characterize the post-2006 NASA procurement contracts in a
similar manner to the manner in which the Appellate Body characterized the pre -2007 NASA
procurement contracts. The United States argues additionally that the above changes to the
post-2006 NASA procurement contracts mean that the transactions under these instruments are in
fact most appropriately considered to be purchases of servic es.1187 While it may be possible to

1186 See United States' first written submission, para. 224.
1187 United States' first written submission, para. 225. To recall, the United States refers to the following
features of the post-2006 NASA procurement contracts which it argues point both to the inaccuracy of

describe the primary formal legal transaction between NASA and Boeing under the post -2006
NASA procurement contracts as involving a purchase of research services, an important aspect of
the characterization exercise is to e xamine the overall context in which NASA and Boeing interact.
The United States does not address this factor adequately in our view. Indeed, both parties
attempt to extract from the Appellate Body 's discussion of the characteristics of the pre -2007
NASA procurement contracts that led to their characterization as being "akin to a species of joint
venture" a "checklist" of featur es that are said to point to the post -2006 NASA procurement
contracts being either joint ventures or purchases of services , without adequately engaging with
the issue of the relationship between NASA and Boeing in the specific context of when NASA
contracts Boeing to perform R&D work under the relevant aeronautics R&D programmes.1188
8.150. While the Appellate Body discussed the various technic al elements of the transactions
under the pre-2007 NASA procurement contracts, its overall conclusion was that the nature of the
relationship between NASA and Boeing in the particular context was essentially one of
"partnership".1189 Accordingly, it considere d that NASA did more than pay Boeing to conduct
R&D1190; the research was jointly undertaken by NASA and Boeing 1191; the direct partnership
between NASA and Boeing was supported by the NASA procurement contracts and cooperative
agreements1192; and NASA considered t he partnership with Boeing to be more significant than the
funding provided as such.1193
8.151. We are not persuaded that the nature of research that NASA commissions Boeing to
undertake under the post -2006 procurement contracts has changed significantly compared t o the
research that NASA commissioned under the pre -2007 procurement contracts. Significantly,
NASA's aeronautics R&D programmes retain the promotion of the competitiveness of the U.S.
aeronautics industry as a fundamental objective, whether in the program me budgets, the RFIs, or
specific project descriptions. In other words, NASA 's objectives remain closely aligned with those
of Boeing and the U.S. aeronautics industry in that NASA essentially commissions Boeing to
perform research that NASA hopes will, am ong other things, support and advance the competitive
interests of the U.S. aeronautics industry. We therefore consider that, notwithstanding that the
technical elements of the transactions may consist of payments in exchange for the performance

characterizing the transactions under these instruments as "akin to a species of joint venture" and to the
conclusion that the transactions are most appropriately characterized as purchases of services: (a) that the
subjects to be researched are no longer determined collaboratively between NASA and industry, rather, the
reformulation of ARMD's research programme through the NRA process means that NASA decides research
topics on its own; (b) the value of any access to NASA equipment, facilities, and employees is far lower under
the post-2006 NASA procurement contracts than the panel found under the pre-2007 procurement contracts
and the European Union has provided no evidence that research teams engaged under post-2006 NASA
procurement contracts mixed industry and NASA employees; (c) there is no evidence of any post-2006
procurement contract in which the value of any access to NASA facilities, equipment, or employees was
significantly higher than the value of the payments; (d) while the pre-2007 procurement contracts were found
to involve NASA and Boeing pooling non-monetary resources and employees, most of the post-2006
procurement contracts do not provide for facilities or equipment, and none of them refers to a "pooling" of
employees; (e) while Boeing still does not pay any royalties to NASA for commercial rewards arising from the
scientific and technical output of the research where the Boeing employee, working alone or jointly with a
NASA employee, performs the work that results in the invention, this is not the case where a NASA employee
invents the invention. In that case, NASA owns the invention and Boeing would have to pay a royalty; and (f)
NASA has discontinued the use of LERD clauses which were said to give Boeing the exclusive right to exploit
technology resulting from pre-2007 NASA procurement contracts in which they were contributing a significant
amount of their own resources to the research efforts.
1188 While the United States identifies six factors, as recounted in fns 1074 and 1187 above, the
European Union considers that the Appellate Body relied on only three characteristics to find that the pre-2007
NASA procurement contracts were joint ventures: (a) both parties committed resources; (b) the parties share
the fruits of the research; and (c) the subjects to be researched are often determined collaboratively.
(European Union's second written submission, para. 244).
1189 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 598-600.
1190 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 594.
1191 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 595.
1192 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 599.
1193 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 600. The Appellate Body took
a similar approach when discussing the relevant characteristics of the DOD assistance instruments. In addition
to referring to the composite nature of the transactions (as involving a combination of funding and access to
facilities), the collaborative nature of the transactions (as involving a pooling of monetary and non-monetary
resources on the input side and a sharing of the fruits of the research on the output side) it said that the
activities were undertaken in pursuit of a common goal for the benefit of both DOD and Boeing. (Appellate
Body Report, US – Large Civil Aircraft (2nd complaint), para. 609).

of research services, NASA and Boeing nonetheless remain engaged in a collaborative enterprise,
in pursuit of a common goal, in which they both have a stake in the risks and returns. In other
words, considered in their proper context, the post -2006 NASA procurement contracts are most
appropriately characterized as collaborative R&D arrangements between NASA and Boeing, in the
same way that the Appellate Body characterized the pre -2007 NASA procurement contracts. While
there may well be a purchase of services componen t to these transactions, the characterization of
the post-2006 NASA procurement contracts as purchases of services is incomplete and inaccurate
when the instruments are considered in their proper context, especially in light of the nature of the
relationship between NASA and Boeing in performing the contracted research.1194
Whether the post -2006 NASA procurement contracts , as collaborative R&D
arrangements, involve financial contribution s within the meaning of
Article 1.1(a)(1) of the SCM Agreement
8.152. The United States advances three additional arguments in support of its position that, even
if the Panel were to conclude that the post -2006 NASA procurement contracts, in terms of their
relevant characteristics, are "akin to a species of joint venture ", the particul ar characteristics of
the transactions do not support the conclusion that the measures are analogous to equity
infusions.
8.153. First, the United States argues that the fact that funding is provided in expectation of some
kind of return cannot be a defining cha racteristic of post -2006 NASA procurement contracts
because all transactions that provide funding involve the expectation of some kind of return. In
addition, the United States submits that the "return" on NASA research, unlike the return on an
equity investment, is always a "sure thing", which it argues, is reflected in the Appellate Body 's
finding that NASA and Boeing learned valuable lessons from research that failed. Finally, the
United States contends that the fact that funders ' risks are limited to th e amount of money they
commit and the opportunity cost of other support they provide cannot be a defining characteristic
of a joint venture, because this is true equally in the case of a purchase of goods or of services.1195
8.154. The European Union considers that the post-2006 NASA procurement contracts satisfy the
Appellate Body 's criteria for demonstrating that they are "akin to equity infusions in joint
ventures"1196, and that the United States does not in fact dispute that the key criteria are met with
respect to post-2006 NASA contracts. Notably, it argues that the United States acknowledges that
funding of post -2006 NASA procurement contracts is provided in expectation of some kind of
return, that funders ' risks are limited to the amount of money they commit and the opportunity
cost of other support they provide, that NASA research is sometimes unsuccessful, and that
sometimes NASA provides access to facilities , equipment and employ ees under the
arrangements.1197
8.155. As we see it, t he United States ' arguments as to why the post-2006 NASA procurement
contracts, even if characterized as being like joint ventures, should not be considered analogous to
equity infusions, would apply equally to the pre-2007 NASA procurement contracts analysed by the
Appellate Body. As such, it seems to us that the United States' disagreement is with the analysis of
the Appellate Body regarding the aspects of the pre -2007 NASA procurement contracts that the
Appellate Body considered to render them analogous to equity infusions and thus, to invol ve a
direct t ransfer of funds under Article 1.1(a)(1)(i). We do not consider it appropriate in this
compliance proceeding to depart from the legal reasoning of the Appellate Body in the original
proceeding. Having concluded that, despite some differences b etween the relevant characteristics
of the post-2006 NASA procurement contracts and their pre -2007 counterparts, it is nevertheless
appropriate to characteri ze the post -2006 NASA procurement contracts before us in this
proceeding in the same manner as the Appellate Body characterized the pre -2007 NASA
procurement contracts in the original proceeding, we do not consider it appropriate to depart from

1194 The Panel therefore rejects the United States' argument that the transactions are more properly
characterized as purchases of services and consequently, considers it unnecessary to address the
United States' arguments that transactions appropriately characterized as purchases of services are excluded
from the scope of Article 1.1(a)(1) of the SCM Agreement.
1195 See United States' second written submission, paras. 221-223.
1196 European Union's second written submission, para. 246.
1197 European Union's second written submission, para. 246.

the reasoning of the Appellate Body as to why such measures are analogous to equity infusions
and thus involve a direct transfer of funds within the meaning of 1.1(a)(1)(i).
8.156. Accordingly, consistent with the Appellate Body 's findings in respect of the pre -2007 NASA
procurement contracts in the original proceeding, we conclude that the post -2006 NASA
procurement contracts have characteristics analogous to equity infusions, wherein payments under
post-2006 NASA procurement contracts involve direct transfers of funds within the meaning of
Article 1.1(a)(1)(i) of the SCM Agreement, and any provision of access to NASA facilities,
equipment, and employees provided to Boeing under those instruments constitutes the provision
of goods or services other than general infrastructure within the meaning of Article 1.1(a)(1)(iii) of
the SCM Agreement.
8.157. For these reasons, we find t hat the payments and provision of access to NASA
facilities, equipment, and employees to Boeing through the post -2006 NASA
procurement contracts funded under four NASA aeronautics R&D programmes (the
Fundamental Aeronautics Program; the Integrated Systems Research Program; the
Aviation Safety Program; and the Aeronautics Test Program) constitute financial
contributions within the meaning of Article 1.1(a)(1) of the SCM Agreement. 1198
Specifically, the payments provided by NASA constitute financial contribution s as a
direct transfer of fund s within the meaning of Article 1.1(a)(1)(i), and the provision of
access to facilities, equipment, and employees qualifies as a government provision of
goods or services other than general infrastructure under Article 1.1(a)( 1)(iii) of the
SCM Agreement.
8.158. In light of our conclusions in paragraphs 8.103 and 8.157, it is unnecessary for us to
address the European Union's alternative argument that what it refers to as the transfer to Boeing
of patent and other intellectual property rights could separately be considered a financial
contribution within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.1199
8.159. Having found that the post -2006 N ASA aeronautics R&D measures at issue in this
proceeding are financial contributions, we next consider whether these financial contributions
confer a benefit.
8.2.2.4 Whether there is a benefit
8.2.2.4.1 Main arguments of the parties and third parties
8.160. The European Union argues that the financial contributions provided through the post-2006
NASA procurement contracts, cooperative agreements, and Space Act Agreements under the
challenged NASA aeronautics R&D programmes confer a benefit within the meaning of
Article 1.1(b) of the SCM Agreement.
8.161. With regard to the post -2006 NASA procurement contracts, the terms of which were
modified by the NASA -Boeing Patent Licence Agreement of 23 September 2012, the
European Union's arguments as to why the financial contributions provided thr ough those
contracts confer a benefit are the same as those it makes as to why the modifications to the
pre-2007 NASA procurement contracts , also effected by the NASA -Boeing Patent Licence
Agreement fail to remove the benefit.1200
8.162. The European Union argues t hat the reasoning of the Appellate Body in the original
proceeding that the pre -2007 NASA procurement contracts and DOD assistance instruments
conferred a benefit, applies equally to the post-2006 NASA procurement contracts and cooperative
agreements, the terms of which have not been modified by the NASA -Boeing Patent Licence
Agreement, as these arrangements "have precisely the same factual and legal characteristics as
the pre -2007 NASA R&D contracts and agreements " that were subject to the Appellate Body 's
findings on benefit in the original proceeding , and are not provided on the basis of commercial
considerations.

1198 We recall our explanation in fn 1133 above that the Aeronautics Test Program funded only Space
Act Agreements (rather than procurement contracts or cooperative agreements) with Boeing.
1199 See para. 8.87 above.
1200 See paras. 8.8 to 8.15 above.

8.163. The European Union submits that the fact that post -2006 NASA procurement contracts are
subject to competitive bidding should have no effect on the benefit analysis because, pursuant to
the Bayh -Dole regime and NASA -specific regulations for allocating intellectual property rights
under U.S. Government R&D contracts (which the European Union considers have the explicit,
non-commercial purpose of a ssisting U.S. industry), the allocation of patent rights is uniform and
ownership of any intellectual property is not open to bidding, and thus would not be a
determinative element in bidding. It argues that the United States has provided no evidence to
support its assertions that the intellectual property rights allocated to Boeing through any of the
aeronautics R&D contracts and agreements were provided in exchange for Boeing accepting a
lower profit margin, lower levels of cost reimbursement, or a lower fixed-price contract. 1201 In
addition, the European Union submits that the Appellate Body rejected a similar argument made
by the United States in the context of the original DOD assistance instruments. 1202 Thus, the
benefit resulting from the post -2006 NASA pro curement contracts arises from the "systematically
skewed (in comparison to the market) allocation of patent rights " in U.S. Government R&D
contracts.1203
8.164. Finally, with respect to non-reimbursable and partially -reimbursable post-2006
Space Act Agreements, the European Union contends that the United States has made no
allegation that they are any different in nature than the pre -2007 Space Act Agreements, and
therefore that the original panel finding of benefit should be sustained. 1204 In the event that the
Panel does not base its finding on the original panel finding of benefit, the European Union argues
that the post -2006 Space Act Agreements provide a benefit for the same reason as the NASA
procurement contracts, because the transactions in the market result in an equilibrium that is
more favourable to the commissioning party than the transactions pursuant to post -2006
Space Act Agreements. The European Union submits that the United States has not demonstrated
that NASA receives something of genuine value in exch ange for providing Boeing with the use of
NASA facilities and equipment through non -reimbursable and partially -reimbursable Space Act
Agreements.1205 Moreover, the European Union argues that the allocation of intellectual property
rights under Space Act Agree ments does not preclude the Panel from finding that Space Act
Agreements provide a benefit for the same reasons as the NASA procurement contracts. The
European Union refers to the intellectual property provisions of one "representative example SAA"
referred to by the United States, submitting that this Space Act Agreement "appears to have the
same limitations as the NASA R&D contracts and agreements at issue".1206
8.165. The United States argues that the European Union has failed to meet its burden to
establish that the post-2006 NASA procurement contracts, cooperative agreements, and Space Act
Agreements at issue in this proceeding confer a benefit within the meaning of Article 1.1(b) of the
SCM Agreement.

1201 European Union's comments on the United States' response to Panel question No. 67, paras. 25 and
65. Mr Razgaitis opines that the lack of bargaining power over intellectual property ownership under U.S.
Government R&D contracts discredits the United States' arguments regarding the impact of competitive
bidding on the exchange of value in DOD and NASA procurement contracts. According to Mr Razgaitis, because
of the provisions of U.S. law that "preclude" DOD and NASA from bargaining over ownership of intellectual
property rights, Boeing does not need to "underbid" to fully account for the net present value of the foreground
intellectual property. Mr Razgaitis considers that there is no evidence that Boeing, or any other commissioned
party, in practice reduces its RDT&E costs because of the Bayh-Dole provisions. (Second Supplemental
Declaration of R. A. Razgaitis, Sr., Ph.D., CLP, 17 December 2014 (Second Supplemental Razgaitis
Declaration), (Exhibit EU-1398), para. 49).
1202 European Union's second written submission, para. 311 (referring to Appellate Body Report, US –
Large Civil Aircraft (2nd complaint), paras. 665 and 666).
1203 European Union's response to Panel question No. 25, para. 138 ("{t}he benefit resulting from the
R&D contracts and agreements at issue is evidenced, in part, by the systematically skewed (in comparison to
the market) allocation of patent rights in the U.S. government R&D contracts"). See also European Union's
response to Panel question No. 26, para. 162 ("{r}ather, once, as here, it is clear that there is a benefit
associated with systematically gifting the relevant IP rights in advance, that should be sufficient for the
purposes of the {benefit} analysis").
1204 European Union's second written submission, para. 314.
1205 European Union's first written submission, para. 181; European Union's second written submission,
para. 315.
1206 European Union's second written submission, para. 317.

8.166. With respect to the post -2006 NASA procurement contracts th e terms of which have not
been modified by the NASA -Boeing Patent Licence Agreement 1207, the United States argues that
the European Union has failed to establish that such measures are more favourable to Boeing than
comparable commercial arrangements and the Panel should therefore find that these
arrangements do not confer a benefit within the meaning of Article 1.1(b) of the SCM Agreement.
8.167. The United States criticizes the European Union 's approach to determining the commercial
consistency of the post -2006 R&D procurement contracts based on only one term of the contract
(i.e. the allocation of patent rights). According to the United States, a thorough and systematic
review of the evidence indicates that the terms under which the U.S. Government commissions
research work are no more advantageous to the recipient than comparable commercial
transactions.1208 This analysis should extend beyond patent rights to consider how other terms of
the contract affect the balance of value between the parties, in particular the price that commercial
commissioning parties pay for the rights they acquire.1209
8.168. The United States argues that an appropriate benchmark for assessing whether the
post-2006 NASA procurement contracts confer a benefit should properly reflect the type of
financial contribution. Although the post -2006 NASA procurement contracts are properly
characterized as purchases of services, the United States submits that, even if the Panel were to
conclude that the post -2006 NASA procurement contracts are financial contributi ons, it would still
need to take into account that the transactions are "in substance, purchases of services " and that
NASA was "purchasing something ".1210 The context provided by Article 14(d) of the SCM
Agreement indicates that the proper standard for asses sing whether government purchases confer
a benefit is the adequate remuneration standard. Under this standard, a benefit would exist only if
the U.S. Government paid too much for the rights it obtained. The adequate remuneration
standard therefore focuses on what the government purchased, and not what a private entity
would have purchased in similar circumstances, and asks whether the government paid too much
(i.e. more than adequate remuneration) for what it sought to buy ; in this case, the purchase of
own-use rights in patents that result from research. The United States argues that the
European Union fails to address this standard.1211
8.169. The United States disagrees with the Eu ropean Union that whether the post-2006 NASA
procurement contracts involved competitive bidding is irrelevant to whether they confer a benefit ,
based on the Appellate Body 's rejection of a similar argument regarding the pre -2007 DOD
assistance instruments in the original proceeding. 1212 The United States argues that the Appellate
Body's state ment regarding competitive bidding in the original proceeding addressed only DOD
assistance instruments, which the Appellate Body had differentiated from DOD procurement
contracts. The United States argues that the Appellate Body 's statements in Canada – Renewable
Energy / Canada – Feed-in Tariff Program indicate that the relevance of competitive bidding to the
analysis of benefit depends on the facts. 1213 Moreover, economically rational bidders will factor the

1207 The United States does not set out specific arguments as to whether post-2006 NASA cooperative
agreements are more favourable to Boeing than comparable commercial arrangements, as it submits that
"their value is so small in relation to contracts that these differences do not affect the overall outcome".
(United States second written submission, fn 111; response to Panel question No. 156, fn 36).
1208 United States' response to Panel question No. 67, para. 11.
1209 The United States argues that a "narrow" approach to benefit, focused on isolated terms of a
transaction, is contrary to the SCM Agreement. It notes that in EC and certain member States – Large Civil
Aircraft, the panel and Appellate Body considered all aspects of the transaction, including the interest rate,
term of loan, royalties, fees, and expected delivery schedules as part of the evaluation as to whether, as a
whole, the terms the EU member States offered to Airbus were more favourable than those available in the
market. (United States' response to Panel question No. 67, para. 13). See also United States' first written
submission, para. 238.
1211 United States' first written submission, paras. 253 and 254; second written submission, paras. 232
and 233.
1212 United States' second written submission, para. 235. See Appellate Body Report, US – Large Civil
Aircraft (2nd complaint), para. 665: "intellectual property is not open to bidding: it is determined by US law.
Because each bidder knows in advance that this particular aspect of the transaction will not be altered with
respect to its competitors, ownership of any resulting intellectual property will not be a determinative element
in how each bidder structures its proposals."
1213 Appellate Body Reports, Canada – Renewable Energy / Canada – Feed-in Tariff Program,
para. 5.228: "{a}lternatively, such benchmark may also be found in price-discovery mechanisms such as

cost or value of a fixed term of a bid (such as t he allocation of intellectual property rights) into the
economic value of the overall package, and adjust the bid accordingly. 1214 Thus, there is no basis
to treat the Appellate Body 's statement regarding competitive bidding in respect of the pre -2007
DOD ass istance instruments as applicable to the benefit analysis for the post -2006 NASA
procurement contracts. The United States asserts that "all of the NASA aeronautics research
contracts" are subject to competitive bidding, and the process of competitive biddi ng confirms that
NASA did not pay more than adequate remuneration for its post -2006 procurement contracts.
Rather, NASA 's monetary contribution under the post -2006 NASA procurement contracts is
consideration for the enhanced data rights it obtains, and thu s confirms that the post -2006 NASA
procurement contracts reflect a negotiated bargain.1215
8.170. With respect to the post -2006 NASA procurement contracts the terms of which were
modified by the NASA -Boeing Patent Licence Agreement, t he United States argues that t hese
procurement contracts reflect the same allocation of intellec tual property rights as the amended
pre-2007 NASA procurement contracts.
8.171. Finally, as with the pre-2007 Space Act Agreements at issue, the United States argues that
the European Union fails to identify any relevant benchmark to explain how post -2006 Space Act
Agreements achieve an equilibrium that is more favourable to Boeing than comparable commercial
transactions. The European Union fails to take into account that Space Act Agreements do not
involve any funding by the U.S. Government 1216, sometimes involve payments by Boeing to NASA,
and include intellectual property terms that are not the same as those under the post -2006 NASA
procurement contracts. Accordingly, there is no basis for the Europea n Union's argument that
Space Act Agreements confer a benefit for the same reasons as the NASA contracts and
agreements. As Boeing contributes its own resources under Space Act Agreements, without
receiving any funding from NASA, the United States contends that there is a relationship between
the level of patent rights and the level of contribution to the research effort, and therefore, that
the post-2006 Space Act Agreements do not confer a benefit within the meaning of Articles 1.1(b)
of the SCM Agreement.1217
8.172. Certain of the third parties (Brazil, Japan, and Korea) make arguments regarding the
existence of a benefit within the meaning of Article 1.1(b) of the SCM Agreement. These
arguments are summarized in Section 8.1.2 above.
8.2.2.4.2 Evaluation by the Panel
8.173. In this Section of the Report, we evaluate whether the following categories of post -2006
NASA aeronautics R&D measures, which we f ind to involve financial contributions within the
meaning of Article 1.1(a)(1) of the SCM Agreement, con fer a benefi t within the meaning of
Article 1.1(b):
a. post-2006 NASA procurement contracts and cooperative agreements included in annex A
of the United States ' Compliance Communication (these having been modified by the
NASA-Boeing Patent Licence Agreement t o grant a commercial use licence to NASA on
the terms explained in Section 8.1.3.2 above);
b. post-2006 NASA procurement contracts and cooperative agreements that have not been
modified by the NASA-Boeing Patent Licence Agreement; and
c. post-2006 Space Act Agreements.
8.174. In undertaking these evaluations, we first address the relevant approach that we should
take in determining whether the post -2006 NASA procurement contracts and cooperative

competitive bidding or negotiated prices, which ensure that the price paid by the government is the lowest
possible price offered by a willing supply contractor."
1214 United States' second written submission, para. 237.
1215 United States' first written submission, para. 255; second written submission, paras. 234-237.
1216 The United States points out that there are "a very limited number of funded SAAs, used by NASA's
space program to foster the development of commercial space transportation vehicles". (United States' second
written submission, fn 361).
1217 United States' first written submission, para. 257; second written submission, paras. 239-244.

agreements, both those that were modified by t he NASA-Boeing Patent Licence Agreement and
those that were not, confer a benefit.
8.175. The European Union argues that we should adopt the same benefit analysis that the
Appellate Body adopted in concluding that the original (pre -2007) NASA procurement contrac ts
and DOD assistance instruments conferred a benefit. The United States argues that the proper
standard for assessing whether a financial contribution confers a benefit depends on the nature of
the financial contribution, and in the case of the post -2006 NASA procurement contracts, the fact
that NASA was purchasing something in the transactions must play a role in the assessment of
benefit. The United States acknowledges that cooperative agreements are the only NASA
instruments that provide for the possibi lity of "joint funding" by NASA and participating private
entities, as well as non-cash in kind contributions.1218
8.176. We recall our previous conclusion that, for the reasons set forth in Section 8.2.2.3 of this
Report, the post -2006 NASA procurement contracts are properly characterized as collaborative
R&D arrangements on the basis of their relevant characteristics. 1219 Accordingly, we f ind in
Section 8.2.2.3.2 that the payments provided to Boeing through po st-2006 NASA procurement
contracts and cooperative agreements funded under the relevant NASA aeronautics R&D
programmes are financial contributions in the form of direct transfers of fund s within the meaning
of Article 1.1(a)(1)(i) of the SCM Agreement , while the provision of access NASA to facilities,
equipment, and employees through such instruments is a financial contribution in the form of a
provision of goods or services other than general infrastructure within the mea ning of
Article 1.1(a)(1)(iii) of the SCM Agreement.1220
8.177. In the original proceeding, the Appellate Body characterized the pre -2007 NASA
procurement contracts as collaborative R&D arrangements which involved financial contributions
within the meaning of Article 1.1(a)(1) of the SCM Agreement a nd then determined whether they
conferred a benefit by comparing the allocation of intellectual property rights under those
contracts with the allocations of intellectual property rights in private collaborative R&D
agreements which it treated as evidence of market practice in this regard. We recall that this is a
compliance proceeding. In these circumstances, we consider it incumbent upon this compliance
Panel to adopt the same approach to determining whether the post -2006 NASA procurement
contracts and cooperative agreements confer a benefit as the Appellate Body took to determining
whether the similarly characterized pre -2007 NASA procurement contracts at issue in the original
proceeding conferred a benefit.
8.178. We will therefore evaluate whether the financial contributions provided through the post-
2006 NASA procurement contracts confer a benefit by comparing the allocation of rights to own
and use patents between NASA and Boeing under post-2006 NASA procurement contracts with the
evidence before us concerni ng the allocation of such rights in collaborative R&D arrangements
between market actors. We will evaluate whether the financial contributions provided through the
cooperative agreements confer a benefit in th e same way, considering that transactions under
these arrangements are also most appropriately characterized as collaborative R&D arrangements,
and given that NASA provides payments to Boeing under these arrangements as it does under
procurement contracts. We will also evaluate whether the financial contributions provided through
the post-2006 Space Act Agreements confer a benefit.
8.179. Unlike the characterization of the post -2006 NASA procurement contracts that we
conducted in connection with our evaluation of whether those measures involved financial
contributions, our consideration of whether the financial contributions provided through the NASA
procurement contracts confer a benefit requires us to distinguish between two sub -groups of
post-2006 NASA procurement contracts, owing to the fact that there are different intellectual

1218 United States' second written submission, fn 220 ("cooperative agreements are the only instruments
used by NASA that provide for 'joint funding,' and they did not represent a significant share of NASA's
payments to Boeing at any point from 1989 to the present"). NASA will provide funding under these
arrangements, except in the case of "no-cost extensions". See also NASA, Grant and Cooperative Agreement
Handbook, Part 1260, (November 2014), (Exhibit EU-1369); and United States Code of Federal Regulations,
Title 14, section 12.60.12(b).
1219 We rejected the United States' argument that post-2006 NASA procurement contracts are more
appropriately characterized as purchases of services.
1220 See paras. 8.103 and 8.157 above.

property allocations for certain post -2006 instruments that were modified by the NASA -Boeing
Patent Licence Agreement, and those that were not.1221
8.180. We begin by considering whether the post -2006 NASA procurement contracts that have
been modified by the NASA -Boeing Patent Licence Agreement (these instruments are listed in
annex A of the United States ' Compliance Communication and are listed in the appendix to the
NASA-Boeing Patent Licence Agreement), confer a benefit within the meaning of Article 1.1(b). We
then conduct a benefit determination with respect to the post -2006 NASA procurement contracts
and cooperative agreements that have not been modified by the NASA -Boeing Patent Licence
Agreement, followed by the post -2006 Space Act Agree ments, which also have not been modified
by the NASA-Boeing Patent Licence Agreement.
8.2.2.4.2.1 Post-2006 NASA procurement contracts and cooperative agreements that
have been modified by the NASA-Boeing Patent Licence Agreement
8.181. We find in Section 8.1.3 of this Report that the grant to NASA of commercial use rights in
respect of Boeing-owned patents under the pre -2007 NASA procurement contracts 1222 effected by
the NASA -Boeing Patent Licence Agreement has not brought those instruments into li ne with
prevailing market practices for collaborative R&D arrangements in such a way as to remove the
benefit that the Appellate Body had found was conferred through the pre -2007 NASA procurement
contracts in the original proceeding. 1223 The analysis in Secti on 8.1.3 underlying this finding with
respect to the pre-2007 NASA procurement contracts and cooperative agreements modified by the
NASA-Boeing Patent Licence Agreement applies equally to the post -2006 NASA procurement
contracts that have been modified by the NASA-Boeing Patent Licence Agreement.
8.182. We therefore find that the financial contributions in the form of payments and
access to NASA facilities, equipment, and employees, provided through certain
post-2006 NASA procurement contracts and cooperative agreements that have been
modified by the NASA -Boeing Patent Licence Agreement, confer a benefit , within the
meaning of Article 1.1(b) of the SCM Agreement.
8.2.2.4.2.2 Post-2006 NASA procurement contracts and cooperative agreements that
have not been modified by the NASA-Boeing Patent Licence Agreement
8.183. We next evaluate whether other p ost-2006 NASA procurement contracts and cooperative
agreements that have not been modified by the NASA -Boeing Patent Licence Agreement (and
therefore, were not included in annex A of the United States ' Compliance Communication), confer
a benefit within the meaning of Article 1.1(b).
8.184. As explained above, the NASA -Boeing Patent Licence Agreement granted NASA, as
commissioning party, a limited commercial use licence in respect of Boeing -owned patents arising
from work performed by Boeing under the NASA procurement contracts and cooperative
agreements to which it applies. In Section 8.1.3.2 above, we conclude, based on our assessment
of the evidence of comparable private collaborative R&D agreements, and of the opinions of the
parties' respective technology licensing experts, that Boeing as commissioned party under the
modified NASA procurement contracts, remains in a more favourable positi on as regards its ability
to commercially exploit Boeing -owned patents than the commissioned parties under the private
collaborative R&D agreements.
8.185. The "unmodified" post-2006 NASA procurement contracts and cooperative agreements do
not grant NASA a comme rcial use licence in respect of Boeing -owned patents. Boeing therefore
has a more extensive ability to commercially exploit its patents under these arrangements than it
has under the pre -2007 NASA procurement contracts and cooperative agreements and those

1221 At para. 3 of its Compliance Communication, the United States advises that, in addition to modifying
the rights accorded to the parties under the contracts covered by the DSB recommendations and rulings to
make them consistent with commercial practice, "NASA has made identical modifications, as necessary, with
regard to contracts subsequent to those covered by the recommendations and rulings of the DSB, without
prejudice to the U.S. view that those contracts were not subsidies causing adverse effects to the
European Union's interests. These contracts are also listed in Annex A."
1222 See fn 972 above.
1223 See para. 8.49 above.

post-2006 NASA procurement contracts that have been modified by the NASA -Boeing Patent
Licence Agreement. Given that we conclude that the pre -2007 NASA procurement contracts and
those post-2006 NASA procurement contracts that have been modified by the NASA -Boeing Patent
Licence Agreement, confer a benefit on Boeing, logically we must also conclude that the post -2006
NASA procurement contracts and cooperative agreements that have not been modified to grant
NASA a commercial use licence, confer a benefit.
8.186. This conclusion is also consistent with the Appellate Body's finding that the pre -2007 NASA
procurement contracts in the original proceeding, which contain the same allocation of rights in
respect of patents as the "unmodified", post -2006 NASA procurement co ntracts and cooperative
agreements now before us, involved a more favourable allocation of intellectual property rights to
Boeing as commissioned party than the allocations to commissioned parties under [***] and
therefore conferred a benefit on Boeing.
8.187. We therefore find that the financial contributions in the form of payments and the
access to NASA facilities, equipment, and employees provided to Boeing through the
post-2006 NASA procurement contracts and cooperative agreements that have not been
modified by the NASA -Boeing Patent Licence Agreement confer a benefit within the
meaning of Article 1.1(b) of the SCM Agreement.
8.2.2.4.2.3 Space Act Agreements
8.188. We next consider whether the financial contributions provided through non -reimbursable
and partially-reimbursable Space Act Agreements entered into between NASA and Boeing confer a
benefit within the meaning of Article 1.1(b) of the SCM Agreement .1224 Based on the
parties' arguments, the principal issue before us is whether the benefit analysis in respect of NASA
procurement contracts and DOD assistance instruments is also applicable to Space Act
Agreements, or whether Space Act Agreements are sufficiently distinct as to warrant a different
analysis of whether the transactions under those instruments confer a benefit. If a different
analysis is required, the European Union has not provided evidence of relevant commercial
benchmarks, and we would have no basis to conclude that Space Act Agreements confer a benefit.
8.189. Unlike NASA procurement contracts and cooperative agreemen ts, and as set forth in
Section 8.2.2.2.3, NASA does not make payments to Boeing under Space Act Agreements. 1225
However, transactions under Space Act Agreements share a number of features with transactions
under NASA procurement contracts. Under both NASA procurement contracts and Space Act
Agreements, Boeing is provided with access to NASA facilities, equipment, and employees , and
Boeing also participates by providing in-kind contributions. In addition, the allocation of intellectual
property rights and data rights is an important aspect of the terms of both NASA procurement
contracts and Space Act Agreements. We f ind that the transactions under NASA procurement
contracts and under Space Act Agreements are both properly characteri zed as collaborative R&D
arrangements, wherein the access to NASA facilities, equipment, and employees that is provided
to Boeing constitutes a financial contribution as a provision of goods or services other than general
infrastructure, within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.1226 In the case of
Space Act Agreements, although Boeing does not receive payments in exchange for its
contribution, Boeing is not required to fully reimburse NASA for any such access to facilities,
equipment a nd personnel provided by NASA under non -reimbursable and partially -reimbursable
Space Act Agreements. Taking into account these similarities, we do not consider that the fact that
NASA does not make payments to Boeing under Space Act Agreements of itself w arrants a
different approach to determining benefit from that adopted with respect to the NASA procurement
contracts. The fact remains that Boeing may nevertheless advance its R&D activities and
commercial objectives through the commercial use rights that it retains (e.g. title to inventions
where these are made by Boeing employees or jointly by NASA employees and Boeing employees,
as well as rights to data) , in addition to contributing to NASA's particular mission or programme

1224 As explained in Section 8.1.3.3 above, our assessment here of whether the financial contributions
confer a benefit covers both pre-2007 and post-2006 Space Act Agreements.
1225 NASA has determined that Space Act Agreements are not "procurement contracts", agreements,
understandings or other arrangements, within the meaning of Section 305(j) of the Space Act (NASA, Space
Act Agreements Guide, NAII 105-1A, (15 August 2008), (Exhibit USA-469), p. 50 and fn 42). See also
United States Code, chapter 35, section 201(b), and chapter 42, section 2457(j).
1226 See Section 8.2.2.3.2.1 above.

objectives. We therefore cons ider that our approach to determining whether the NASA
procurement con tracts and cooperative agreements confer a benefit is also applicable to our
assessment of benefit with respect to the non -reimbursable and partially -reimbursable Space Act
Agreements before us.
8.190. As explained in Sections 8.1.3, 8.2.2.4.2.1, and 8.2.2.4.2.2 above, based on our review of
commercial R&D arrangements, which the parties have submitted as evid ence of relevant "market
benchmarks"1227, we conclude that [***]. Based on a comparison of the allocation between NASA
and Boeing of the rights to own and use patents arising from work performed under NASA
procurement contracts and cooperative agreements, wit h the allocations of such rights under a
number of private collaborative R&D arrangements, we conclude that the allocation of patent
rights under the NASA procurement contracts remains more favourable to Boeing as commissioned
party than the corresponding allocations to commissioned parties under the private collaborative
R&D agreements before the Panel, and accordingly, that the financial contributions provided
through NASA procurement contracts and cooperative agreements confer a benefi t within the
meaning of Article 1.1(b).1228
8.191. We recognize that the distribution of intellectual property and related licence rights under
the Space Act Agreements before us is not necessarily identical to that under NASA procurement
contracts and cooperative agreements. Accordin g to the Space Act Agreements Guide , published
by NASA and submitted as evidence in this proceeding, NASA elects to determine how rights to
patents for inventions are allocated on a case -by-case basis, depending on whether work is likely
to lead to inventions, and whether work is being performed "for NASA", or is not being performed
for NASA.1229
8.192. If a nongovernmental contracting party performs work that is determined to be of an
inventive type for NASA, the contracting party may obtain title to inventions it makes through an
advance or an individual waiver, and NASA retains a government purpose licence in the
invention.1230 NASA indicates that "NASA liberally grants such waivers for the purpose of
commercializing the waived invention" 1231, including for work that in volves design, engineering,
development, research or experimental work. 1232 If a nongovernmental contracting party is
determined not to perform work of an inventive type for NASA, NASA obtains no rights in
inventions made solely by the contracting party. NASA indicates that, "most {Space Act
Agreements} do not involve work of an inventive nature being performed by the partner for
NASA".1233
8.193. We observe that, in either of these circumstances, the fundamental balance of rights to
own and use intellectual property re mains more favourable to Boeing than the corresponding
allocations to commissioned parties under the private collaborative R&D agreements before the
Panel. In the case of work that is deemed to be of an inventive type and is conducted for NASA,
through the grant of an advance or individual waiver, the allocation of intellectual property rights
between Boeing and NASA is similar to the allocation of intellectual property rights under NASA
procurement contracts and other R&D contracts to which the Bayh -Dole r egime applies. In the
case of work that is determined not to be performed for NASA, NASA obtains no rights in
inventions made solely by the contracting party . Other evidence before us indicates that each
party retains the rights to its own intellectual property that is conceived in the course of work, and
in the case of joint inventions, allocations of rights jointly belong to NASA and the contracting

1227 These private R&D agreements include Contracts A through F which were also submitted in the
original proceeding and a number of other private, commercial collaborative R&D agreements. Our evaluation
of the allocation of intellectual property rights and rights resulting therefrom (i.e. licence rights) under these
collaborative R&D arrangements is set out in a BCI Appendix (Appendix 1).
1228 See paras. 8.181 and 8.185-8.187 above.
1229 NASA, Space Act Agreements Guide, NAII 105-1A, (15 August 2008), (Exhibit USA-469), pp. 50 and
51 (emphasis original).
1230 NASA, Space Act Agreements Guide, NAII 105-1A, (15 August 2008), (Exhibit USA-469), pp. 50 and
51.
1231 NASA, Space Act Agreements Guide, NAII 105-1A, (15 August 2008), (Exhibit USA-469), p. 50 and
fn 43 (referring to Executive Order 12591, section 1, para. (b)(4)).
1232 NASA, Space Act Agreements Guide, NAII 105-1A, (15 August 2008), (Exhibit USA-469), fn 42.
1233 NASA, Space Act Agreements Guide, NAII 105-1A, (15 August 2008), (Exhibit USA-469), p. 51.
NASA explains that, while it generally acquires no rights to any invention made solely by the partner, it may
negotiate a licence to use a partner invention for research, experimental and evaluation purposes. (NASA,
Space Act Agreements Guide, NAII 105-1A, (15 August 2008), (Exhibit USA-469), p. 52).

party, wherein NASA may retain a royalty -free, government purpose licence in respect of
jointly-owned inven tions.1234 Although the balance of intellectual property rights in these
circumstances is not identical to that which applies under the Bayh -Dole regime, the fundamental
balance of intellectual property rights nevertheless remains one in which the U.S. Govern ment
lacks the right to obtain an exclusive licence in respect of Boeing -owned patents and thus,
Boeing's ability to commercially exploit its patents is not contingent on the U.S. Government's
election not to exercise exclusive rights to licence those pate nts for itself. The resulting allocation
is therefore still more favourable to Boeing than the allocation of intellectual property rights under
the private collaborative R&D agreements before the Panel.
8.194. We note finally, i n addition to a more favourable allocation of intellectual property rights
than is evidence d under private collaborative R&D agreements before the Panel, in terms of data
rights, c ontracting parties under non -reimbursable and partially -reimbursable Space Act
Agreements gain access to data t hat allows use for commercial purposes, and can prevent the
release of data for a periods of between one and five years. 1235 This differs from the rights in data
under NASA aeronautics R&D procurement contracts, where the U.S. G overnment receives
"unlimited rights data", which enables it to use data for its own purposes, bot h inside and outside
government.1236
8.195. Given that the allocation of patent rights and related licence rights is more favourable to
Boeing than the allocation of patent rights and related licenc e rights under the private
collaborative R&D agreements before the Pane l, and that Boeing may additionally request that
NASA restrict access to data that allows use for commercial purposes, we conclude that the
financial contributions under NASA Space Act Agreements confer a benefit.
8.196. Based on the foregoing, we therefore find that, notwithstanding the fact that NASA does
not make payments to Boeing under the challenged Space Act Agreements, and that Boeing may
contribute funds in addition to in -kind contribu tions under partially -reimbursable Space Act
Agreements, the Space Act Agreements achieve an equilibrium that is more favourable to Boeing
than comparable commercial transactions, specifically the private collaborative R&D agreements
before the Panel.
8.197. Accordingly, we find that the financial contributions in the form of the access to
NASA facilities, equipment, and employees provided to Boeing through the pre-2007 and
post-2006 NASA Space Act Agreements before us confer a benefit, within the meaning of
Article 1.1(b) of the SCM Agreement. Therefore, we also find that by not amending the
terms of the pre -2007 Space Act Agreements that were found to constitute actionable
subsidies in the original proceeding the United States has failed to withdraw the
subsidy, within the meaning of Article 7.8.

1234 A contracting party may also obtain a royalty-bearing, commercial use license to NASA employee
inventions or NASA's interest in any invention made jointly. See e.g. Space Act Agreement SAA1-1126
(formerly Exhibit US-13-273), (Exhibit EU-203) (BCI), p. 7; Agreement between NASA and Boeing for
Aerospace Structures and Materials Research and Development, SAA1-757 (December 2005), (Exhibit
USA-82), pp. 3-6; and Agreement between NASA and Boeing for Continued Software development of P-Beat
(processes-Based Economic Analysis Tool), SAA3-1026 (June 2009), (Exhibit USA-50) (BCI), pp. 4-8.
1235 See United States' first written submission, para. 214 ("{e}ach party typically takes the data rights
its needs, with NASA maintaining the right to publish any data and use data in its other research, while Boeing
has the right to preclude release of proprietary information for a fixed period of time"). The United States
refers to several examples: Space Act Agreement SAA1-1126 (formerly Exhibit US-13-273), (Exhibit EU-203)
(BCI), p. 7; Agreement between NASA and Boeing for Aerospace Structures and Materials Research and
Development, SAA1-757 (December 2005), (Exhibit USA-82), pp. 3-6; and Agreement between NASA and
Boeing for Continued Software development of P-Beat (processes-Based Economic Analysis Tool), SAA3-1026
(June 2009), (Exhibit USA-50) (BCI), pp. 4-8. See e.g. Space Act Agreement SAA1-1145, annex 1
(30 September 2011) (formerly Exhibit US-13-256), (Exhibit-EU-202) (BCI); Space Act Agreement SAA1-588,
annex 25 (19 January 2007) (formerly Exhibit US-13-436), (Exhibit EU-200) (BCI); Space Act Agreement
SAA3-1255, annex 1 (16 July 2012) (formerly Exhibit US-13-0163), (Exhibit EU-1036) (BCI); and Space Act
Agreement SAA1-1155, annex 2 (January 2012) (formerly Exhibit US-13-0156), (Exhibit EU-191) (BCI).
1236 The Appellate Body considered whether monetary contributions by Boeing to a joint research project
under DOD assistance instruments affected the net value obtained by the firm from the project, and thus
distorted the assessment of benefit. The Appellate Body nevertheless noted that findings by the panel did not
support the proposition that Boeing's contribution to the project meant that no benefit was conferred.
(Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 664).

8.2.2.5 Whether the subsidy is specific
8.2.2.5.1 Main arguments of the parties
8.198. The European Union argues that the subsidies provided through the post -2006 NASA
procurement contracts, cooperative agreements, and Space Act Agreements are specific within the
meaning of Article 2.1(a) or, alternatively, Article 2.1(c) of the SCM Agreement.1237
8.199. With regard to Article 2.1(a), the European Union relies on the original panel 's finding,
which was not appealed by the United States, that the NASA aer onautics R&D subsidies were
specific within the meaning of Article 2.1(a) by virtue of the explicit limitation of the scope of NASA
R&D activities to aeronautics and space and the fact that the primary users of NASA facilities were
aerospace-related. This finding continues to hold true for the original challenged measures and is
equally applicable to successor and other closely linked programmes at issue in this proceeding.
This is because all NASA programmes are carried out under the authority of the Space Act, which
continues to restrict the scope of the NASA R&D activities to aeronautics and these activities
pursue the same objectives that the original panel considered in making its finding of specificity
under Article 2.1(a).1238
8.200. In support of its argument under Article 2.1(c), the European Union asserts that Boeing 's
share of NASA aeronautics R&D funding and support is disproportionate to its share of the U.S.
economy and that NASA exercises discretion in granting these subsidies to Boeing.1239
8.201. The European Union rejects the argument of the United States that for purposes of the
specificity analysis under Article 2.1(a), "the subsidy" at issue is the allocation of rights in patents
on terms more favourable than in the market. 1240 The European Union submits that the subsidies
consist of payments and access to the government facilities, equipment, and employees provided
to Boeing by NASA , as well as the rights to technology (and the associated intellectual property)
developed with such funding and support provided to Boeing and the non -market benefit that
accrues from such financial contributions. The European Union explains, in this respect, that while
it considers the intellectual property rights distribution when evaluating the benefit conferred, the
"benefit" is not only the provision of intellectual property, but also the provision of payments, and
access to government facilities, equipment, and employees , "for less than what a market -based
actor would demand". The consideration of intellectual property rights distribution, and comparison
to intellectual property rights distribution in market benchmarks is "just a means to the end of
determining the existence of benefit from these financial contributions – it is not the 'benefit' of
the 'subsidy', in and of itself".1241
8.202. Thus, the European Union considers that the reasoning of the Appellate Body in the
original proceeding regarding the non -specificity of the allocation of patent rights as a
self-standing subsidy is not applicable to the assessment of specificity of the NASA procurement
contracts, cooperative agreements, and Space Act Agreements before this Panel. In this respect,
the European Union recalls the Appellate Body 's statement that its findings in connection with the
specificity of the allocation of patent rights, if considered to be a self -standing subsidy, "do not
traverse" the panel's findings related to the payments and access to NASA facilities, equipment,
and employees. The European Union alleges that the United States is now attempting to use the
Appellate Body 's findings to traverse the original panel 's findings, in exactly the way that the
Appellate Body cautioned that they could not be used. 1242 The E uropean Union denies the
United States' allegation that it has alleged a different subsidy with respect to NASA and DOD
aeronautics R&D funding and other support for aeronautics R&D from that in the original
proceeding and asserts that its claims address the exact same subsidies as were found to exist in

1237 European Union's first written submission, paras. 192-195.
1238 European Union's first written submission, paras. 192-194; second written submission,
paras. 319-321.
1239 European Union's first written submission, para. 195; second written submission, para. 322.
1240 European Union's second written submission, para. 324.
1241 European Union's second written submission, para. 328.
1242 European Union's second written submission, paras. 329-331.

the original proceedings, and the continuation of tho se subsidies through successor and closely
related aeronautics R&D programmes.1243
8.203. The United States argues that "the patent rights subsidy alleged by the European Union" is
not specific within the meaning of Article 2.1(a) of the SCM Agreement because it is available
under any government contract. 1244 The United States argues that the standard for determining
specificity under Article 2.1(a) of the SCM Agreement is whether access to the subsidy is
limited.1245 With respect to payments and the provision of access t o facilities, equipment, and
employees, the only benefit alleged by the European Union is that Boeing receives more
favourable rights in patents than would be the case if a commercial actor had funded the research.
8.204. In this regard, the United States argues that the European Union incorrectly characterizes
its claims as to the existence of a benefit with regard to NASA and DOD contracts and agreements.
The European Union has not argued "that NASA paid Boeing too much for the work Boeing
conducted and the intellectual property rights that resulted", or "that no market-based actor would
make payments, or provide facilities, equipment, and employees to obtain research results that
the market-based actor sought".1246 Rather, the European Union 's allegation of the ex istence of a
benefit is limited to the fact that Boeing receives more favourable rights in respect of patents than
would be the case if a commercial actor had funded the research. Thus, the specificity analysis
must be limited to Boeing 's allocation of rig hts in patents that is more favourable than under a
commercial transaction. 1247 The United States recalls that the Appellate Body indicated that a
subsidy provided through a particular program, considered separately, will not be considered
specific where multiple authorities implement the same measure.1248
8.205. The United States recalls that the Appellate Body in the original proceeding found that the
attribution of patent rights, if considered as a free -standing subsidy, is not specific because it is
available under any U.S. Government R&D contract by any agency, in any sector. 1249 The
United States considers that the Appellate Body 's statement that its findings with respect to
whether the allocation of patent rights , if considered as a subsidy by itself, was specific "do not
traverse the panel 's findings of specificity relating to the payments and other support provided
under the NASA USDOD contracts and agreements" is not germane to this proceeding because the
European Union is alleging a different financial contribution and benefit which requires a different
analysis of specificity.1250
8.206. The United States considers that the European Union 's contention that specificity exists
under Article 2.1(a) because access to the NASA aeronautics R&D programmes is limited to
entities that conduct aeronautics research does not address the standard established by the SCM
Agreement (whether access to the subsidy is limited) because the European Union has never
established or even claimed that NASA aeronautics R&D programmes taken as a who le are a
subsidy to Boeing.1251
8.207. The United States argues that the European Union's specificity claim under Article 2.1(c) of
the SCM Agreement fails for the same reasons. The European Union 's argument addresses NASA
research programmes and fails to provide e vidence as to access to the subsidy at issue i.e. the
allocation of patent rights common to all U.S. Government contracts.1252

1243 European Union's comments on United States' response to Panel question No. 28, para. 181.
1244 United States' first written submission, section 3.3.3.6.6.
1245 United States' first written submission, para. 260.
1246 United States' second written submission, para. 252. See also United States' first written
submission, paras. 259 and 260; and second written submission, paras. 248 and 255.
1247 United States' first written submission, para. 259; second written submission, paras. 248, 252, and
255.
1248 United States' second written submission, para. 269.
1249 United States' first written submission, para. 259. See also United States' second written
submission, paras. 245, 246, and 255.
1250 United States' first written submission, paras. 254 and 255.
1252 United States' first written submission, paras. 259-261 (referring to Appellate Body Report, US –
Large Civil Aircraft (2nd complaint), para. 799). See also United States second written submission, paras. 245,
246, and 255; response to Panel question No. 28, paras. 124-126; and comments on European Union's
response to Panel question No. 28, paras. 153-155.

8.2.2.5.2 Evaluation by the Panel
8.208. Article 2.1 of the SCM Agreement provides:
Article 2
Specificity
2.1 In order to determine whether a subsidy , as defined in paragraph 1 of Article 1,
is specific to an enterprise or industry or group of enterprises or industries (referred to
in this Agreement as "certain enterprises ") within the jurisdiction of the granting
authority, the following principles shall apply:
(a) Where the granting authority, or the legislation pursuant to which the granting
authority operates, explicitly limits access to a subsidy to certain enterprises, such
subsidy shall be specific.
(b) Where the granting authority, or the legisl ation pursuant to which the granting
authority operates, establishes objective criteria or conditions {*} governing the
eligibility for, and the amount of, a subsidy, specificity shall not exist, provided that
the eligibility is automatic and that such criteria and conditions are strictly adhered to.
The criteria or conditions must be clearly spelled out in law, regulation, or other
official document, so as to be capable of verification.
(c) If, notwithstanding any appearance of non -specificity resulting fro m the
application of the principles laid down in subparagraphs (a) and (b), there are reasons
to believe that the subsidy may in fact be specific, other factors may be considered.
Such factors are: use of a subsidy programme by a limited number of certain
enterprises, predominant use by certain enterprises, the granting of disproportionately
large amounts of subsidy to certain enterprises, and the manner in which discretion
has been exercised by the granting authority in the decision to grant a subsidy. {*} In
applying this subparagraph, account shall be taken of the extent of diversification of
economic activities within the jurisdiction of the granting authority, as well as of the
length of time during which the subsidy programme has been in operation.

{fn original}2 Objective criteria or conditions, as used herein, mean criteria or conditions which
are neutral, which do not favour certain enterprises over others, and which are economic in
nature and horizontal in application, such as number of employees or size of enterprise.
{fn original}3 In this regard, in particular, information on the frequency with which applications
for a subsidy are refused or approved and the reasons for such decisions shall be considered.

8.209. The first question raised by the parties ' arguments is whether the subsidies provided to
Boeing through: (a) the payments and access to NASA facilities, equipment, and employees under
the post-2006 NASA procurement contracts and cooperative agreements at issue ; and (b) access
to NASA facilities, equipment, and employees under the post -2006 Space Act Agreements , are
specific within the meaning of Article 2.1(a), i.e. whether "the granting authority, or the legislation
pursuant to which the granting authority operates, explicitly limits access to th e subsidy to certain
enterprises".
8.210. As to the meaning of "explicitly limits" in Article 2.1(a), the Appellate Body has explained
that "a subsidy is specific under Article 2.1(a) if the limitation on access to the subsidy to certain
enterprises is express, unambiguous, or clear from the content of the relevant instrument, and not
merely 'implied' or 'suggested"'.1253 It has also indicated that a "limitation on the access to the
subsidy (or the absence of one) may result from the legislation pursuant to which th e granting
authority operates or from pronouncements or other actions of the granting authority ".1254 An
analysis of whether "access to the subsidy" is explicitly limited must focus on whether the granting

1253 Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 372. See also
Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.190 and 7.192.
1254 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 757. See also para. 750
(explaining that the inquiry under Article 2.1(a) must examine "the legislation pursuant to which the granting
authority operates, or the express acts of the granting authority").

authority, or the legislation pursuant to which the g ranting authority operates, limits the eligibility
to receive the subsidy to certain enterprises. 1255 With regard to the term "certain enterprises", the
Appellate Body has observed that "the relevant enterprises must be 'known and particularized', but
not necessarily 'explicitly identified', and that they may have 'some mutual or common relation or
purpose', or 'degree of similarity'".1256
8.211. As explained by the Appellate Body, the starting point of an analysis of specificity is the
measure that has been determined to constitute a subsidy under Article 1.1 of the SCM
Agreement; namely, the financial contribution that confers a benefit. 1257 In this regard, the
parties' arguments on whether access to the subsidy is explicitly limited reflect differing positions
as to the nature of the subsidy at issue and the corresponding identification of the "legislation"
pursuant to which the "granting authority" operates1258, which frames the assessment of whether
access to the subsidy is explicitly limited to certain enterprises for purposes of Article 2.1(a).
8.212. The European Union argues that, for purposes of determining of whether access to the
subsidy is explicitly limited, the subsidy should be defined, in this case, as payments and the
provision of access to facilities, equipment, and employees on terms more favourable than
available in the market and that, as such, the subsidy is exactly the same subsidy, access to which
the original panel found to be explicitly limited. 1259 The United States argues that the subsidy
should be defined in terms of the allocation of rights in patents on terms more favourable than
available in the market and that, as such, the subsidy is the same subsidy , access to which the
Appellate Body found not to be explicitly limited in the original proceeding.1260
8.213. Before addressing this question of how the relevant subsidy should be defined in this case
in order to ensure a proper analysis of whether access to the subsidy is explicitly limited, we
briefly recall the relevant findings made in the original proceeding by th e panel and the Appellate
Body that are relied upon by the parties in support of their opposing views.
8.214. First, the original panel found that subsidies in the form of payments and access to NASA
facilities, equipment, and employees that NASA provided to Boe ing pursuant to the NASA
procurement contracts and agreements at issue were specifi c within the meaning of
Article 2.1(a).1261 In its assessment, the panel observed that:
In this case, the United States does not dispute that each of the eight aeronautics
R&D programmes at issue would, if found to provide subsidies within the meaning of
Article 1, be specific under Article 2.1(a) of the SCM Agreement. It is not in dispute
that the Space Act explicitly limits the scope of NASA 's R&D activities (i.e. to
aeronautics and space). It is also not in dispute that each of the eight programmes at

1255 See e.g. Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 368
("Article 2.1(a) thus focuses not on whether a subsidy has been granted to certain enterprises, but on whether
access to that subsidy has been explicitly limited. This suggests that the focus of the inquiry is on whether
certain enterprises are eligible for the subsidy, not on whether they in fact receive it"); and US – Large Civil
Aircraft (2nd complaint), para. 753 ("{t}his inquiry focuses not only on whether the subsidy was provided to the
particular recipient identified in the complaint, but focuses also on all enterprises or industries eligible to
receive that same subsidy").
1256 Appellate Body Report, US – Carbon Steel (India), para. 4.365. The Appellate Body has also stated
that "{a}ny determination of whether a number of enterprises or industries constitute 'certain enterprises' can
only be made on a case-by-case basis". (Appellate Body Report, US – Anti-Dumping and Countervailing Duties
(China), para. 373 (quoting Panel Report, US – Upland Cotton, para. 7.1142)). See also Appellate Body Report,
US – Washing Machines, paras. 5.220 and 5.221 (explaining that the notion of "certain enterprises" in
Article 2.2 of the SCM Agreement does not depend on the legal personality of the subsidy recipients).
1257 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 747.
1258 While an explicit limitation on access to the subsidy may also result from "pronouncements or other
actions of the granting authority". (Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 757),
our understanding is that the European Union bases its allegation that "access to the subsidy" is subject to an
explicit limitation on what it considers to be relevant legislative and regulatory provisions pursuant to which the
subsidy is granted.
1259 In this view, the relevant "legislation pursuant to which the granting authority operates" consists of
the relevant legislative and regulatory provisions that authorize, and define the objectives of, NASA 's
aeronautics and space R&D programmes.
1260 In this view, the relevant "legislation pursuant to which the granting authority operates" consists of
the legislative framework and implementing regulations governing the distribution of intellectual property
rights in U.S. Government R&D contracts.
1261 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1049.

issue involves R&D aimed at the "improvement of the usefulness, performance, speed,
safety, and efficiency of aeronautical and space vehicles".1262
8.215. Thus, the apparent basis for the panel's finding that access to the subsidy was explicitly
limited to certain enterprises was the existence of explicit limitations on the scope of NASA 's R&D
activities to aeronautics and space and the objectives pursued by NASA with these activities. 1263
The panel also rejected the United States ' argument that NASA's wind tunnel services were "used
by a wide range of industries across the U.S. economic spectrum ".1264 Having concluded that the
subsidies were specific under Article 2.1(a), the original panel d eclined to address the
European Union's alternative argument under Article 2.1(c) of the SCM Agreement.1265
8.216. Neither party appealed the original panel 's findings on specificity in respect of payments
and access to NASA facilities, equipment, and employees. The parties appealed different aspects of
the panel's findings on financial contribution and benefit. The Appellate Body upheld the panel 's
findings on financial contribution and benefit in relation to the challenged NASA aeronautics R&D
measures, albeit based on different reasoning.1266
8.217. Second, the question of specificity of the original NASA aeronautics R&D measures was
also considered in the original proceeding in respect of the European Communities' separate claim,
regarding the allocation of NASA and DOD paten t rights, when viewed independently from the
provision of payments and access to facilities, equipment, and employees , as a self -standing
subsidy.1267 In addressing this claim, the original panel concluded that the allocation of patent
rights, if assumed arguendo to be a self -standing subsidy, would not in any event be specific,
given that "the allocation of patent rights is uniform under all U.S. Government R&D contracts,
agreements, and grants, in respect of all U.S. Government departments and agencies, for all
enterprises in all sectors ".1268 The European Union appealed this finding, as well as the panel 's
interpretation of Article 2.1 of the SCM Agreement.1269

1262 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1045.
1263 We also note in this respect the panel's statement that the European Communities was correct in
observing that the United States had not responded to the European Communities argument that the NASA
aeronautics R&D measures at issue were specific under Article 2.1(a) "because they are explicitly limited to
certain enterprises that participate in aeronautics-related R&D". (Panel Report, US – Large Civil Aircraft (2nd
complaint), para. 7.1048).
1264 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1046 and 7.1047.
1265 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1049.
1266 As we have already described in Section 8.1.3, the Appellate Body found that the panel had not
made a proper comparison of the terms of the NASA procurement contracts (and DOD assistance instruments)
with the terms of a market transaction as required under Article 1.1(b), and that the panel's reasoning as to
whether the payments and access to facilities provided under the NASA procurement contracts conferred a
benefit could not be sustained. (Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 647).
The Appellate Body completed the analysis by determining whether the "disposition of intellectual property
rights under the NASA/USDOD measures at issue is consistent with what occurs in transactions between two
market actors". (Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 653). In the course of
undertaking this analysis, the Appellate Body expressed the view that "the allocation of intellectual property
rights is pre-determined under the US legal framework". (Appellate Body Report, US – Large Civil Aircraft (2nd
complaint), para. 661). It concluded, based on a comparison of the intellectual property rights terms of certain
contracts, which it had decided to treat as market benchmarks for purposes of completing the analysis, that
"transactions in the market result in an equilibrium that is more favourable to the commissioning party than in
the measures before us". (Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 662).
Consequently, it found that the funding and support provided under the NASA procurement contracts conferred
a benefit on Boeing, within the meaning of Article 1.1(b) of the SCM Agreement. (Appellate Body Report, US –
1267 See Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1276-7.1294, for a description
of the Bayh-Dole Act, its associated legislative instruments and implementing regulations, and accompanying
NASA-specific implementing regulations.
1268 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1276-7.1294. The panel found that
the U.S. Government has a general policy in place granting government contractors the option to retain title to
inventions that arise from a funding agreement with the U.S. Government, pursuant to the Bayh-Dole Act,
1983 Presidential Memorandum, the 1987 Executive Order, and the general and NASA-specific regulations.
(See Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1276-7.1294).
1269 On 1 December 2009, the Treaty of Lisbon amending the Treaty on European Union and the Treaty
establishing the European Community (done at Lisbon, 13 December 2007) entered into force. On 29
November 2009, the WTO received a Verbal Note (WT/L/779) from the Council of the European Union and the

8.218. The Appellate Body observed that there may have been "some overlap" in the relationship
between the European Communities' claim that payments and access to facilities, equipment, and
employees were subsidies, on the one hand, and its claim that the allocation of patent rights was a
self-standing subsidy, on the other. 1270 The Appellate Body proceeded to addres s the
parties' appeal of the panel 's finding on the basis that neither party had appealed the panel 's
approach to the potential overlap between the European Communities' claims; however, the
Appellate Body emphasized that "any findings {it} make{s} in conn ection to the specificity of the
allocation of patent rights do not traverse the Panel 's findings of specificity relating to the
payments and other support provided under the NASA/USDOD contracts and agreements".1271
8.219. While the Appellate Body expressed reserva tions regarding the panel 's use of arguendo
reasoning1272, it ultimately upheld the panel 's finding that the allocation of patent rights under the
challenged NASA contracts and agreements, if conceived as a separate subsidy, was not specific
within the meaning of Article 2.1(a). In particular, the Appellate Body:
a. Affirmed the panel 's assessment of whether the "patent rights " subsidies in question
were specific by reference to the legal framework that exists in the United States for the
allocation of patent ri ghts under U.S. Government R&D contracts and agreements and
pursuant to which NASA and DOD as granting authorities operate.1273
b. Focused on the legislative and regulatory framework regulating the allocation of patent
rights arising from R&D funded by the U .S. Government, which revealed that the
eligibility to receive the alleged "subsidy" is not limited to the class of enterprises that
conducts aerospace R&D, and thus concluded that there was no basis on which to find
that such a subsidy is explicitly limited t o certain enterprises and therefore specific
within the meaning of Article 2.1(a) of the SCM Agreement.1274
8.220. The Appellate Body reversed the panel for failing to address the European Union 's claim of
de facto specificity under Articles 2.1(c).1275
8.221. As noted above, the parties disagree on whether the subsidies at issue in this proceeding
are the same subsidies as those that were found to exist by the original panel and should be found
to be specific under Article 2.1(a) , based on the same analysis that led the origi nal panel to find
the original measures to be specific; or whether the subsidies at issue here are different, such that
the subsidies should be found to be non -specific, in accordance with the Appellate Body 's analysis
of the European Union 's separate claim with respect to the allocation of NASA and DOD patent
rights as a self-standing subsidy.
8.222. While we disagree with the European Union 's assertion that its claim in this proceeding
regarding the alleged post -2006 NASA aeronautics R&D subsidies concern s the e xact same
subsidies as were found to exist in the original proceedings and were found to be specific by the
original panel, we also do not accept the United States ' argument that the subsidies at issue are
the same subsidies found to be non -specific by the Appellate Body in the context of its analysis of
the European Communities ' challenge to the allocation of patent rights under all NASA and DOD
procurement and assistance instruments as a self-standing subsidy.

Commission of the European Communities stating that, by virtue of the Treaty of Lisbon, as of
1 December 2009, the European Union replaces and succeeds the European Community.
1270 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 726-728 and 740.
1271 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 730.
1272 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 741. The Appellate Body
expressed the view that the panel should have first determined whether a subsidy exists, stating that "the
assessment of specificity under Article 2.1 depends on how the subsidy was defined under Article 1.1, leaving
little, if any, room for the adoption of an arguendo approach". (Appellate Body Report, US – Large Civil Aircraft
(2nd complaint), para. 739).
1273 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 760.
1274 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 782, 788, and 789.
1275 The Appellate Body found that the panel's overall analysis was "incomplete and cannot be
sustained" because the panel chose not to address the European Union's claim of de facto specificity under
Articles 2.1(c) of the SCM Agreement. (Appellate Body Report US – Large Civil Aircraft (2nd complaint),
para. 793). Having reversed the panel, the Appellate Body stated that it was not persuaded that NASA or DOD
exercised discretionary authority with respect to the allocation of patent rights, or that the share of NASA
contracts and USDOD funding received by Boeing was disproportionate, to support a finding of specificity under
Article 2.1(c). (Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 799 and 800).

8.223. The measures challenged by the European Unio n in this proceeding are factually the same
type of measures as those challenged in the original proceeding i.e. payments and the provision of
access to facilities, equipment, and employees under NASA aeronautics R&D contracts and
agreements. However, we have found these measures to constitu te subsidies on a legal basis that
differs from the basis upon which the panel in the original proceeding found the measures to be
subsidies. In our view, this different legal characterization of the measures as subsidie s means
that in determining whether access to the subsidy is explicitly limited we cannot presume that the
finding of the original panel , that the original NASA aeronautics R&D subsidies were specific under
Article 2.1(a), is still applicable.
8.224. Particularly with regard to our finding on how the financial contributions at issue confer a
benefit on Boeing, we note that in the original proceeding the panel found a benefit on the basis
that "no private entity acting pursuant to commercial considerations, would provide payments (and
access to its facilities and personnel) to another commercial entity on the condition that the entity
perform R&D activities principally for the benefit and use of that other entity. At a minimum, it
would be expected that some form o f royalties or repayment would be required in the event that
the financial contributions were provided on such terms. "1276 In this proceeding, we have found
that the financial contributions provided under the NASA aeronautics R&D measures confer a
benefit on the basis that the allocation of rights to own and use patents under those measures is
more favourable to Boeing as commissioned part y than the allocation of rights to own and use
patents to commissioned parties under collaborative R&D agreements between p rivate parties. In
our view, the different basis on which we have determined in this proceeding that the payments
and access to NASA facilities, equipment, and employees provided through the NASA aeronautics
R&D measures constitute financial contribution s which confer a benefit means that we cannot
adopt the original panel 's finding of specificity regarding the original measures without first
examining whether such an approach remains appropriate.1277
8.225. However, we do not consider that, as argued by the United States, the fact that the focus
of our benefit analysis is the allocation of intellectual property rights logically leads to the
conclusion that the subsidy at issue should be defined as the allocation of intellectual property
rights on terms more favourab le than available in the market , and that for purposes of
determining whether access to the subsidy is limited , we must treat the Bayh -Dole Act, its
associated legislative instruments and implementing regulations as the relevant subsidy scheme.
Since a sub sidy within the meaning of Article 1 is defined in terms of financial contribution and
benefit, it stands to reason that both financial contribution and benefit must be taken into
consideration in an analysis of whether access to the subsidy is explicitly limited. Therefore, while
we agree that the nature of the benefit found to exist obviously is a key consideration in the
specificity analysis under Article 2.1(a), the question of whether access to the subsidy is explicitly
limited cannot always be answere d by focusing solely on the benefit. 1278 In our view, the
United States' argument fails to properly consider the benefit in relation to the financial
contribution and the particular context in which that financial contribution occurs.
8.226. We have characterized t he post -2006 NASA aeronautics R&D measures as collaborative
R&D arrangements between NASA and Boeing that have characteristics analogous to equity
infusions. In that context, we observed that the Appellate Body 's overall conclusion of the various
technical elements of the transactions at issue was that the nature of the relationship between
NASA and Boeing in the particular context was essentially one of partnership. We also noted that
the nature of the research commissioned by NASA to Boeing and the object ives pursued by NASA
indicate that NASA and Boeing are engaged in a collaborative enterprise, in pursuit of a common
goal.1279
8.227. In light of this particular characterization of the NASA aeronautics R&D measures, we
consider it appropriate to assess whether the financial contributions provide a benefit on the basis
of an examination of the allocation of intellectual property rights. As illustrated by our analysis of

1276 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1039.
1277 In this respect, we interpret the Appellate Body's statement, at paragraph 730 of its report, that any
findings it makes in connection with the specificity of the allocation of patent rights "do not traverse the Panel's
findings of specificity relating to the payments and other support provided under the NASA USDOD contracts
and agreements" particularly in light of footnote 1534, as a statement regarding the scope of the appeal.
1278 See also Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), paras. 377
and 378.
1279 See paras. 8.150 and 8.151 above.

benefit in relation to DOD procurement contracts, where we characterize the financial contributions
differently from our characterization of the NASA aeronautics R&D measures , we find that a focus
on the allocation of intellectual property rights as a basis to determine the existence of a benefit is
not appropriate. Thus, in the context of our charact erization of the DOD procurement contracts as
purchases of R&D services, the same allocation of patent rights that applies by virtue of the Bayh -
Dole Act and related legislative instruments and implementing regulations , would not result in the
measures in question being subsidies.1280
8.228. Because the role of the allocation of intellectual property rights in our analysis of whether a
measure constitutes a subsidy depends upon the particular context, we consider that , in
ascertaining whether access to the subsidy i s subject to explicit limitations, we cannot treat the
allocation of intellectual property rights on terms more favourable than available in the market as
being the relevant subsidy in and of itself. Therefore we disagree with the United States that the
measure can be characterized as a "patent rights subsidy ", which is the same subsidy that the
Appellate Body considered in its analysis of the European Union 's alternative claim regarding the
allocation of intellectual property rights as a self -standing subs idy. As a consequence, we also
disagree that the Bayh -Dole Act, its associated legislative instruments and other instruments and
implementing regulations, constitute the appropriate legislative and regulatory framework that we
must consider for purposes of determining whether the legislation pursuant to which the granting
authority operates explicitly limits access to the subsidy to certain enterprises.1281
8.229. We recall that the basis for the original panel 's finding of an explicit limitation of access to
the subsidy was the existence of restrictions on the scope of NASA 's R&D activities to aeronautics
and space and the particular objectives pursued by NASA with these activities. Thus, the original
panel found that the access to the subsidy was explicitly limited to "certain enterprises" because
the very nature of the research inherently limited access to the subsidy to "certain enterprises that
participate in aeronautics-related R&D".1282 In our view, access to the subsidy that we f ind to exist
in this proceeding in respect of the post -2006 NASA aeronautics R&D measures is subject to the
same explicit limitation. As the original panel found with respect to the pre -2007 measures, the
R&D activities performed under the relevant post -2006 NASA aeronautics R&D programmes are
focused on aeronautics and space. There is no argumentation or evidence before us to
demonstrate that NASA contracts with any enterprises, industry or group of enterprises or
industries to conduct R&D work outside the spectrum of aeronautical and spac e activities.
Moreover, the Space Act maintains the same objectives that the panel identified in the original
proceeding. The specific objectives under the Space Act include "{t}he improvement of the
usefulness, performance, speed, safety, and efficiency o f aeronautical and space vehicles ", "{t}he
preservation of the role of the United States as a leader in aeronautical and space science and
technology and in the application thereof to the conduct of peaceful activities within and outside
the atmosphere", and "{t}he preservation of the United States preeminent position in aeronautics
and space through research and technology development related to associated manufacturing
processes".1283
8.230. We conclude that the subsidies provided to Boeing through the post -2006 N ASA
procurement contracts, cooperative agreements, and Space Act Agreements are specific within the
meaning of Article 2.1(a) of the SCM Agreement. In light of this conclusion, we do not consider it
necessary to address the European Union's alternative argument under Article 2.1(c).
8.231. Therefore, the Panel finds that the subsidies provided to Boeing through the
post-2006 NASA procurement contracts, cooperative agreements, and Space Act
Agreements are specific within the meaning of Article 2.1(a) of the SCM Agreement.
8.232. Finally, we note that the European Union also argues that the subsidies provided to Boeing
through the post -2006 NASA procurement contracts, cooperative agreements and Space Act
Agreements are specific pursuant to Article 2.3 of the SCM Agreement. Article 2.3 provides that

1280 See paras. 8.420 to 8.426 below.
1281 Because of the need to consider financial contribution and benefit together in determining whether
"access to the subsidy" is explicitly limited, we consider that this is not a situation in which "multiple authorities
are implementing the same measure". (United States' second written submission, para. 246).
1282 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1048.
1283 Section 102(d) of the National Aeronautics and Space Act of 1958, as codified and restated by Public
Law No. 111–314, Stat. 3 (18 December 2010), United States Code, Title 51, section 20102(d) (current
through 7 December 2012), (Exhibit EU-252).

"{a}ny subsidy falling under the provisions of Article 3 shall be deemed to be specific". We reject
this argument because, in Section 10 of this Report, we find that the European Union has failed to
establish that any subsidy at issue in this proceeding is prohibited by Articles 3.1 and 3.2 of the
SCM Agreement.
8.2.2.6 Amount of the subsidy and amount of the financial contribution
8.2.2.6.1 The amount of the post-2006 NASA aeronautics R&D subsidies to Boeing
8.233. In the previous Section, we f ind that the post-2006 NASA aeronautics R&D measures are
specific subsidies within the meaning of Articles 1 and 2 of the SCM Agreement. As regards our
subsidy findings under Article 1 of the SCM Agreement, we find that:
a. the payments provided by NASA to Boeing unde r post-2006 procurement contracts and
cooperative agreements and the access to facilities, equipment, and employees provided
by NASA to Boeing under the post-2006 procurement contracts, cooperative
agreements, and Space Act Agreements , funded under four NA SA aeronautics R&D
programmes (the Fundamental Aeronautics Program; the Integrated Systems Research
Program; the Aviation Safety Program; and the Aeronautics Test Program) , are financial
contributions within the meaning of Article 1.1(a)(1) of the SCM Agreement; and
b. the foregoing financial contributions provided through the post -2006 procurement
contracts, cooperative agreements , and Space Act Agreements confer a benefit, within
the meaning of Article 1.1( b) of the SCM Agreement, because the allocation of
intellectual property rights and related licence rights under those instruments is more
favourable to Boeing as commissioned party than the allocations to commissioned
parties under the collaborative R&D arrangements that have been submitted to the Panel
as evidence of market benchmarks.
8.234. In this Section, we address the parties ' arguments regarding the amount of the post-2006
NASA aeronautics R&D subsidies provided to Boeing. The amount of the subsidy, in our view,
refers to the amount or magnitude of the ben efit conferred by the financial contribution; i.e. the
quantification of the advantage conferred on Boeing by the respective financial contributions,
compared to what Boeing would have obtained in a market transaction.1284
8.235. We also address the parties ' arguments concerning the amount of the financial
contribution, represented by the amount of payments and value of the provision of access to NASA
facilities, equipment, and employees under the relevant NASA aeronautics R&D subsidies. We
recall that in the origin al proceeding, the panel treated the full amount of the financial
contributions provided to Boeing as the amount of the "subsidy" to Boeing. It justified this on the
basis that it was not under an obligation to quantify precisely the amount of the subsidy, and
because the United States had advanced no argument or evidence to support an alternative
approach to calculating the amount of the subsidy to Boeing.1285 We do not consider that the same
justification applies in this proceeding. Notably, as explained in paragraph 8.237 below, the United
States in this proceeding does propose an approach to calculating the amount of the subsidy other
than treating the full amount of the financial contributions provided to Boeing as the amount of the
subsidy.
8.2.2.6.1.1 Main arguments of the parties
8.236. The European Union does not propose a specific estimate of the amount of the benefit
conferred by the payments and provision of access to NASA facilities, equipment, and employees
to Boeing under the NASA procurement contracts, cooperative agreements, and Space Act
Agreements funded through the challenged aeronautics R&D programmes. Rather, it argues that
the amount of the benefit is a "multiple" of the amount of the financial contribution. According to

1284 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 690 and 691 (explaining
that the original panel, in seeking to estimate the amount of funds transferred to Boeing under the relevant
NASA procurement contracts, as well as the value of Boeing's access to NASA facilities, equipment, and
employees under the NASA instruments, had been estimating the amount of the "financial contribution", rather
than the amount of the "benefit").
1285 See Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1101.

the European Union, NASA has no interest in using the intellectual property generated through its
relationship with Boeing. 1286 A commissioning party operating in the marketplace would, in that
position, require some financial return other than intellectual property rights from its investment,
for example , royalties or licence fees. 1287 The quantification of the benefit should therefore be
based on the value of the technology that Boeing, because of the subsidies, is able to access for
free, without paying royalties or licence fees. 1288 This can be assessed ex ante , in view of
expectations of the potential value of the technologies to be develop ed, and in light of past
experience.1289 The European Union considers that its reasoning is supported by the original
panel's statement that the aeronautics R&D subsidies "multiply the benefit from a given
expenditure".1290
8.237. The United States argues that the European Union improperly takes an ex post approach
to the valuation of the amount of the subsidy , by looking at what actually resulted from the
subsidy, rather than what Boeing initially received. 1291 Further, the United States argues that the
European Union confuses the issues of benefit and adverse effects; the original panel and
Appellate Body made clear that the effect of research spend ing pertains to the assessment of
adverse effects, and does not go to the valuation of benefit. 1292 Finally, the United States notes
that, given that the European Union argues that the NASA aeronautics R&D measures confer a
subsidy because the allocation of i ntellectual property rights under the instruments in question is
more favourable to Boeing as commissioned party than the corresponding allocations to
commissioned parties under market -based collaborative R&D arrangements, the amount of the
subsidy should, therefore, correspond to the value of that difference. 1293 This understanding of
what constitutes the benefit of the subsidy is inconsistent with the position that the value of the
benefit amounts to an unspecified multiple of the full amount of the financial contribution.1294
8.2.2.6.1.2 Evaluation by the Panel
8.238. As noted above, the amount of the subsidy corresponds to the amount or magnitude of the
benefit conferred by the financial contribution ; i.e. the difference between the terms on which the
financial contribution was provided to Boeing, and the terms on which the financial contribution
would have been provided to Boeing in a market -based transaction.1295 The Panel f inds that the
payments and provision of access to NASA facilities, equipment, and employees to Boeing throug h
the procurement contracts and cooperative agreements funded under the relevant aeronautics
R&D programmes, confer a benefit on Boeing because the allocation of intellectual property rights
and related licence rights under those instruments is more favour able to Boeing as commissioned
party than the corresponding allocations to commissioned parties under the private collaborative
R&D agreements before the Panel which evidence prevailing market practices for collaborative
R&D arrangements. Similarly, the provision of access to NASA facilities, equipment, and employees
to Boeing through the Space Act Agreements funded under the relevant aeronautics R&D
programmes confers a benefit because the allocation of intellectual property rights and related
licence rights under those instruments is more favourable to Boeing as commissioned party than
the corresponding allocations to commissioned parties under the private collaborative R&D
agreements before the Panel which evidence prevailing market practices for collabor ative R&D
arrangements. Accordingly, the amount of the benefit (and thus, the subsidy) must logically
correspond to the value of the difference between the terms regarding the allocation of intellectual
property rights and related licence rights on which t he financial contributions were provided to
Boeing under the NASA procurement contracts , cooperative agreements , and Space Act

1286 European Union's response to Panel question No. 26, para. 160.
1287 European Union's response to Panel question No. 26, paras. 160 and 161 (citing Razgaitis
Declaration, (Exhibit EU-1262) (BCI), paras. 56 and 104 and attachment B).
1288 European Union's response to Panel question No. 26, paras. 160 and 161 (citing Razgaitis
Declaration, (Exhibit EU-1262) (BCI), paras. 56 and 104, attachment B).
1289 European Union's response to Panel question No. 26, para. 162.
1290 European Union's response to Panel question No. 26, para. 163 (citing Panel Report, US – Large
Civil Aircraft (2nd complaint), para. 7.1760).
1291 United States' first written submission, para. 59.
1292 United States' comments on the European Union's response to Panel question No. 26, paras. 146
and 147 (citing Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1760); response to Panel
question No. 32, para. 142 (citing Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 641).
1293 United States' comments on the European Union's response to Panel question No. 26, para. 147.
1294 United States' comments on the European Union's response to Panel question No. 26, para. 147.
1295 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 691.

Agreements, and the terms regarding the allocation of intellectual property rights and related
licence rights under which the fin ancial contributions would have been provided in a market -based
collaborative R&D arrangement.
8.239. The European Union's argument as to how the benefit should be quantified is not based on
these notions of benefit and thus cannot yield a meaningful estimate of the amount of the NASA
aeronautics R&D "subsidy". It conflates the concept of benefit with the concept of effects of the
subsidy. The European Union uses certain statements from the original proceeding that "by their
nature, the aeronautics R&D subsidies 'multiply the benefit from a given expenditure '" in support
of its argument that the value of the benefit is a multiple of the value of the financial
contribution.1296 This and other statements of the Appellate Body to which the European Union
refers, however, were made in the context of the Appellate Body 's adverse effects findings, not its
benefit findings. There is nothing in the panel report or Appellate Body report in the original
proceeding, or in any other case of which we are aware, to support the noti on that the amount of
a subsidy (as opposed to its effects) is a multiple of the financial contribution.
8.240. There is insufficient evidence on the record as to the amount of the subsidy in the sense of
the advantage conferred on Boeing resulting from the diffe rence between the terms regarding the
allocation of intellectual property rights and related licence rights on which financial contributions
were provided to Boeing under the post -2006 NASA procurement contracts, cooperative
agreements, and Space Act Agree ments at issue and the terms regarding the allocation of
intellectual property rights and related licence rights on which financial contributions would have
been provided to Boeing in a market-based collaborative R&D arrangement.
8.241. In light of the foregoing , we are unable to accept the European Union 's arguments
regarding the amount of the benefit provided to Boeing through the post-2006 NASA procurement
contracts, cooperative agreements, and Space Act Agreements under the relevant aeronautics
R&D programmes. We therefore find that there is insufficient evidence on the record as to
the amount of the subsidy.
8.2.2.6.2 The amount of the financial contribution provided to Boeing through the NASA
aeronautics R&D subsidies
8.242. As previously noted, the European Union also pur ports to estimate the amount of the
financial contribution , in the sense of the value of the payments and access to facilities,
equipment, and employees provided to Boeing under the post -2006 NASA procurement contracts,
cooperative agreements, and Space Act Agreements.
8.2.2.6.2.1 Main arguments of the parties
8.243. The European Union estimates the amount of the payments and value of access to
facilities, equipment, and employees to Boeing under the post -2006 NASA procurement contracts,
cooperative agreements, and Space Act Agreements as USD 1.818 billion between 2007 -2012.1297
The United States estimates the amount of the financial contribution as [***] between
2007-2012.1298
8.244. In arriving at its estimate, the European Union takes the full amount of each of the
challenged NASA aeronautics R&D programme budgets that is dedicated to non -engine,
LCA-related R&D. 1299 From this total, made up of each challenged programme 's non -engine,

1296 European Union's first written submission, para. 191 (citing Appellate Body Report, US – Large Civil
Aircraft (2nd complaint), para. 945).
1297 The European Union provided an updated estimate of USD 2.554 billion between 2007 and 2014.
(NASA Subsidies to Boeing's LCA Division, (Exhibit EU-36), p. 1; and Subsidies to Boeing's LCA Division
(2013-2014 Update), (Exhibit EU-1451), p. 2). The European Union estimates that for the 2012-2014 period,
the amount of the financial contribution was approximately USD 1.12 billion (USD 384.5 million,
USD 348.5 million, and USD 387.2 million in 2012, 2013, and 2014, respectively).
1298 This figure covers not only those payments, access to facilities, equipment, and employees provided
pursuant to post-2006 contracts and Space Act Agreements, but also those provided after 2006, but pursuant
to pre-2007 contracts and Space Act Agreements. (See United States' second written submission, paras. 104
and 641 and fn 111).
1299 European Union's first written submission, para. 178; and NASA Subsidies to Boeing's LCA Division,
(Exhibit EU-36).

LCA-related budget, plus a share of NASA 's Cross Agency Support Program (CASP) budget1300, the
European Union then allocates a portion to Boeing using a ratio determined by dividing the number
of Boeing commercial aircraft sales by the total number of civil aircraft sales in the United States in
the relevant period.1301
8.245. The European Union considers that this estimat e is the "best available evidence " of the
value of the payments and provision of access to NASA facilities, equipment, and employees,
because the United States failed to cooperate in providing information that would have been
necessary to replicate the val uation method used by the original panel. The Euro pean Union
argues that a contract-by-contract analysis is not possible because the United States has failed to
provide a "full set of un -redacted NASA contracts and agreements funded through the NASA R&D
programmes at issue". 1302 The European Union explains that it is not possible or appropriate to
determine the existence or value of the NASA aeronautics R&D subsidies on a
"contract-by-contract" basis in any case because, aside from the flaws in the United Stat es'
compilation and provision of NASA contract data, the "extent of the subsidisation is not captured
by the NASA contracts and agreements, which massively under -identify the value of the access to
NASA facilities, equipment, and employees provided to Boei ng for LCA -related R&D ".1303 While
contracts and Space Act Agreements establish the particular mechanisms by which NASA provides
subsidies, the amount of the subsidy cannot only be found "within the four corners of these
instruments".1304 This is because, throughout the course of their collaborative relationship, Boeing
benefits from the investments NASA makes in its own physical and human capital, which do not
appear on the face of a particular contract or Space Act Agreement and cannot be quantified from
a single payments or use of property. 1305 The United States ' estimate ignores this, and therefore
"massively undercounts " the real value of the financial contribution by not recogni zing the
collaborative, iterative nature of NASA and Boeing's R&D efforts.1306
8.246. The United States arrives at its estimate of the amount of the financial contribution s
involved in the NASA aeronautics R&D subsidies by combining the estimated value of the
categories of "funding" and "support" that the European Union alleges constitute fin ancial
contributions: payments and the provision of access to equipment, facilities (including computer
usage) and NASA employees.1307 The United States estimates that the amount of payments to
Boeing under procurement contracts between 2007 and 2012 for non -engine aeronautics R&D is
[***]1308 and that, based upon the amounts waived in reimbursement, the value of access to
facilities, equipment , and employ ees provided to Boeing under Space Act Agreements over the

1300 The European Union determines this share by allocating to Boeing a percentage of the CASP budget
that is equivalent to the percentage of each's programme's non-engine, LCA related funding. (See European
Union's second written submission, para. 178; comments on the United States' response to Panel question
No. 99, paras. 262-270; and NASA subsidies to Boeing's LCA Division, (Exhibit EU-36)).
1301 The European Union argues that NASA's CASP programme constitutes "institutional support" to
Boeing. (European Union's first written submission, para. 178; and NASA Subsidies to Boeing's LCA Division,
(Exhibit EU-36), pp 3-9). The number of U.S. civil aircraft sales is provided in Aerospace Industries Association,
"2012 Year-End Review and Forecast, Aerospace Industry Sales by Product Group (Current Dollars), Calendar
Years 2002-2013", available at:
<http://www.aia-aerospace.org/assets/YE_2012_Table_1_Industry_Sales_by_Product_Group_(1).pdf>,
accessed 29 August 2016, (Exhibit EU-526). The number of Boeing sales is provided in Boeing, Annual Form
10-K Report to the U.S. Securities and Exchange Commission for the Fiscal Year Ending 31 December 2011,
(Exhibit EU-488).
1302 European Union's response to Panel question Nos. 88, para. 81, and 89, para. 97. By contrast, in its
first written submission, the European Union said that the required information was the amounts paid to all
contractors under the challenged NASA aeronautics R&D programmes, which the original panel had subtracted
from the total NASA programme budgets in order to determine the total value of facilities, equipment, and
employees provided under the programmes. (European Union's first written submission, para. 179 and fn 423).
1303 European Union's response to Panel question No. 89, para. 97.
1304 European Union's second written submission, para. 262.
1305 European Union's second written submission, paras. 260-265; response to Panel question No. 89,
para. 100; and comments on the United States' response to Panel question No. 100, paras. 272-275. See also
European Union's comments on the United States' response to Panel question Nos. 97, paras. 252 and 253 (in
relation to the value of Boeing's use of High-End Computing Capability Project supercomputer), and 100, para.
285 (in relation to Space Act Agreement and the value of Boeing's access to NASA employees).
1306 European Union's second written submission, paras. 263-265; response to Panel question No. 89,
para. 97; and comments on the United States' response to Panel question No. 100, para. 285.
1307 United States' second written submission, paras. 111-123.
1308 United States' second written submission, para. 111; Obligations under NASA contracts with Boeing
for FY 2007-FY 2012 (formerly Exhibit US-13-1), (Exhibit USA-37) (BCI).

same period is [***].1309 The United States estimates that the value of access to equipment and
computers provided to Boeing under NASA procurement contracts is [***]1310 and [***]1311
respectively. Finally, the United States estimates that the value of access to NASA employees
provided to Boeing under NASA procurement contracts is [***].1312 The total value of these
financial contributions is [***].
8.247. The United States argues that its evidence, which was submitted in response to the Panel's
request for information pursuant to Article 13 of the DSU , is the only reliable evid ence as to the
amount of the financial contribution. 1313 It consider s that the European Union has not
demonstrated a failure on the part of the United States to cooperate , or to respond to
questions.1314 The United States also emphasi zes that the original panel and the Appellate Body
ultimately endorsed the United States' methodology for calculating the amounts of the aeronautics
R&D subsidies .1315 The United States argues that the European Union 's "top-down" valuation
methodology "grossly overstates" the value of t he financial contribution, and was rejected in the
original proceeding. 1316 In response to the European Union 's argument that Boeing receives
"significant value " beyond the face -value of individual contracts , agreements , or Space Act
Agreements, the United St ates argues that the value of access to a facility or piece of equipment
to Boeing consists solely of the value of the use of that facility or equipment. 1317 With respect to
employees, the United States argues that Boeing has access to NASA employees for a li mited
period of time only, and the value of this access is reflected in its reported figures. 1318 The
United States emphasi zes that since the European Union frames the financial contribution as
specific transactions between NASA and Boeing, the amount of the financial contribution must be
limited to those transactions; i.e. the value of specific payments, and access to facilities,
equipment, and employees as provided through the relevant instruments, and funded under the
relevant programmes.1319
8.248. The United States also considers that the European Union improperly includes a portion of
the CASP budget in its estimate of the financial contribution, since, not having challenged that
NASA aeronautics R&D programme, it is outside the Panel's terms of reference. 1320 Further, the
United States notes that the European Union does not actually include payments made to Boeing
through CASP, but rather allocates a percentage of the CASP budget to Boeing, based on the
percentage of other, challenged NASA aeronautics R&D programmes that the European Union
allocates to Boeing. The United States does not consider that an allocation determined in this way
constitutes a proper calculation of the amount of financial contribution under Article 1.1(a)(1).1321

1309 United States' first written submission, para. 113, 198; second written submission, para. 118; and
NASA SAAs with Boeing (formerly Exhibit US-13-2), (Exhibit USA-60) (BCI).
1310 United States' second written submission, para. 119; and Equipment provided under NASA contracts
and agreements (revised 1 December 2014), (Exhibit USA-271) (BCI).
1311 United States' first written submission, paras. 113 and 200; and Boeing use of NASA computers,
2007-2012, (Exhibit USA-270) (BCI) (the United States incorrectly refers to his exhibit to as Exhibit USA-248
at fn 167, para. 113 of its first written submission). The United States filtered data from monthly usage reports
prepared by NASA's Advanced Supercomputing Division, to show the Standard Billing Units used by the
projects associated with Boeing. The values assigned to Standard Billing Units each year are those NASA uses
for internal budgeting purposes. See United States' response to Panel question No. 100, para. 184; and
Equipment provided under NASA contracts and agreements (revised 1 December 2014), (Exhibit USA-271)
(BCI).
1312 United States' second written submission, para. 121; and Estimate of NASA's Employee Time in
Support of Contracts with Boeing, (Exhibit USA-321) (BCI).
1313 United States' second written submission, section II.A.1.a.
1314 United States' first written submission, paras. 45-48.
1315 United States' second written submission, paras. 112 and 114; comments on the European Union's
response to Panel question No. 89, paras. 107 and 108.
1316 United States' second written submission, para. 123 (citing Panel Report, US – Large Civil Aircraft
(2nd complaint), para. 7.1104).
1317 United States' second written submission, para. 115; comments on the European Union's response
1318 United States' second written submission, para. 122; comments on the European Union's response
1319 United States' response to Panel question No. 99, para. 180.
1320 United States' response to Panel question No. 99, para. 178.
1321 United States' response to Panel question No. 99, para. 180.

8.2.2.6.2.2 Evaluation by the Panel
8.249. The parti es' estimates of the amount of the financial contribution provided through the
post-2006 NASA aeronautics R&D subsidies differ significantly because they are based on
fundamentally different methodologies. As in the original proceeding, the European Union takes a
"top-down" approach, based on total budgeted costs of the NASA aeronautics R&D programmes
through which the NASA procurement contracts, cooperative agreements, and Space Act
Agreements with Boeing are funded, and Boeing 's share of the U.S. civil ai rcraft industry
(represented by Boeing commercial airplane sales as a percentage of sales of U.S. civil aircraft
products and services). The United States takes a "bottom-up" approach, which values the
aggregate payments made, and the provision of access to facilities, equipment, and employees, to
Boeing through the individual procurement contracts, cooperative agreements, and Space Act
Agreements funded under the relevant NASA aeronautics R&D programmes.
8.250. In the original proceeding, the European Communities estimated the amount of the
financial contribution provided through the NASA aeronautics R&D subsidies to be USD 10.4 billion
between 1989 and 2006, of which USD 3 billion was allocated to the 2004 -2006 period.1322 The
United States, by contrast, estimated the amount in question as "less than" USD 855 million. 1323
The panel ultimately concluded that the amount of payments and access to NASA facilities,
equipment, and employees provided by NASA to Boeing through the NASA procurement contracts
and Space Act Agreements between 1989-2006 was approximately USD 2.6 billion.1324 The original
panel based this estimate on the methodology employed by the United States. 1325 This
"bottom-up" methodology estimates the aggregate values of individual payments, and access to
facilities, equipment, and employees provided to Boeing by NASA through the NASA procurement
contracts and Space Act Agreements funded under the challenged aeronautics R&D programmes.
8.251. As explained above, the United States' estimate of the amount of the financial c ontribution
covers the transactions that correspond to those found to constitute financial contributions:
payments under NASA procurement contracts and cooperative agreements; the provision of access
to NASA equipment and facilities (including computer usa ge) and employees under NASA
procurement contracts and cooperative agreements; and the provision of access to NASA facilities
equipment and employees under Space Act Agreements . While the methodology that the
United States uses to determine the value of pa yments mirrors that adopted by the original panel,
the methodology for estimating the other types of transactions differs somewhat. In the original
proceeding, owing to the incompleteness of data concerning the value of access to NASA facilities,
equipment, and employees, the panel (at the United States' suggestion) estimated the value of
such access based on Boeing's share of overall payments made under the challenged NASA
aeronautics R&D programmes. 1326 By contrast, the United States ' evidence in this procee ding,
submitted in response to the Panel 's request for information pursuant to Article 13 of the DSU, is
more extensive, and the United States argues that it can form the basis of the Panel 's estimate of
not only payments, but also the value of Boeing 's ac cess to NASA facilities, equipment, and
employees. The European Union nonetheless maintai ns its position that the
United States' evidence is unreliable and cannot form the basis of the Panel's estimate of the value
of any of the categories of financial contribution that it identifies.
8.252. We therefore evaluate the European Union 's sp ecific criticisms of the
United States' evidence in detail, to ascertain whether we agree that flaws in the United States'
evidence are such that the United States' estimate cannot form the basis for the Panel's estimate
of the amount of the financial contribution.
Evidence regarding the amount of payments under NASA procurement contracts and
cooperative agreements
8.253. The evidence on which the United States relies for its estimate of t he value of payments
under procurement contracts and cooperative agreements is contained in Exhibits US-13-1 and

1322 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1050.
1323 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1054.
1324 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1110.
1325 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1081.
1326 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1094 and 7.1095.

USA-37.1327 Exhibit US-13-1 contains a list of NASA Contracts and Cooperative Agreements which
was compiled in response to Questions 5 and 7 of th e Panel's request for information pursuant to
Article 13 of the DSU, which sought:
{A} list of all NASA contracts involving Boeing under the programs listed below that
were entered into or that have provided funding and support from FY 2006 – present.
…
 Fundamental Aeronautics
 Aviation Safety
 Integrated System Research
 Aeronautics Strategy and Management
 Aeronautics Test Program
 High End Computing
 Strategic Capabilities Assets Program1328

…

{A} list of all grants or cooperative agreements involving Boeing un der the programs
listed in question 5 or relating to NASA assets provided (i.e., managed) or funded
under those programs, that were entered into or that have provided funding and
support from FY 2006-present.1329

8.254. To generate the list of procurement contracts and coopera tive agreements that the
United States submits as evidence for its estimate, the United States identified the procurement
contracts and cooperative agreements between NASA and Boeing that were funded through the
challenged NASA aeronautics R&D programmes, based on a listing generated by the Federal
Procurement Data Base -Next Generation (FPDS-NG).1330 Unlike in the original proceeding, the
United States did not subsequently eliminate from that listing instruments that were considered by
NASA personn el to relate to non -aeronautics re search. According to the United States, the
methodology it adopted for this proceeding inquired only into the source of the funds for each
instrument, rather than excluding payments based on an evaluation of the type of re search
conducted under each instrument. 1331 The United States submits evidence of every payment
received by Boeing under the resulting list of procurement contracts and cooperative agreements.
Excluding those payments received from an unchallenged programme, these add up to
approximately [***].1332

1327 List of NASA Contracts and Cooperative Agreements, (Exhibit US-13-1) (BCI); and Obligations under
NASA contracts with Boeing for FY 2007-FY 2012 (formerly Exhibit US-13-1), (Exhibit USA-37) (BCI).
1328 United States' response to the Panel's request for information pursuant to Article 13 of the DSU,
dated 28 February 2013, response to question No. 5, para. 17. The United States provided a "List of NASA
Contracts and Cooperative Agreements" as Exhibit US-13-1 (BCI) which subsequently became Exhibit USA-37
(BCI).
1329 United States' response to the Panel's request for information pursuant to Article 13 of the DSU,
dated 28 February 2013, response to question No. 7, para. 17. The United States provided a "List of NASA
Contracts and Cooperative Agreements" as Exhibit US-13-1 (BCI) which subsequently became Exhibit USA-37
(BCI).
1330 As in the original proceeding, the United States first generated a list of all payments made by the
four NASA aeronautics research centres as reported in the FPDS-NG and identified payments funded through
the challenged NASA aeronautics R&D programmes. (See United States' second written submission,
paras. 111-114). The four NASA research centres are Dryden, Langley, Ames, and Glenn. In the original
proceeding, the panel found that these four centres accounted for more than 99% of NASA's aeronautics R&D,
and confirmed, for the purposes of accepting the United States' methodology of generating a list of contracts
between Boeing and the United States, that "substantially all NASA aeronautics expenditures were undertaken
by these four centers". (See Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1079 (emphasis
original)).
1331 United States' second written submission, paras. 112 and 113.
1332 Obligations under NASA contracts with Boeing for FY 2007-FY 2012 (formerly Exhibit US-13-1),
(Exhibit USA-37) (BCI). A number of contracts and cooperative agreements at issue received funding from
multiple NASA programmes. The United States only includes in its estimate of payments those payments that
were received from challenged programmes.

8.255. The European Union argues that the United States relies on the same flawed set of data as
in the original proceeding which led the original panel to find that the amount of payments
received by Boeing was significantly higher than that submitted by the United States.1333
8.256. We note that i n the original proceeding, the panel found that the FPDS -NG was the best
source of information for compiling a list of contracts between NASA and Boeing. 1334 The panel did
revise the United Stat es' estimate upwards, but this was because it disagreed with a final step in
the United States' methodology in that proceeding, in which NASA personnel had excluded certain
payments from its estimate.1335 The United States did not take this step in arriving at its estimate
in the current proceeding.1336 Otherwise, the United States ' methodology for estimating payments
remains the same as the methodology that was accepted by the panel in the original proceeding.
8.257. The European Union makes no other specific criticis ms of the United States ' methodology
for estimating the amount of the payments under the NASA procurement contracts and
cooperative agreements . We consider that the United States ' evidence is the best evidence
available as to the amount of payments receive d by Boeing under NASA procurement contracts
and cooperative agreements.
Evidence regarding the value of the provision of access to equipment and facilities under
NASA procurement contracts and cooperative agreements
8.258. In arriving at its estimate of the valu e of the access to equipment provided to Boeing
under the NASA procurement contracts and cooperative agreements, the United States takes the
list of procurement contracts and cooperative agreements provided in response to the Panel's
request for informatio n pursuant to Article 13 of the DSU 1337, and submits a separate exhibit
detailing the value of access to equipment provided by those instruments .1338 The United States
notes that the values it provides in USA -Exhibit 271 for access to equipment provided to Boein g
under the procurement contracts and cooperative agreements (and the values it provides in
Exhibit USA-270 for Boeing's access to facilities) indicate, for the most part, the value of NASA's
acquisition cost, rather than the value of the temporary use of the equipment, which is what
Boeing generally receives under these instruments. Since the value of the acquisition cost tends to
be larger than the value of temporary use, the United States considers that, if anything, its figures
overstate the value of Boeing's access to equipment (and the value of Boeing's access to facilities)
under procurement contracts and cooperative agreements.1339

1333 European Union's second written submission, para. 261.
1334 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1073.
1335 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 695.
1336 United States' second written submission, para. 113.
1337 See para. 8.254 above.
1338 The United States appears to regard its estimates of the value of Boeing's use of NASA computers in
Exhibit USA-270, and of equipment provided under NASA contracts and agreements in Exhibit USA-271 (BCI),
as representing the value of access to NASA facilities and equipment under the NASA procurement contracts
and cooperative agreements. (See United States' second written submission, para. 115 and fn 128, referring to
these exhibits). In its first written submission, the United States asserts that access to NASA facilities under
procurement contracts, other than with respect to NASA computers, "was also quite limited, although the
United States does not at this time have an estimate". (United States' first written submission, para. 113; see
also United States' second written submission, para. 200: "NASA contracts with Boeing did not provide for
extensive usage of facilities. Use of NASA computers by Boeing for work on NASA contracts had a value of
approximately [***] in the 2007-2012 period"). We note that in response to the Panel's request for
information pursuant to Article 13 of the DSU, for the total value of the access to government facilities,
equipment, personnel, and other institutional support provided to Boeing at the four NASA aeronautics
research centres, the United States explained that the relevant procurement contract, cooperative agreement,
or Space Act Agreement is the only record maintained by NASA that describes the provision of government
property, government data, and access to government facilities, equipment, personnel, and other institutional
support. (United States' response to the Panel's request for information pursuant to Article 13 of the DSU,
dated 28 February 2013, response to question No. 14, paras. 31 and 32). In its first written submission, when
discussing the payments provided to Boeing through the procurement contracts (including BOAs and tasks),
cooperative agreements, and Space Act Agreements under the challenged NASA aeronautics R&D programmes,
the United States refers to the instruments that provide for use of NASA facilities, and those where there was
no government property or access to government facilities provided under the relevant instrument. (See
United States' first written submission, paras. 126, 128, 130, 133, 139, 142, 158, 163, 165, 173, 182, 183,
185, and 186).
1339 United States' second written submission, para. 119.

8.259. In response to the European Union 's argument that it is not possible to confirm the
reported values listed in Exhibit USA-271, the United States notes that the value of access to
equipment under procurement contracts and cooperative agreements is recorded in the instrument
itself.1340 It notes that, according to NASA acquisition regulations, NASA cannot provide such
access to co ntractors without recording in the instrument the item provided and its acquisition
cost.1341 Where a contractor seeks to use property for non -governmental work, general Federal
Acquisition Regulations require the payment of rent to be agreed with the contracting officer.1342
8.260. The European Union argues that the acquisition regulations to which the United States
refers only apply to procurement contracts, and not to cooperative agreements, implying that it is
technically possible for NASA to have provided Boeing wi th access to property, facilities or
equipment through a cooperative agreement, without having recorded the fact in the instrument
itself.1343 Further, the European Union argues that the se regulations were replaced in 2011 with
regulations that do not require an itemised list or indication of value for the furnishing of
government property.1344 However, having reviewed the exhibit submitted by the European Union
in support of this argument, we note that, where government property is supplied in the course of
a pr ocurement contract, NASA is still required to insert a clause into the contract stating "a
description of the item(s), acquisition date, quantity, acquisition cost and applicable equipment
information".1345
8.261. The European Union also argues that the United Stat es' list does not appear to include all
of the NASA procurement contracts and cooperative agree ments with Boeing during the
FY 2007-FY 2012 period; this is because not every instrument listed on Exhibit USA -37 (the list of
all procurement contracts and coo perative agreements between NASA and Boeing that were
funded by the challenged NASA aeronautics R&D programmes) appears on Exhibit USA -271. The
Panel has cross -referenced Exhibit USA -271 against Exhibit USA -37. We note that, of the 101
procurement contracts and cooperative agreements which are listed as having received payments
from the challenged NASA aeronautics R&D programmes, 16 are not recorded on Exhibit USA-271.
Of those 16, five are purchase orders, which the United States explains involve no resear ch on
Boeing's part, or the provision of facilities, property, or equipment to Boeing. 1346 With respect to
two further instruments, the United States has submitted the instruments themselves as exhibits,
and we are able to confirm that they do not provide for access to facilities, equipment, or
employees.1347
8.262. For the nine remaining instruments that appear on Exhibit USA -37 but are not listed on
Exhibit USA -271, the Panel is unable to confirm , based on the evidence provided by the
United States, whether they prov ided Boeing with access to facilities or equipment. Not all of the
instruments listed on Exhibit USA -37 as having received payments under the challenged NASA
aeronautics R&D programmes necessarily provided access to NASA facilities or equipment; in fact,
the majority did not involve such access. 1348 It is possible that the nine unaccounted -for
instruments simply provided Boeing with payments, but no other access, which is why they are not
recorded in Exhibit USA-271. However, Exhibit USA-271 does contain other procurement contracts

1340 The United States notes that Exhibit USA-271 records the value of access to equipment as it is
recorded in the contract instrument itself except where indicated. (See United States' response to Panel
question No. 100, para. 185). Exhibit USA-271 provides a more detailed methodology for assessing the value
of equipment for five contracts.
1341 United States' second written submission, para. 115; United States Code of Federal Regulations,
Title 14, section 1845, (Exhibit USA-300); and United States Code of Federal Regulations, Title 48,
section 1852.245, (Exhibit USA-301).
1342 United States' second written submission, para. 115.
1343 European Union's comments on the United States' response to Panel question No. 100, para. 280.
1344 European Union's comments on the United States' response to Panel question No. 100, para. 280;
United States Code of Federal Regulations, Title 14, section 1845, (Exhibit USA-300); United States Code of
Federal Regulations, Title 48, section 1852.245, (Exhibit USA-301); and United States Code of Federal
Regulations, Title 48, section 1852.245-76 (2013), (Exhibit EU-1427).
1345 United States Code of Federal Regulations, Title 48, section 1852.245-76 (2013), (Exhibit EU-1427).
(emphasis added)
1346 United States' first written submission, para. 187.
1347 NASA Contract NNL08AA02B (3 April 2008), (Exhibit US-13-132); NASA Purchase Order
NND08AA04P (formerly Exhibit US-13-84), (Exhibit USA-52) (HSBI).
1348 Equipment provided under NASA contracts and agreements (revised 1 December 2014), (Exhibit
USA-271) (BCI). Of the total number of instruments listed in Exhibit USA-271, less than half provided for
access to government property, facilities or equipment.

and cooperative agreements that provided no access to facilities or equipment, so this alone may
not explain the absence of the nine instruments from Exhibit USA -271.1349 It is clear that there
appear to be some errors in Exhibit USA -271, whether they involve the omission of instruments
that did involve the provision of access to NASA facilities and equipment, or the addition of
instruments that did not involve such provision. However, we do not consider that the nature and
significance of such errors warrants the Panel disregarding the United States' estimate altogether.
We note that the vast majority of instruments listed in Exhibit USA -37 (92 out of 101) are
accounted for in Exhibit USA -271. Rather, in order to ensure that the Panel's estimate of the
amount of the financial contribution s is comprehensive, we propose to revise the United States'
figure upwards to reflect the value of any access to NASA facilities and equipment that may have
been provided by the nine unaccounted-for instruments.
8.263. The nine instruments together received approximately USD 11 million in payments from
the challenged NASA aeronautics R&D programmes during the FY 2007 -FY 2012 period, which is
approximately 10% of the total amount of payments received by Boeing under those
programmes.1350 We consider that the amount of funding received by these instruments provides a
reasonable approximation of the scope of work performed under them, and can be used as a proxy
to estimate the extent of access to any equipment provided by those instruments. We therefore
add 10% to the United States' estimated [***] as the value of access to equipment, which brings
the total estimate of the value of access to equipment under the NASA procurement contracts and
cooperative agreements to [***].
8.264. Lastly, the European Union considers that the United States ' figure ignores altogether the
value of Boeing 's access to NASA facilities (as opposed to equipment or property). 1351 The
United States' list, however, contains a number of specific references to facilities, so we see no
grounds for the European Union 's general assertion that the United States' estimate ignores the
value of access to NASA facilities .1352 While the United States ' list in Exhibit USA -271 does not
include a value for access to facilitie s provided for by NASA Contract NNL09AD50T, t he
United States specifically refers to facilities provided by this contract in its submissions, and values
Boeing's access at approximately [***].1353 We therefore also consider it appropriate to revise the
United States' figure upwards, to [***], to take account of this omission.
8.265. We acknowledge that the United States ' failure to include NASA Contract NNL09AD50T in
Exhibit USA-271, despite referencing this procurement contract in its submissions, suggests that
there may have been errors in the process of compiling the evidence on which the United States
bases its amount estimate. Like the original panel, however, we consider that the fact that NASA
may have made mistakes in compiling the relevant information, and th at NASA 's records
themselves are not perfect, does not indicate that the United States ' evidence is, as a whole,
unreliable.1354 We are not obliged, in estimating the amount of the subsidy let alone the amount of
the financial contribution s, to arrive at a pr ecise quantification 1355, and having reviewed the
United States' evidence in light of the European Union's criticisms, we conclude that it is
sufficiently reliable and comprehensive to constitute the best available evidence for an estimate of
the value of acc ess to facilities and equipment provided under the NASA procurement contracts
and cooperative agreements funded under the relevant NASA aeronautics R&D programmes.
8.266. The United States provides a separate estimate of [***] for the value of Boeing 's
computer use, as a component of the value of access to NASA facilities. 1356 In response to the

1349 United States' response to Panel question No. 100, para. 187.
1350 Equipment provided under NASA contracts and agreements (revised 1 December 2014), (Exhibit
USA-271) (BCI); and Obligations under NASA contracts with Boeing for FY 2007-FY 2012 (formerly Exhibit
US-13-1), (Exhibit USA-37) (BCI).
1351 European Union's comments on the United States' response to Panel question No. 100, para. 283.
1352 For example, Exhibit USA-271 includes values for facilities provided by NASA contracts NNC07CB38C
and NNC12AA01A.
1353 United States' first written submission, para. 126; and NASA Contract NNL04AA11B, task order
NNL09AD50T, (Exhibit USA-26) (BCI).
1354 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1081.
1355 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1101 (citing Appellate Body Report,
US – Upland Cotton, para. 467).
1356 United States' first written submission, paras. 113 and 200; and Boeing use of NASA computers,
2007-2012, (Exhibit USA-270) (BCI) (the U.S. incorrectly refers to his exhibit to as USA-248 at fn 167,
para. 113 of its first written submission). The United States notes that this figure, if anything, overstates the

European Union's argument that the United States provides no explanation of its methodology for
calculating this figure, the United States explains that NASA compiled data fr om 2006 to 2013
using monthly usage reports prepared by NASA 's Advanced Supercomputing Division, which show
usage assigned to each project expressed in terms of Standard Billing Units (SBU). 1357 These
reports were then filtered to display the projects associated with Boeing. The value assigned to the
resulting set of SBUs is the value that NASA uses for its internal budgeting period.1358
8.267. The European Union considers that the value of Boeing 's computer usage seems
"extraordinarily low", and argues that it likely accounts only for the cost of resources consumed by
the usage, rather than the market value of the resource. 1359 It notes that, according to SBU
values, one hour of computer usage costs 73 cents, and compares this to one hour of internet use
in an internet cafe, where the same costs between USD 3.50-4.1360
8.268. We do not consider that the European Union establishes that the United States ' evidence
as to the value of Boeing 's computer use cannot be relied upon. The European Union only
speculates that NASA's SBUs take into account only the cost of Boeing's use of the supercomputer;
there is no evidence that this is actually the case. Moreover, the European Union does not explain
why a proper valuation of the financial contribution should take into account the market value of
the supercomputer itself, rather than the value of Boeing 's use of the supercomputer. Finally, we
are not persuaded that the European Union's comparison between the computing costs incurred by
a large-scale organization like NASA and the per -hour retail costs charged in an internet cafe is
probative as to the accuracy or otherwise of the United States' figures.
8.269. We see no flaws in the United States ' methodology for estimating the value of computer
usage that would warrant dismissing its estimate, and conclude, therefore, that it remains the best
available evidence as to the value of Boeing's use of NASA's computers.
Evidence regarding the value of the provision of access to NASA employees under NASA
procurement contracts and cooperative agreements
8.270. With r espect to the United States ' estimate of the value of Boeing 's access to NASA
employees under procurement contracts and cooperative agreements, the United States relies on
evidence contained in Exhibit USA -321.1361 The United States argues that Boeing had acc ess to
NASA employees only for a limited period of time, and for a limited purpose. The work of NASA
employees in relation to procurement contracts and cooperative agreements with Boeing was
limited to financial administration and management, technical mon itoring to ensure that the
contractor complied with the terms of the instrument, and managing logistics. NASA estimates
that the value of these activities represented USD 17.4 million.1362
8.271. The European Union does not dispute the methodology or selection proce ss through which
the United States generates its estimate of the value of Boeing 's access to NASA employees. The
European Union argues that, even if NASA employees spend relatively little time working with
Boeing directly under the particular procurement c ontract or cooperative agreement, the value of
Boeing's access to NASA employees is affected by the amount that NASA invests in those aspects

value of Boeing's computer use, since it includes Boeing's use of computers for hypersonic research, which has
no application to LCA. (See United States' second written submission, para. 119).
1357 A Standard Billing Unit is a common rate used for allocating and tracking computing time at NASA's
Advanced Supercomputing facility. (See United States' response to Panel question No. 100, para. 184).
1358 United States' response to Panel question No. 100, para. 184.
1359 European Union's comments on the United States' response to Panel question No. 100, paras. 278
and 279.
1360 European Union's comments on the United States' response to Panel question No. 100, para. 279;
NASA, The HEC Environment, Allocations & Accounts, Common Standard Billing Unit (SBU) Rates, available at:
<http://www.nas.nasa.gov/hecc/support/kb/Common-Standard-Billing-Unit-(SBU)-Rates_271.html>, accessed
1 September 2016, (Exhibit EU-1424); J. Santo Domingo, "Comparing Dual-Core vs. Quad-Core CPUs", PC
Magazine, 5 July 2012, (Exhibit EU-1425); and Examples of Internet Cafe Pricing, (Exhibit EU-1426).
1361 Estimate of NASA's Employee Time in Support of Contracts with Boeing, (Exhibit USA-321) (BCI).
1362 United States' second written submission, para. 121. The United States explains that, for budget
purposes, NASA values its professional personnel time at USD 150,000 per full-time equivalent (which
translates to the work performed by one person over the course of a year). NASA estimates that the work of
NASA personnel involved in the activities referred to above (i.e. financial administration and management,
technical monitoring to ensure that the contractor complied with the terms of the contract and satisfied all
deliverables, and managing logistics), occupied 115.8 units of full-time equivalent.

of its own physical and human capital relevant to Boeing 's research efforts.1363 This is a version of
the European Union's argument that, regardless of any flaws it has identified in the United States
evidence, the United States ' overall methodology for estimating the financial contribution
"massively undercounts " the real value of the financial contribution by not recog nizing the
collaborative, iterative nature of NASA and Boeing 's R&D work. Along with the European Union 's
concerns as to the United States' evidence, it is this argument that underlies the European Union 's
"top-down" approach for calculating the value of the financial contribution.
8.272. Unlike the United States' methodology for calculating the value of the financial contribution
to Boeing under the procurement contracts, cooperative agreements, and Space Act Agreements ,
the European Union 's "top-down" methodology for estimating the amount of the financial
contribution provided through the NASA aeronautics R&D subsidies does not correspond to the
nature of the financial contributions as argued by the parties and as found by the Panel (i.e. as
payments and the pro vision of access to NASA facilities, equipment, and employees through
certain legal instruments funded under identified NASA aeronautics R&D programmes). Rather, the
European Union's methodology is based on an allocation of the portion of the NASA programm e
budgets to Boeing based on the value of Boeing 's commercial airplane sales as a proportion of
total U.S. civil aircraft sales. It is not an estimate of the value of the "financial contributions "
because the financial contributions that the Panel has foun d to exist are not all or a portion of the
NASA aeronautics R&D programme budgets, but particular transactions between NASA and Boeing
that occur through certain legal instruments which are funded by those aeronautics R&D
programmes.
8.273. The European Union argues that the value of the access to NASA facilities, equipment, and
employees extends beyond the "four corners " of the instruments because of the value of
investments that NASA makes in itself , which cannot be quantified from payments and use of
facilities, equipment, and employees . This argument is similar to an argument that the European
Communities made in the original proceeding, which the panel rejected. 1364 We are not persuaded
by the European Union's argument that the amount of the financial contributi ons cannot be
captured within the "four corners " of the transactions found to constitute the financial
contributions for the same reasons that the original panel rejected the European
Communities' argument in the original proceeding. First, because it is a t odds with the nature of
the financial contributions that we f ind to exist; namely, the payments and access to NASA
property facilities, equipment, and employees provided through procurement contracts,
cooperative agreements, and Space Act Agreements with Boeing which are funded through
particular NASA aeronautics R&D programmes. Second, because the European Union does not
identify the "investments" that NASA allegedly makes in its own physical and human capital, or the
types of transactions through which these investments are made and are shared to transmit to
Boeing. Finally, we have previously found that a number of the challenged NASA programmes did
not actually fund any procurement contracts, cooperative agreements , or Space Act Agreements
between NASA and Boeing. 1365 In other words, these programmes did not provide financial
contributions to Boeing . Despite this, the European Union 's methodology impermissibly includes
portions of the budgets of these programmes in its estimate of the financial contributio n made by
NASA to Boeing.
8.274. Nor are we persuaded that all, or a portion of, the CASP Program should be included in an
estimate of the amount of the financial contribution, as a way of capturing NASA funding and
support that allegedly operates outside of the "four corners" of the instruments that constitute the
financial contributions to Boeing. First, the European Union did not include the CASP Program as
one of the challenged NASA aeronautics R&D measures in section I.A of its panel request, and in
our view, funding and support provided through an unchallenged programme is outside our terms
of reference. Second, the European Union 's justification for including funding under the CASP
Program in its estimate is that its panel request covers the entirety of any "contracts, assistance
instruments and other agreements" that are funded by the challenged NASA aeronautics R&D
programmes, meaning that if a particular instrument is funded by a challenged programme, any

1363 European Union's second written submission, fn 413 and para. 264.
1364 The European Communities argued that the United States' "bottom-up" estimates of the amounts in
the original proceeding should be rejected because they failed to account for the fact that NASA allegedly
provided Boeing with access to the results of the R&D performed by NASA in-house and by other contractors.
(Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1102).
1365 These programmes are: Aeronautics Strategy and Management Program, High End Computing
Program, and Strategic Capabilities Assets Program. See paras. 8.67 to 8.72 above.

other payments made by additional programmes, such as CASP, to that same instrument are also
covered by the European Union 's panel request. 1366 The European Union 's methodology for
including CASP payments in its estimate of the financial contribution does not, however,
correspond to this reasoning. The European Union does not identify specific instruments funded by
both a challenged aeronautics R&D programme and the CASP Program, which would allow it to
account for what each instrument actually received from the CASP Program. Instead, it
"apportions" percentages of the CASP Program budgets to each challenged aeronautics R&D
programme based on each programme 's share of NASA 's total funding. This, as explained earlier,
does not correspond to what, in the European Union 's own arguments, actually constitutes the
financial contribution. We are therefore unable to accept both the European Union 's overall
methodology for estimating the financial contribution, and its inclusion of a portion of the
unchallenged CASP Program in that estimate.
Evidence regarding the value of access to facilities, equipment and employees provided
under Space Act Agreements
8.275. Finally, the United States relies on evidence contained in Exhibit USA -60 and Exhibit
US-13-2 for its estimate of the value of access to facilities, equipment , and employees provided
under the Space Act Agreements. This list was compiled in response to Question 6 of the Panel's
request for information pursuant to Article 13 of the DSU, which sought:
{A} list of all non -reimbursable or partially reimbursable Space Act Agree ments
("SAAs") that were entered into or that have provided funding and support from FY
2006-present, involving Boeing under the programs listed in question 5 or relating to
NASA assets provided (i.e., managed) or funded under those programs.1367
8.276. The United S tates generated the list of Space Act Agreements it provided in response to
the Panel through a five -step process. First, NASA generated a list of all Space Act Agreements
entered into between NASA's four aeronautics research centres and Boeing, using NASA 's Space
Act Agreement Maker System, into which, as required by NASA Policy Directive 1050 1H, every
Space Act Agreement must be entered. 1368 Second, ARMD had the list reviewed by all Center
Agreement Managers to validate data and add any missing information. Third, these officials also
provided copies of any instruments not already in the possession of ARMD and verified their values
with the Chief Financial Officers of the four aeronautics research centres. Fourth, ARMD
determined the programme responsible fo r the funding of each Space Act Agreement, and
identified whether each Space Act Agreement was fully, partially, or non -reimbursable. Finally, in
accordance with the parameters of the Panel's request for information pursuant to Article 13 of the
DSU, fully-reimbursable Space Act Agreements, along with Space Act Agreements funded through
programmes that the European Union had not challenged, were removed from the list. 1369 In the
original proceeding, the panel rejected the United States' estimate of the value o f goods and
services provided under Space Act Agreements, because it considered that there were limitations
in the evidence that the United States relied on to support its estimate. 1370 The European Union
argues that, for the same reason, the Panel should rej ect the United States' figures for the
transactions in this proceeding.1371
8.277. More specifically, the European Union points out that a number of the Space Act
Agreements on the list provided by the United States contain no valuation information, and argues
therefore that the list cannot be used as a basis for the Panel's estimate. The United States

1366 European Union's comments on the United States' response to Panel question No. 99, para. 263.
1367 United States' response to the Panel's request for information pursuant to Article 13 of the DSU,
dated 28 February 2013, response to question No. 6, para. 18. The United States provided a "NASA SAA List"
as Exhibit US-13-2 which subsequently became Exhibit USA-60 (BCI).
1368 NASA Policy Directive on Authority to Enter into Space Act Agreements, NPD 1050.1I
(23 December 2008), (Exhibit USA-303). These research centres are: Dryden, Langley, Ames, and Glenn. In
the original proceeding, the panel found that these four centres accounted for more than 99% of NASA's
aeronautics R&D, and confirmed, for the purposes of accepting the United States' methodology of generating a
list of contracts between Boeing and the United States, that "substantially all NASA aeronautics expenditures
were undertaken by these four centers". (See Panel Report, US – Large Civil Aircraft (2nd complaint),
para. 7.1079 (emphasis original)).
1369 United States' second written submission, para. 117.
1370 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1094.
1371 European Union's comments on the United States' response to Panel question No. 100, para. 286.

responds, first, that certain of the Space Act Agreements on its list are "umbrella" instruments,
which do not provide valuation information and merely set out the overarching terms for work that
is then memorialised in subsequent annexes, which provide valuation information. 1372 Second, the
United States explains that the list contains some Space Act Agreements that were signed, but for
which costs were not ultimately in curred.1373 The United States acknowledges that, of the
approximately 40 Space Act Agreements on its list, NASA is missing value information for two.
These instruments are SAA2-402214 and SAA3-402268.
8.278. In the original proceeding, of the 38 Space Act Agreements identified by the United States,
17 were missing value information. 1374 Unlike in the original proceedin g, the United States'
evidence concerning the value of access to facilities, equipment , and employees provided to
Boeing under the Space Act Agreements w as supplied in response to a specific request from the
Panel pursuant to Article 13 of the DSU. It is far more comprehensive than the information
provided by the United States in the original proceeding. In our view, the factors which led the
original pane l to reject the United States' valuation of the access to facilities, equipment , and
employees provided to Boeing under Space Act Agreements are not present in respect of the
evidence submitted by the United States in relation to that issue in this proceeding.
8.279. The European Union also argues that the United States does not indicate how NASA arrives
at a valuation of the access to facilities, equipment , and employees provided to Boeing. The
United States responds that each of NASA's four research centres is r equired to prepare a cost
estimate in accordance with guidance from NPR 9090.1A, which requires a determination of the
full cost of the Space Act Agreements, including direct and indirect costs. In accordance with this
guidance, NASA values the costs waive d in a Space Act Agreement by taking into account direct
costs, which include: salaries and other benefits for employees who work directly on the output;
materials and supplies used in the work; various costs associated with office space, equipment,
facilities, utilities that are used exclusively to produce the output; costs of goods or services
received from other segments or entities that are used to produce the output; and other costs
related to the production of the output. Indirect costs include "costs of resources that are jointly or
commonly used to produce two or more types of outputs, but are not specifically identifiable with
any of the outputs ". This includes costs of general and administrative services, general research
and technical support, security, rent, employee health, and recreation facilities.1375
8.280. The European Union argues that the requirement in NPR 9090 -1A to value costs waived
under a Space Act Agreement only applies to reimbursable Space Act Agreements, and not to the
non-reimbursable or partially-reimbursable Space Act Agreements that are at issue here. 1376 The
United States' submissions state, however, that while formally speaking, the above -referenced
directive only applies to reimbursable Space Act Agreements, another directive, NPD 1050 .1I, also
requires preparation of cost estimates for non - or partially -reimbursable Space Act
Agreements.1377 Although this latter directive does not set forth its own, separate methodology for
calculating these costs, we understand that the methodology in NPR 9090-1A also applies here.
8.281. In light of the foregoing, we find that there is no basis not to accept the estimate provided
by the United States as the best evidence available regarding the value of the access to facilities,

1372 The United States resubmitted Exhibit USA-60 (BCI) to indicate which of the listed Space Act
Agreements were "umbrella" instruments. These instruments are: Non-reimbursable Space Act Agreement
between the Boeing company and National Aeronautics and Space Administration for environmentally
responsible air vehicle concept research, SAA1-1018 (May 2010), (Exhibit USA-100) (BCI);
Partially-reimbursable Space Act Agreement between the Boeing company and National Aeronautics and Space
Administration for Aerospace Research and Development, SAA1-1145 (September 2011), (Exhibit
USA-13-254); Non-reimbursable Space Act Agreement between the Boeing company and National Aeronautics
and Space Administration for Aerospace Research and Development, SAA1-1155 (November 2011), (Exhibit
USA-87); and Space Act Agreement SAA1-640 between the National Aeronautics and Space Administration and
the Boeing company for the cooperative investigation of a cruise-efficient hybrid wing-body concept at the
Langley Research Center National Transonic Facility, ("umbrella" agreement not submitted as a separate
exhibit). (See NASA SAAs with Boeing (formerly Exhibit US-13-2), (Exhibit USA-60) (BCI)).
1373 These instruments are: DRFC-276, SAA1-757, annex 13, and SAA2-401097, annex 15.
1374 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1092.
1375 United States' response to Panel question No. 100, para. 182; and NASA Procedural Requirements,
Reimbursable Agreements, 9090.1A, (25 February 2013), (Exhibit USA-486).
1376 European Union's comments on the United States' response to Panel question No. 100, para. 273.
1377 United States' response to Panel question No. 100, fn 249 and para. 182; and NASA Policy Directive
on Authority to Enter into Space Act Agreements, NPD 1050.1I (23 December 2008), (Exhibit USA-303).

equipment, and employees provide d to Boeing under the post -2006 Space Act Agreements at
issue.
8.282. We have conducted an extensive review of the United States' evidence supporting its
estimate of the amount of the financial contributions provided through the NASA aeronautics R&D
subsidies, in light of the numerous criticisms of the European Union regarding different aspects of
the methodology and evidence. We consider the United States' methodology for arriving at its
estimates, for each of the categories of transactions it identifies as compr ising the financial
contribution, to be reasonable and appropriate. We identify where the United States has made
errors, and have endeavoured to make adjustments to the United States' estimates to account for
those errors. We conclude that none of the errors or omissions is so serious that it undermines the
overall reliability of the United States' estimates.
8.283. We would add that we do not accept the European Union 's allegation that the
United States has failed to cooperate in providing the information that is necessary to arrive at a
reliable estimate of the amount of the financial contributions. 1378 We note that, in February 2013,
in response to requests made by the Panel pursuant to Article 13 of the DSU, the United States
provided the following lists of NASA instruments related to the European Union's claims:
a. A list of all NASA procurement contracts with Boeing funded under the challenged NASA
aeronautics R&D programmes, that were entered into or that provided funding and
support, from FY 2006 until 2012.1379
b. A list of all grants or cooperative agreements involving Boeing under the challenged
NASA aeronautics R&D programmes relating to NASA assets provided or funded under
those programmes that were entered into or that have provided funding or support from
FY 2006 to 2012.1380
c. A list of all non -reimbursable or partially-reimbursable Space Act Agreements that were
entered into or that provided funding and support from FY 2006 to 2012, involving
Boeing under the challenged NASA aeronautics R&D programmes.1381
d. A list of a ll additional contracts, task orders, non -reimbursable or partially-reimbursable
Space Act Agreement s, grants , or agreements involving Boeing that were related to
aeronautics R&D and that were entered into or have provided funding and support from
FY 2006 to 2012 that were not previously listed.1382
8.284. Moreover, the United States provided a list of every revenue -related action that occurred
for the items listed in (a) through (d) above in the FY 2007-FY 2012 period, showing the obligation
amount associated with e ach contract and the fiscal year of the obligation on a contract action
inventory.1383 It also provided information as to the total amount of funds obligated or disbursed to
Boeing for each year since FY 2006 for each of the four NASA aeronautics research centres, and
information regarding the total value of access to government facilities, equipment, personnel, and
other institutional support provided to Boeing for each year since FY 2006 at or by such

1378 European Union's first written submission, para. 179.
1379 United States' response to the Panel's request for information pursuant to Article 13 of the DSU,
dated 28 February 2013, response to question No. 5 para. 17. The United States provided a "List of NASA
Contracts and Cooperative Agreements" as Exhibit US-13-1 (BCI) which subsequently became Exhibit USA-37
(BCI).
1380 United States' response to the Panel's request for information pursuant to Article 13 of the DSU,
dated 28 February 2013, response to question No. 7, para. 19. The United States provided a "NASA List of
NASA Contracts and Cooperative Agreements" as Exhibit US-13-1 (BCI) which subsequently became Exhibit
USA-37 (BCI).
1381 United States' response to the Panel's request for information pursuant to Article 13 of the DSU,
dated 28 February 2013, response to question No. 6, para. 18. The United States provided a "NASA SAA List"
as Exhibit US-13-2 which subsequently became Exhibit USA-60 (BCI).
1382 United States' response to the Panel's request for information pursuant to Article 13 of the DSU,
dated 28 February 2013, response to question No. 8, para. 20.
1383 United States' response to the Panel's request for information pursuant to Article 13 of the DSU,
dated 28 February 2013, response to question No. 10, para. 23.

centres.1384 In light of the above information provided by t he United States, we are unable to see
why the European Union considers it necessary to receive a full set of un -redacted NASA contracts
and agreements in order to arrive at an estimate of the amount of the financial contribution.1385
8.285. In response to a Panel question in its third set of questions in September 2015, seeking
information regarding the magnitude of difference in Airbus and Boeing pricing in sales campaigns,
the European Union submitted an update for 2013 and 2014 of the amounts of the financial
contribution from the U.S. subsidi es that are alleged to cause adverse effects through a price
causal mechanism.1386 This information included updated estimates of the amounts of the financial
contributions for the NASA aeronautics R&D subsidies for 2013 and 20 14, based on the
European Union's "top-down" methodology.1387 Although there is no corresponding updated
information regarding the amounts of the financial contributions for 2013 and 2014 based on the
United States ' methodology, this does not in our view, pro vide a reason to accept the
European Union's estimates for the 2013 and 2014 amounts as the best available evidence of the
amounts of the financial contributions for those years. This is because, as we have explained
previously, the legal deficiencies in the European Union's methodology are too significant.1388
8.286. In light of our above findings regarding financial contribution, benefit, and specificity, we
conclude that the European Union has established that certain transactions pursuant to post -2006
NASA procurement contracts, cooperative agreements, and Space Act Agreements involve specific
subsidies, within the meaning of Articles 1 and 2 of the SCM Agreement. We are unable to
estimate the amount of the subsidy on the basis of the evidence on the record. T o the extent that
the amount of the financial contribution provided through these subsidies is relevant to the Panel's
assessment of whether the United States has withdrawn the subsidy, or taken appropriate steps to
remove the adverse effects, within the meani ng of Article 7.8, the United States' methodology
provides a reliable and appropriate basis for arriving at the relevant estimate. On the basis of this
methodology, after making certain adjustments to the United States' estimates, the Panel
estimates that the amount of the financial contribution provided to Boeing through the
NASA procurement contracts, cooperative agreements, and Space Act Agreements
funded under the relevant aeronautics R&D programmes between 2007 and 2012 is
approximately [***].
8.2.2.7 Conclusion
8.287. In light of our above findings regarding financial contribution, benefit, and specificity, we
conclude that the European Union has established that certain transactions pursuant to post -2006
NASA procurement contracts, cooperative agreements, and Space Act Agreements involve specific
subsidies within the meaning of Articles 1 and 2 of the SCM Agreement. While we are unable to
estimate the amount of the subsidy on the basis of the evidence on the record, to the extent it is
relevant to the Panel's assessm ent of whether the United States has withdrawn the subsidy or
taken appropriate steps to remove the adverse effects within the meaning of Article 7.8 of the SCM
Agreement, we find the United States' estimate of the financ ial contributions at [***] between
2007 and 2012 to be the most credible estimate.

1384 United States' response to the Panel's request for information pursuant to Article 13 of the DSU,
dated 28 February 2013, response to question Nos. 13 and 14, paras. 30 and 31-33; and NASA Obligations by
Center, (Exhibit US-13-450) (BCI).
1385 We recall that the European Union objected to redaction of portions of certain NASA procurement
contracts referenced in the United States' first written submission in a communication to the Panel dated
9 September 2013 and requested the Panel to require the United States to produce un-redacted versions. That
objection, however, related to assertions made by the United States that the fact that such instruments were
export-controlled, classified or otherwise restricted demonstrated that the work performed under them could
not be applied to or used to produce large civil aircraft. The European Union did not allege that the un-redacted
portions of the contracts in question were necessary in order to enable it to arrive at the amounts of the
financial contributions involved in those instruments. In any case, we declined the European Union's request in
a ruling on that request dated 23 October 2013, attached at Annex F-2 to this Report.
1386 European Union's response to Panel question No. 164, para. 114; and Subsidies to Boeing's LCA
Division (2013-2014 Update), (Exhibit EU-1451). The United States did not submit a corresponding update of
its estimate of the amount of the financial contributions.
1387 Subsidies to Boeing's LCA Division (2013-2014 Update), (Exhibit EU-1451), pp. 2 and 5-22.
1388 The European Union's estimates also include allocations from NASA aeronautics R&D programmes
for which the Panel has found there are no measures in existence. This is the case with respect to the Strategic
Capabilities Assets Program, the Aeronautics Strategy and Management Program and the High End Computing
Program. See Section 8.2.2.2.2 above.

8.2.3 Post-2006 DOD aeronautics R&D measures
8.2.3.1 Introduction
8.288. In this Section of our Report, we evaluate the European Union's allegations that the DOD's
Research, Development, Test & Evaluation (RDT&E) Program involves specific subsidies within the
meaning of Articles 1 and 2 of the SCM Agreement , and that by granting or maintaining these
subsidies after the end of the implementation period , the United States has failed to withdraw the
subsidy, within the meaning of Article 7.8 of the SCM Agreement.
8.289. This evaluation concerns post -2006 DOD aeronautics R&D measures that we have found
to be within the scope of this proceeding in Section 7.3.1389 It also includes an evaluation of
whether the pre-2007 DOD procurement contracts involve specific subsidies within the meaning of
Articles 1 and 2 of the SCM Agreement. This is because there were no subsidy findings, and
therefore no adverse effects findings, regarding the pre -2007 DOD procurement contracts at the
conclusion of the original proceeding. Therefore, the United States did not have a compliance
obligation in relation to these pre -2007 aeronautics R&D measures, unlike the pre -2007 NASA
aeronautics R&D subsidies and the pre -2007 DOD assistance instruments discussed in Section 8.1
above. However, for the reasons explained in Section 7.3, we have ruled that the pre-2007 DOD
procurement contracts are within the scope of this proceeding. We there fore consider whether
both the pre -2007 and post -2006 DOD procurement contracts are specific subsidies in this
Section, as the legal issues raised are the same.
8.290. Before the original panel, the European Communities claimed that payments and access to
DOD fac ilities provided to Boeing under 23 RDT&E program elements to conduct research into
"dual-use" technologies1390, in the sense of technologies having potential application to LCA 1391,
were specific subsidies which ca used adverse effects to the interests of the Eu ropean
Communities.1392 The original panel identified two types of legal instruments through which DOD
provided payments and access to DOD facilities to Boeing under the various RDT&E program
elements; namely procurement contracts and assistance instruments.1393
8.291. The panel and the Appellate Body found that the payments and access to DOD facilities
provided to Boeing under the assistance instruments at issue constituted specific subsidies within
the meaning of Articles 1 and 2 of the SCM Agreement. There were ulti mately no findings as to
whether the payments and access to DOD facilities provided to Boeing through the procurement
contracts entered into under the 23 RDT&E program elements constituted specific subsidies, or
caused adverse effects. Rather, as explained in greater detail in Section 7.3.2.2 of this Report, the
Appellate Body declared moot the original panel 's finding that the DOD procurement contracts
were properly characterized as "purchases of services " and thus were not fin ancial contributions
within the meaning of Article 1.1(a)(1).1394
8.292. The European Union disputes that the actions taken by the United States, as set forth in its
Compliance Communication, including those with respect to the relevant DOD aeronautics R&D
measures, bring the United States into compliance with the DSB recommendations and rulings.1395

1389 We recall that with regard to pre-2007 DOD assistance instruments at issue in the original
proceeding we find that the DOD-Boeing Patent Licence Agreement does not constitute a withdrawal of the
subsidy, within the meaning of Article 7.8 of the SCM Agreement. See Section 8.1.3 above.
1390 The European Communities based its assessment of whether R&D conducted by Boeing under any of
the RDT&E program elements was likely to give rise to technologies with civil applications on an expert
evaluation of the RDT&E program budgets. (CRA Report, (Exhibit EU-29), para. 1.1, p. 1). The European Union
also relies on the 2006 CRA Report in this proceeding, along with an additional expert evaluation pertaining to
post-2006 RDT&E budget activities. See also Rumpf Report, (Exhibit EU-23).
1391 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1116 and 7.1117. We explain the
different senses in which the concept of "dual-use" technologies is used in this proceeding in paras. 8.341 to
8.344 below.
1392 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1116. The specific RDT&E program
elements identified in the European Communities' panel request in the original proceeding appear at
paragraph 7.1113 of that report.
1393 See para. 8.298 below.
1394 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), fn 1298.
1395 European Union's request for the establishment of a panel, para. 6.

8.293. We evaluate i n Section 8.2.3.3 whether the post -2006 DOD aeronautics R&D measures
that we have found to be within the scope of this compliance proceeding1396 involve financial
contributions within the meaning of Article 1.1(a)(1) of the SCM Agreement and evaluate in
Section 8.2.3.4 whether any such financial contributions confer a benefit within the meaning of
Article 1. 1(b). Our evaluation of whether any measures that we f ind to be subsidies within the
meaning of Article 1 are specific within the meaning of Article 2 of the SCM Agreement appears in
Section 8.2.3.5 of this Report.
8.294. Before discu ssing the subsidy and specificity issues, we provide relevant background
factual and legal information regarding the DOD aeronautics R&D measures at issue.
8.2.3.2 The measures at issue
8.2.3.2.1 The European Union's panel request
8.295. In its panel request in this proceeding, the European Union alleges that U.S. DOD
maintains subsidies benefiting U.S. LCA producers: (a) through the RDT&E Program; as well as (b)
through contracts, assistance instruments, and other agreements (as modified) entered into under
the RDT&E Program; in addition to (c) through specified U.S. Air Force, Navy, Army, and Defense-
Wide program elements of the RDT&E Program; as well as (d) through contracts, assistance
instruments, and other agreements (as modified) under these RDT&E program elements ; and to
the extent not entered into pursuant to the foregoing programmes (e) by entering into and
following the terms of contracts and other agreements (as modified) with Boeing listed in annex B
of the United States' Compliance Communication.1397
8.296. The forms of the su bsidies are described as: (a) the provision to Boeing of funding and
access to government facilities, equipment, and employees for R&D applicable to the development,
design, and production of LCA on terms more favourable than would be available on the
commercial market; as well as (b) the provision to Boeing of royalty -free use of the technologies
developed with such funding and support or use of such technologies on preferential terms.1398
8.297. Although the European Union's panel request suggests that the European Union challenges
both DOD's RDT&E Program as a whole and certain individual RDT&E program elements funded
under (and as part of) the RDT&E Program, it is clear from the European Union's first written
submission that its challenge is confined to particula r "funding" and "access to government
facilities, equipment and employees" provided to Boeing under specified RDT&E program elements,
rather than DOD 's RDT&E Program more generally. Hence, the "funding" and "access to
government facilities, equipment and e mployees" challenged under those RDT&E program
elements refers to payments made, and access to DOD facilities, equipment, and employees
provided, to Boeing and not to other recipients. Such payments and access are provided through
particular legal instrume nts entered into between DOD and Boeing (namely, procurement
contracts, and assistance instruments) which are funded under the relevant RDT&E program
elements.1399 In other words, the funding and access to government facilities, equipment, and
employees provided to Boeing under the relevant RDT&E program elements set forth in the
European Union's panel request refer to the payments and access to facilities, equipment, and
employees provided to Boeing through procurement contracts and assistance instruments entered
into between DOD and Boeing and funded under the specifically identified RDT&E program

1396 See para. 7.548 above.
1397 European Union's request for the establishment of a panel, paras. 11-13. The panel request
indicates that "Annex B of the 23 September 2012 notification is attached to this request, and the contracts
listed therein are incorporated into this request". (Ibid. para. 13, p. 5 and annex B).
1398 European Union's request for the establishment of a panel, paras. 11 and 12.
1399 See para. 8.298 below. See Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1115
(noting that it was not in dispute that DOD made payments to Boeing (and granted Boeing access to
government facilities) to perform R&D pursuant to two different categories of R&D arrangements, namely,
"procurement contracts" and "assistance instruments"), 7.1119 (noting that the scope of the European Union's
DOD-related claim was limited to payments and access to facilities provided to Boeing, as distinguished from a
broader challenged to the DOD RDT&E Program per se), and 7.1122 (noting that the European Communities
had clarified that it did not challenge DOD allowing Boeing to "participate" in RDT&E program elements as a
distinct measure).

elements.1400 We briefly summarize the principal features of DOD procurement contracts and
assistance instruments below.
8.2.3.2.2 DOD procurement contracts and assistance instruments
8.298. Boeing is commissioned to perform R&D work funded through the RDT&E program
elements by means of particular legal instruments. DOD procurement activities, including for
RDT&E, are generally governed by three sets of U.S. Federal Government regulations: the Federal
Acquisition Regulation (FAR) which applies to the entire U.S. federal government, including DOD
(unless stated otherwise); the Defense Federal Acquisition Supplement; and the unique FAR
supplements for each of the Army, Air Force, Navy and Marine Corps, Defense Logistics Agency ,
and U .S. Special Operations Command. 1401 The original panel discussed the legal framework
governing the various legal instruments through which DOD commissions R&D under the RDT&E
program elements.1402 We note several salient aspects of that discussion.
a. First, DOD has authority to fund certain kinds of R&D by means of specific legal
instruments; namely "contracts", "cooperative agreements ", "grants" and "technology
investment agreements ".1403 The latter three (cooperative ag reements, grants and
technology investment agreements) are defined as "assistance and other
nonprocurement instruments ".1404 In the original proceeding, these three legal
instruments were referred to collectively as "assistance instruments". We use the same
term to describe these three types of instruments in this proceeding. Assistance
instruments are distinct from "contracts", which we refer to in this Report as
"procurement contracts".
b. Second, U.S. procurement laws and regulations require that specific legal instruments be
used in particular defined situations, and not otherwise. Accordingly, assistance
instruments are legal instruments used to provide "assistance" which is defined in the
DOD Grant and Agreement Regulations as the "transfer of a thing of va lue to a recipient
to carry out a public purpose of support or stimulation authorized by a law of the United
States".1405 Under assistance instruments, the recipient is required to contribute its own
funds to the R&D on a cost -shared basis.1406 Moreover, at least as concerns cooperative
agreements, the U.S. Government is required to have substantial involvement in the
work performed, including collaboration, participation or intervention.1407
c. A procurement contract, by contrast, is a legal instrument which "reflects a relationship
between the Federal Government and a State, a local government, or other recipient
when the principal purpose of the instrument is to acquire property or services for the

1400 In Section 7.3.1, we explain the RDT&E Program, the particular RDT&E program elements and the
relationship of the program elements challenged by the European Union to the DOD procurement contracts and
assistance instruments. As explained in Section 7.3, the United States made a number of objections to the
inclusion of various aspects of the DOD aeronautics R&D measures within the scope of this proceeding. Our
rulings on those objections are summarized in Section 7.3.5.
1401 M. Schwartz, Congressional Research Service, Defense Acquisitions: How DOD Acquires Weapon
Systems and Recent Efforts to Reform the Process, (2 January 2013) (Schwartz Report), (Exhibit USA-115),
p. 2.
1402 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1140-7.1146.
1403 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1140 and 7.1141 (referring to
United States Code, Title 10, section 2358).
1404 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1142 (referring to the DOD Grant and
Agreement Regulations, United States Code of Federal Regulations, Title 32, sub-chapter c, part 21).
1405 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1142 (referring to the United States
Code of Federal Regulations, Title 32, section 21.615). Consistent with the character of "assistance
instruments" as legal vehicles through which a thing of value is transferred to a recipient for the purpose of
"support or stimulation", the payment of a "fee" or "profit" is prohibited under assistance instruments. (Panel
Report, US – Large Civil Aircraft (2nd complaint), para. 7.1152 (referring to sections 34.18 and 37.230)).
1406 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1149. See also Appellate Body
Report, US – Large Civil Aircraft (2nd complaint), para. 605 (explaining that the assistance instruments
reviewed by the Appellate Body committed Boeing to contribute financial resources, although in all cases, DOD
funded at least 50% of the costs).
1407 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 606 (referring to
United States' response to Panel question No. 20(a), para. 45 in the original proceeding).

direct benefit or use of the Federal Government ".1408 Consistent with th e character of
procurement contracts as the legal vehicles through which the U.S. Government acquires
property or services for its direct benefit or use, the DOD Grant and Agreement
Regulations mandate that a procurement contract, rather than an assistance instrument,
be used in all cases where a fee or profit is to be paid or the instrument is to be used to
carry out a program me where a fee or profit is necessary to achieving program me
objectives.1409
8.299. Given that our evaluations of the subsidy issues presented by the European Union's
DOD-related subsidy claims involve a consideration of the RDT&E program elements through which
the procurement contracts and assistance instruments are funded, we set forth in the following
sections relevant information concerning the nature of R&D commissioned under the various
RDT&E program elements, and the processes through which that R&D is commissioned from
contractors like Boeing.1410
8.2.3.2.3 R&D conducted under the RDT&E program elements
8.300. The R&D commissioned by DOD through the RDT&E P rogram falls into two general
categories. The first consists of R&D commissioned under program elements that fund basic
research, applied research and advanced technology development to meet a variety of current and
future military needs. The second compri ses R&D commissioned under program elements that
fund development of technologies for specific new weapon systems or components.1411
8.301. Program elements in the former category are referred to as science and technology (S&T)
program elements and correspond to th e program elements identified by the European Union and
its experts as "general aircraft" program elements. The S&T/general aircraft category consists of
basic research to gain knowledge and understanding, applied research to identify technologies that
the knowledge might enable, and advanced technology development to evaluate how the
technologies work together and perform in a relevant environment. 1412 As the United States
explains, the key link among these program elements is that DOD is "seeking knowledge o r
generalized technology options in support of current and future military missions – they do not
have the objective of purchasing a particular {weapon} system".1413 Fourteen of the 23 original
RDT&E program elements challenged by the European Union are S&T/g eneral aircraft program

1408 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1142 (referring to the United States
Code of Federal Regulations, Title 32, section 21.670). See also United States' response to Panel question
No. 69, para. 42; and United States Code of Federal Regulations, Title 48, section 2.101, (Exhibit USA-452).
1409 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1152 (referring to section 22.205 of
the DOD Grant and Agreement Regulations).
1410 The relationship between the RDT&E program elements and the legal instruments through which
funding under the program elements is provided to contractors such as Boeing is discussed further in
paras. 8.335 and 8.336 below.
1411 The parties recognize this basic distinction in categories of RDT&E program elements in their
submissions, although they use different terminology for each category. (See United States' first written
submission, para. 316; and CRA Report, (Exhibit EU-29), p. 5). See also Panel Report, US – Large Civil Aircraft
(2nd complaint), para. 7.1114 (where the European Communities applied the same distinction between "general
aircraft" and "military aircraft" RDT&E program elements).
1412 United States' first written submission, para. 316. Research conducted under S&T program elements
corresponds generally to technology readiness levels 1 through 6 on NASA's scale. As explained by the original
panel, NASA categorizes technologies according to a system reflecting the level of maturity (or technology
readiness level), ranging from the highest risk, lowest maturity technology (TRL 1) to the lowest risk, highest
maturity technology (TRL 9). NASA's research efforts focus on the development of higher risk technologies up
to TRL 6, which is prototype demonstration. (See Panel Report, US – Large Civil Aircraft (2nd complaint),
para. 7.1748).
1413 United States' first written submission, para. 316. "Effort under S&T contracts typically revolves
around researching a specific scientific or engineering question, developing technology on the basis of the
resulting knowledge or understanding, or testing application of a particular principle in a particular
environment. The deliverable will typically be a report or a briefing on the results of the work, or in some
instances a test article or technology prototype for further evaluation by DOD. The objective is not to acquire a
{weapon} system, but to study the problem presented so the knowledge gained in doing so can be used to
solve broad problems or provide technology options for future systems acquisition." (United States' first written
submission, para. 320).

elements.1414 In addition, measures funded under a further three "additional" program elements
that are within the scope of this proceeding are S&T/general aircraft program elements.1415
8.302. S&T/general aircraft research activities may be contrasted with R&D funded under program
elements that develop specific new weapon systems or components. 1416 R&D directed specifically
to the development of particular weapon systems or components is funded through systems
acquisition program elements, which c orrespond to the "military aircraft " category of program
elements identified by the European Union and its experts. Nine of the 23 original RDT&E program
elements are systems acquisition/military aircraft program elements.1417
8.2.3.2.4 How R&D is commissioned under the RDT&E program elements
8.303. The processes by which DOD procures the RDT&E services (which are the necessary
precursor to the larger -scale production and deployment of the weapons systems that DOD
ultimately acquires) are complex. For present purposes, we pro vide an outline of what we regard
as the basic but important aspects of that process in order to aid in our characterization of the
DOD aeronautics R&D measures. The procurement process varies in general terms for
S&T/ general aircraft program elements, as compared to systems acquisition/military aircraft
program elements. We begin by outlining the basic features of the procurement process for
S&T/general aircraft program elements.
8.304. S&T/general aircraft procurement is managed by the research organizations wi thin DOD,
such as the Air Force Research Laboratory (AFRL) for the U .S. Air Force and the Office of Naval
Research for the U .S. Navy. The United States describes the procurement process using the
example of Air Force S&T procurement managed by AFRL and sta tes that a similar process occurs
with respect to all DOD research organizations.1418
8.305. First, AFRL obtains information on "user needs" and "technology opportunities". User needs
are identified based on sources such as "Defense Planning Guidance", issued by the U.S. Secretary
of Defense, along with various other strategic documents identifying future missions and
capabilities that war fighter s will need in order to accomplish those missions. In addition, AFRL
managers are expected to be aware of the various role s the Air Force performs in support of
national defense. AFRL obtains information on technology opportunities by instructing its officials
to remain up -to-date on the state of the art in all of the fields relevant to the Air Force, such as

1414 (a) Defense Research Sciences (PE 0601102F); (b) Materials (PE 0602102F); (c) Aerospace Flight
Dynamics/Aerospace Vehicle Technologies (PE 0602201F); (d) Aerospace Propulsion (PE 0602203F); (e)
Aerospace Avionics/Aerospace Sensors (PE 0602204F); (f) Dual-Use Science & Technology (PE 0602805F); (g)
Advanced Materials for Weapons Systems (PE 0603112F); (h) Flight Vehicle Technology (PE 0603025F); (i)
Aerospace Structures/Aerospace Technology Dev/Demo (PE 0603211F); (j) Aerospace Propulsion and Power
Technology (PE 0603216F); (k) Flight Vehicle Technology Integration (PE 0603245F); (l) RDT&E for Aging
Aircraft (PE 0605011F); (m) Manufacturing Technology Industrial Preparedness – Air Force
(PE 0603680F/0708011F); and (n) Manufacturing Technology Industrial Preparedness – Navy (PE 0708011N).
1415 The "additional" RDT&E program elements that are S&T/general aircraft program elements and fund
measures that are within the scope of this proceeding are: (a) Materials and Biological Technology
(PE 0602715E); (b) Sustainment Science & Technology (PE 0603199F); and (c) Aviation Safety Technologies
(PE 0606301D8Z).
1416 "Weapon systems" refers to technically complex items such as aircraft, missiles, ships, and tanks
that DOD purchases and includes the subsystems, logistical support and software needed to operate and
support them.
1417 The following original RDT&E program elements are systems acquisition/military aircraft program
elements: (a) V-22/CV-22 (PE 0604262N/0401318F); (b) F/A-18 Squadrons (PE 0204136N); (c) Joint Strike
Fighter (PE 0603800F/0603800N/0603800E/0604800F/0604800N); (d) C-17 (PE 0401130F/0604231F); (e)
F-22 (PE 0604239F); (f) B-2 Advanced Technology Bomber (PE 0604240F); (g) Comanche (PE 0604223A);
(h) A-6 Squadrons (PE 0204134N); and (i) AV-8B Aircraft (PE 0604214N). Although the European Union's
panel request identified an additional four systems acquisition/military aircraft RDT&E program elements:
AWACS (PE 0207417F); KC-46, Next Generation Aerial Refueling Aircraft (PE 0605221F); Multi-Mission
Maritime Aircraft (P-8A) (PE 0605500N); and Long Range Strike Bomber (PE 060415F). The Panel rules in
Section 7.3.3 that the measures in question are outside the scope of the proceeding, or that the Panel is not
satisfied of the existence of measures falling in the scope of the European Union's claims as identified by the
European Union.
1418 United States' first written submission, para. 319.

aerospace system s, air vehicles, space vehicles, directed energy devices, information systems,
materials and manufacturing processes, munitions, and sensors.1419
8.306. Based on the inputs as to user needs and technology opportunities, AFRL issues a Program
Objective Memorandum ea ch year, which forms the basis for an annual Corporate Investment
Strategy, setting the balance between basic research, applied research and advanced technology
development, and levels of S&T/general aircraft funding for different technology areas. Within this
framework, AFRL decides for each S&T objective whether to conduct the research in -house or to
commission it from external sources such as industry or academia. In the latter case, the
acquisition strategy depends on whether the objective of the resear ch is within the scope of an
existing effort, a follow -on effort, or requires a new effort. That decision guides the choice of an
acquisition strategy.1420
8.307. ARFL may then commission research by issuing a Broad Agency Announcement which sets
out a research objective and invites white papers on how to achieve that goal. It may also issue a
an RFP. AFRL evaluates all proposals based on, at minimum, technological merit, contribution to
agency mission, cost and realism, and selects the offer that represents the best combination of all
of them. A similar process occurs for all DOD research organizations.1421
8.308. Systems acquisition/military aircraft program elements involve a different process for
procuring the R&D required to develop a specific weapon system or component. F rom concept to
deployment, a weapon system goes through a three -step process of: (a) identifying the required
weapon system ; (b) establishing a budget ; and (c) acquiring the system. 1422 These three
processes, which are intended to work in concert, are as follows1423:
a. the Joint Capabilities Integration and Development System (JCIDS), for identifying
requirements. The process involves the identification, assessment and prioritization of
capabilities the military requires to fulfil the military 's mission (sometimes referred to as
a requirements generation process). The JCIDS process analyses the military 's capability
needs and gaps, and recommends both materiel and non -materiel (e.g. a change in
training or strategy) ways to address them1424;
b. the Planning, Programming, Budgeting, and Execution System (PBBES), for allocating
resources and budgeting. During the planning phase of PBBES, the needs of combatant
commands are analysed and the findings are published in the Joint Programming
Guidance document, which guides the DO D components' efforts to propose acquisition
programmes. The programming and budgeting phases occur concurrently1425; and

1419 United States' first written submission, para. 318.
1420 United States' first written submission, para. 319.
1421 The United States asserts that a similar arrangement is in place for all other DOD research
organizations beyond the AFRL. (United States' first written submission, para. 319).
1422 Schwartz Report, (Exhibit USA-115), pp. 2 and 3.
1423 A 2012 Instruction of the Chairman of the Joint Chiefs of Staff explains that together, the three
processes provide a means to determine, validate and prioritize capability requirements and associated
capability gaps and risks, and then fund, develop and field non-materiel and materiel capability solutions for
the warfighter in a timely manner. (Chairman of the Joint Chiefs of Staff Instruction, "Joint Capabilities
Integration and Development System", 3170.01, 10 January 2012, (Exhibit USA-114), p. A-5).
1424 The JCIDS is managed by the Joint Staff and military services. If a materiel solution such as a
weapon system is considered, it must be justified on the basis of an initial capabilities document which must be
approved by the Joint Requirements Oversight Council, the organization responsible for identifying and
prioritizing warfighter requirements. (Schwartz Report, (Exhibit USA-115), pp. 3 and 4).
1425 During these phases, Program Objective Memoranda (which outline the anticipated missions and
objectives of the proposed weapon programmes and anticipated budget requirements) are submitted to
propose these programmes. These memoranda are reviewed and, as deemed appropriate, integrated into an
overall Defense programme. Budgets are reviewed and program budget decisions are issued. Simultaneously
with the programme and budget reviews, programmes are evaluated and measured against established
performance metrics, including the rates of funding obligations and expenditures. (Schwartz Report, (Exhibit
USA-115), p. 5).

c. the Defense Acquisition System (DAS), for developing and/or buying the item . The
Defense Acquisition System is the management process by which DOD develops and
buys weapon and other systems.1426
8.309. There are five major phases of the DAS process: (a) materiel solution analysis; (b)
technology development; (c) engineering and manufacturing development; (d) production and
deployment; and (e) operations and support.1427
8.310. The Materiel Solution Analysis phase involves assessment of potential materiel solutions
for a military need, conduct of an "Analysis of Alternatives " to explore alternative methods of
meeting the identified requirement and creation of a "Technology Development Strategy ". The
Material Solution Analysis phase ends when the Analysis of Alternatives is completed, the lead
component recommends materiel solutions identified by the initial capabilities document , and the
programme meets criteria for the DAS milestones. "Milestones" are used by DAS as a way to
oversee and manage acquisition program mes. There are three formal milestones for determining
whether an acquisition is ready to move forward. At each milestone, a program me must meet
specific statutory and regulatory requirements before it can proceed to the next phase of the
acquisition process. The milestones are: A (technology development); B (engineering and
manufacturing development); and C (production and deployment):
Milestone A Techno logy Development phase. During this phase, technologies are
developed, matured and tested. In order to be considered sufficiently mature for
product development, technologies must be tested and demonstrated in either a
"relevant" or "operational" environment. In this phase, a "Capability Development
Document", which details the operational performance parameters for the anticipated
system is developed. In addition, a "Reliability, Availability and Maintainability "
strategy is developed. 1428 Competitive prototy ping occurs in this phase. The
Technology Development phase is complete when, among other things, an affordable
programme (or increment) is identified and the technology and manufacturing
processes have been demonstrated in a relevant environment.
Milestone B Engineering and Manufacturing Development (EMD) phase: To enter this
phase, the acquisition program must have mature technology, approved requirements
and full funding. 1429 In addition, the "Milestone Decision Authority " must have
approved the acquisition strategy, the acquisition program me baseline (which details
the performance, schedule and cost goals of the program me) and the type of contract
that will be used to acquire the system. 1430 It is at this stage that DOD conducts a
process to choose a contracto r to integrate the technologies and capabilities into a
single system in preparation for the manufacturing process. 1431 A Program Office will
be created to oversee the execution of the contract and with responsibility to ensure
that the contractor completes t he work in the appropriate amount of time. EMD
consists of two sub -stages: (a) system integration, and (b) system demonstration.
During system integration, various sub -systems are integrated into one system and a
development model or prototype is produced. During system demonstration, the

1426 DAS is managed by the Under Secretary for Acquisition, Technology, and Logistics. Each acquisition
programme for a weapon system is managed by an Acquisition Program Office, which is headed by a Program
Manager, and who is usually supported by a staff that can include engineers, logisticians, contracting officer
and specialists, budget and financial managers, and test and evaluation personnel. The line of reporting is such
that Program Managers usually report to Program Executive Officers, who themselves report to a component
acquisition executive, who generally reports to the Under Secretary of Defense for Acquisition, Technology, and
Logistics (who also serves as the Defense Acquisition Executive). (Schwartz Report, (Exhibit USA-115), p. 6).
1427 Chairman of the Joint Chiefs of Staff Instruction, "Joint Capabilities Integration and Development
System", 3170.01, 10 January 2012, (Exhibit USA-114), p. A-6.
1428 Schwartz Report, (Exhibit USA-115), p. 8. "Reliability, Availability and Maintainability" is a term of
art encompassing, respectively, the probability of a system performing a specific function under stated
conditions for a specified time, the time a system is operable and able to be committed to a mission, and the
extent to which a system can be kept in or restored to a specific operating condition.
1429 Schwartz Report, (Exhibit USA-115), p. 9.
1430 Schwartz Report, (Exhibit USA-115), p. 9.
1431 United States' first written submission, para. 324. The United States explains that some of the effort
in the EMD phase will involve development activities, particularly with regard to integrating multiple
technologies into a functioning whole and devising a production process that ensures the necessary quality at
an affordable price.

model or prototype enters into developmental testing to demonstrate its military
usefulness, and that the system can be supported through manufacturing processes.
Much of the testing and evaluation of the system occurs in this sub -stage.1432 The
EMD phase is complete when, among other things, the system meets performance
requirements as demonstrated by a model in an intended environment, and when
manufacturing processes have been demonstrated.1433
Milestone C Production and Deployment phase: The Production and Deployment phase
is the phase in which a weapon system is produced and deployed. To enter this phase,
a program must have: (a) passed developmental testing and operational assessment,
(b) demonstrated that it is interoperab le with other relevant systems and can be
supported operationally, (c) shown that it is affordable, (d) be fully funded, and (e)
had the Milestone Decision Authority authorize the beginning of low -rate initial
production.1434 Once operational test and evaluation is complete, and adequate control
over manufacturing processes has been demonstrated, a program me can, with the
approval of the Milestone Decision Authority, go into full-rate production.1435
8.2.3.2.5 Legal restrictions on the dissemination of military technologies and data
8.311. Information generated by work performed under DOD procurement contracts and
assistance instruments is subject to a number of legal restrictions such as export -controls and
classification.
8.312. The export control regime comprises the International Tra ffic in Arms Regulations (ITAR),
which govern military items and technologies, and the Export Administration Regulations (EAR)
which govern other items and technologies. The ITAR implement the Arms Export Control Act
(AECA).1436
8.313. Section 2778(a) of the AECA authorizes the U.S. President to control the import and export
of defense articles and defense services and to provide foreign policy guidance to U .S. persons
involved in the import and export of such articles and services. 1437 The AECA authorizes the
President to designate items as defense articles and defense services and to promulgate
regulations for the import and export of such articles and services. The items so designated
constitute the United States Munitions List. The AECA defines "defense items" as "defense articles,
defense services and related technical data ". The lengthy definitions of "defense articles " and
"defense services " set forth in the AECA in general terms cover weapons, munitions, or other
implements of war and the services used in making sales of such articles.1438
8.314. In other words, information controlled under the ITAR generally covers technical data
related to weapons, munitions, or other implements of war or the services used in making sales of
such articles. 1439 The EAR govern other items and technologies.1440 The rationale for EAR is

1432 Schwartz Report, (Exhibit USA-115), p. 10. To move from system integration to system
demonstration, the "Milestone Decision Authority" must complete a post-preliminary design review assessment
(reviewing the extent to which the system meets requirements) and a post-critical design review assessment
(reviewing whether the overall design is mature).
1433 Schwartz Report, (Exhibit USA-115), p. 10.
1434 Low-rate initial production is intended to both prepare manufacturing and quality control processes
for a higher rate of production and provide test models for operational test and evaluation. (Schwartz Report,
(Exhibit USA-115), p. 10).
1435 Schwartz Report, (Exhibit USA-115), p. 10.
1436 United States Code, Title 22, sections 2751-2799aa-2.
1437 The rationale for export controls under the ITAR is expressed in section 2778(a)(2) of the AECA:
Decisions on issuing export licences under this section shall take into account
whether the export of an article would contribute to an arms race, aid in the
development of weapons of mass destructions {WMD}, support international
terrorism, increase the possibility of outbreak or escalation of conflict, or prejudice
the development of bilateral or multilateral arms control or non -proliferation
agreements or other arrangements.
1438 Arms Export Control Act, United States Code, Title 22, section 2794, (Exhibit USA-477), paras. 3
and 4.
1439 United States' response to Panel question No. 86, para. 146.
1440 Specifically, EAR, part 730.3 provides that the EAR control:

generally to serve the national security, foreign policy, non -proliferation of weapons of mass
destruction, and other interests of the United States. 1441 In the original proceeding, the panel
accepted that, although th e scope and coverage of the ITAR was not entirely clear, the ITAR
restrict Boeing's ability to use certain R&D performed for DOD towards its civil aircraft, that Boeing
complies with the ITAR in general, and took steps to ensure that the 787 would be "ITAR-free".1442
8.315. Another less prevalent but more restrictive limitation is the classification of information
under Executive Order 12958. 1443 Certain types of information, including information concerning
military plans, weapon systems or operations, and scientific, technological or economic matters
related to the national security, can be subjected to three levels of classification ( "Top Secret",
"Secret" and "Confidential") based on the harm that could reasonably be expected to result from
unauthorized disclosure.1444 Classified information (as well as information derived from classified
information) cannot be shared with persons lacking the requisite security clearance and a need to
use that information for government purposes. Executive Order 12958 also provides for s pecial
access program mes for specific classes of classified information that impose safeguarding and
access requirements that exceed those normally required for information at the same classification
level, in certain defined situations.1445
8.316. Pursuant to its a uthority to establish policies for R&D for all DOD program elements, DOD
adopted Instruction 5230.24 to establish a standard framework and markings for managing,
sharing, safeguarding, and disseminating technical documents. 1446 These different "distribution
statements" indicate the classes of persons permitted to access the information contained in a
document.1447
8.2.3.3 Whether there is a financial contribution
8.2.3.3.1 Introduction
8.317. In Section 7.3 of this Report, we make rulings regarding certain DO D aeronautics R&D
measures that were identified by the European Union in its panel request, which the United States
challenged as being outside the scope of this proceeding. In Section 7.8 above, we set forth the
categories of DOD aeronautics R&D measures that are properly before the Panel based on the
measures identified by the European Union in its panel request, and the outcomes of the Panel's
rulings regarding the various scope-related challenges brought by the United States .1448 These are

{A}ny item warranting control that is not exclusively controlled for export,
reexport, or transfer (in -country) by another agency of the U.S. Government or
otherwise excluded from being subject to the EAR pursuant to § 734.3(b) of the
EAR.
Thus, items subject to the EAR include purely civilian items, items with both civil and military, terrorism or
potential WMD-related applications, and items that are exclusively used for military applications but that do not
warrant control under the ITAR.
1441 Export Administration Regulations, part 730, (Exhibit USA-482), para. 730.6.
1442 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1160.
1443 Executive Order 12958, "Classified National Security information", 17 April 1995, (Exhibit USA-483).
1444 Executive Order 12958, section 1.3(a) provides for a "Top Secret" classification for exceptionally
grave damage to the national security that the original classification authority is able to identify or describe, a
"Secret" classification for serious damage to the national security that the original classification authority is
able to identify or describe, and a "Confidential" classification for damage to the national security that the
original classification authority is able to identify or describe.
1445 Executive Order 12958, "Classified National Security information", 17 April 1995, (Exhibit USA-483),
sections 4.1(h) and 4.4. A special access programme applied to the Long-Range Strike Bomber program
elements after 2011. (See Long Range Strike Bomber Budgets for FY 2007-FY 2013 (PE 0604015F), (Exhibit
EU-78), frame 37/47, p. 1).
1446 DOD Instruction, "Distribution Statements on Technical Documents", 5230.24, 23 August 2012,
(Exhibit USA-485), p. 1.
1447 "Distribution A" statements are for materials available to the general public, "Distribution B"
statements for information restricted to U.S. Government agencies, "Distribution C" for information restricted
to U.S. Government agencies and contractors, "Distribution D" for information restricted to DOD and DOD
contractors, and "Distribution E" for information restricted to DOD. "Distribution F" is a residual category
covering non-standard access restrictions, allowing the DOD entity that sponsored the work that generated the
information to specify permitted uses of information. (DOD Instruction, "Distribution Statements on Technical
Documents", 5230.24, 23 August 2012, (Exhibit USA-485), pp. 19 and 27).
1448 See para. 7.548 above.

the "DOD aeronautics R&D measures " to which we refer in our subsidy analysis in this and
subsequent sections of the Report.
8.318. We first consider whether: (a) the post-2006 assistance instruments ; and (b) both
pre-2007 and post-2006 procurement contracts, involve financial contributions within the meaning
of Article 1.1(a)(1) of the SCM Agreement. 1449 We then consider whether the financial
contributions so identified confer a benefit , within the meaning of Article 1.1(b) of the SCM
Agreement.
8.2.3.3.2 Main arguments of the parties and third parties
8.319. The European Union submits that the parties appear to be in agreement that the DOD
assistance instruments (both pre-2007 and post-2006) are financial contributions.1450 Moreover, it
considers that the characterization of transactions between DOD and Boeing under U .S. law as
either assistance instruments or procurement contracts does not change the fact that all of the
transactions are "akin to a species of joint venture ". Both DOD assistance instruments and DOD
procurement contracts involve more than simply payments in exchange for research.
8.320. The European Union argues that DOD procurement contracts funded through "general
research" program elements and DOD procurement contracts funded through "military aircraft "
program e lements, like the DOD assistance instruments before the original panel, constitute
transactions that are "akin to a species of joint venture ", which are "analogous to a type of equity
infusion", and therefore constitute financial contribution s under Articl e 1.1(a)(1)(i) of the SCM
Agreement. In particular, the European Union considers that payments under the DOD
procurement contracts are a direct transfer of funds under Article 1.1(a)(1)(i), while the provision
of access to facilities, equipment, and employees constitutes a government provision of goods and
services other than general infrastructure within the meaning of Article 1.1(a) (1)(iii) of the SCM
Agreement.
8.321. Like the DOD assistance instruments and NASA procurement contracts before the original
panel, under the DOD procurement contracts: (a) both parties commit resources; (b) the parties
share the fruits of their research; and (c) the subjects to be researched are often determined
collaboratively. The European Union submits that the Appellate Body relie d on these three primary
characteristics to find that the measures were "akin to a species of joint venture ". Moreover, in
finding that the funds were "analogous" to an equity infusion under Article 1.1(a)(1)(i) of the SCM
Agreement, the European Union sub mits that the Appellate Body underscored the following four
characteristics: (a) funding is provided in expectation of some kind of return; (b) there is no
certainty that research will be successful; (c) the funders' risks are limited to the amount of money
they commit and the opportunity cost of other support they provide; and (d) the funder s also
contribute to the project by providing access to facilities, equipment, and employees , as some
equity investors would also do.1451 The European Union considers that all of the DOD procurement
contracts feature all of these characteristics.
8.322. In respect of procurement contracts for systems acquisitions under the "military aircraft"
program elements, the European Union rejects the United States ' argument that the procur ement
contracts are in some cases a "purchase of goods ". The European Union argues that there is a
distinction between "RDT&E" appropriation and "procurement" appropriation, where the latter is
the category resulting in the purchase of goods. The European Union clarifies that it does not
challenge procurement appropriations. It also notes that the United States itself disagreed with the
argument that RDT&E appropriations could be purchases of goods in the original proceedings.1452
8.323. The European Union submits that the United States has failed to demonstrate that, even if
certain of the DOD procurement contracts were considered to be "purchases of services ",

1449 See para. 8.289 for an explanation of why we include within our evaluation of the post-2006 DOD
aeronautics R&D measures in this Section 8.2.3 an evaluation of whether the pre-2007 procurement contracts
that are within the scope of this proceeding involve specific subsidies to Boeing.
1450 European Union's second written submission, para. 441 (referring to United States' first written
submission, paras. 280 and 383).
1451 European Union's first written submission, paras. 363-369; second written submission,
paras. 442-445 and 452-455; and response to Panel question No. 17, paras. 115-119.
1452 European Union's second written submission, paras. 459-462.

purchases of services are excluded from the scope of Article 1.1(a)(1). The United States has
failed to demonstrate on the basis of a proper Vienna Convention analysis of Article 1.1(a)(1) that
purchases of services are excluded. In light of the Appellate Body 's decision to declare the panel 's
interpretation of this issue "moot and of no legal effect ", the United States has no basis to argue
that the Appellate Body would have agreed with the panel 's reasoning as to why purchases of
services are excluded from the scope of Article 1.1(a)(1).1453
8.324. The European Union also argues, in the alternative, that "the transfer to Boeing of patent
and other intellectual property rights in the technologies and data developed under the NASA and
DOD aeronautics R&D programmes additionally constitutes a provision of 'goods … other than
general infrastructure ' within the meaning of Art icle 1.1(a)(1)(iii) of the SCM Agreement ". The
European Union does not ask the Panel to consider this "alternative" conception of the financial
contribution "unless it rejects the European Union 's primary contentions, with respect to the
characterisation of the challenged aeronautics R&D measures".1454
8.325. The United States does not dispute that, consistent with the findings of the Appellate Body
with regard to the pre -2007 DOD assistance instruments, the DOD assistance instruments involve
financial contributions in the form of a collaborative relationship "akin to a species of joint venture"
having "characteristics analogous to equity infusions ".1455 It agrees that the DOD assistance
instruments "operate basically the same today as they did in the period covered by t he original
panel and Appellate Body findings".1456
8.326. However, the United States also makes a number of factual assertions regarding the DOD
assistance instruments. It asserts that, of the 50 assistance instruments between Boeing and DOD
at issue in the origina l proceeding, DOD only made additional payments under six in the
FY 2007-FY 2012 period, for a total of USD [***].1457 Moreover, these assistance instruments did
not provide for use of DOD facilities. It states that DOD has only entered into three post -2006
assistance instruments with Boeing funded through the original 23 RDT&E program elements, and
submits evidence that these provided a total of USD [***].1458 The United States also submits
evidence that Boeing entered into three post -2006 assistance instruments which received funding
through the "additional" RDT&E program elements for a total value of USD [***] in FY 2007-FY
2012.
8.327. As to DOD procurement contracts , the United States argues that the European Union has
failed to establish that the payments and access to facilities that DOD provided to Boeing through
any of the DOD procurement contracts identified in this proceeding constitute financial
contributions within the meaning of Article 1.1(a)(1) of the SCM Agreement. The European Union's
analysis addresses only whether the DOD procurement contracts can possibly be characterized as
joint ventures, without also examining whether they would be more appropriately characterized as
purchases of services. The United States considers that, following the guidance fro m the Appellate
Body, a panel should take account of all of the relevant characteristics of the measure, and the
features which are most central to the measure itself. As the Appellate Body acknowledged in
Canada – Renewable Energy / Canada – Feed-in Tarif f Program , one transaction may have
multiple aspects and a panel's analysis must take those complexities into account.1459 Thus, even if
the European Union were correct that the DOD procurement contracts had characteristics that

1453 European Union's second written submission, paras. 450, 451, and 463.
1454 European Union's response to Panel question No. 32, para. 197. The European Union explains that
this is an alternative manner of bringing the aeronautics R&D contracts within the scope of Article 1.1(a)(1) of
the SCM Agreement.
1455 United States' first written submission, paras. 279 and 280; second written submission, para. 257.
1456 United States' second written submission, para. 257.
1457 United States' first written submission, para. 278. Funds Obligated to Air Force Agreements with
Boeing for FY 2007-FY 2012, by program element, (Exhibit USA-108) (BCI).
1458 These assistance instruments are: N001-08-2-C009, FA8650-08-2-3834, and FA8650-11-2-2138.
The United States says that the only access to U.S. Government facilities involved was the use of NASA
Langley's 14x22 foot V/STOL wind tunnel in connection with FA8650-08-2-3834. (See United States' first
written submission, para. 274).
1459 United States' second written submission, para. 371 (referring to Appellate Body Report, US – Large
Civil Aircraft (2nd complaint), para. 586).

were "akin to a joint venture ", the Panel would still need to weigh the relative merits of each
possible characterization, which the European Union's arguments fail to do.1460
8.328. The United States distinguishes between two types of DOD procurement contracts: those
funded under S&T program elements (which the European Union refers to as "general research"
program elements); and those funded under "systems acquisition" program elements (which the
European Union refers to as "military aircraft" program elements). In both cases, the United States
submits that the R&D has a military objective and that any potential civil uses are not in
themselves an objective of the procurement contracts. 1461 The United States argues that the
European Union fails to "thoroughly scrutinize the measure " in order to ide ntify all relevant
characteristics of the DOD procurement contracts so as to establish the existence of a financial
contribution. Thus, it submits that the European Union has failed to demonstrate that any of the
DOD procurement contracts have the same characteristics as the NASA procurement contracts and
DOD assistance instruments addressed by the original panel.1462
8.329. Taking into account the operation of the DOD procurement contracts under law, their
particular purpose, and the fact that DOD's primary contrib ution consists of payments (as
provision of equipment and employees is either outside the Panel 's terms of reference, or is
otherwise "minimal or non -existent" and "rarely" made available), the United States argues that
the DOD procurement contracts are no t "akin to a species of joint venture ", but rather, are either
purchases of research services to assist DOD in developing technologies to be available for
incorporation into products and processes to meet military needs, or in certain cases, purchase s of
goods. Specifically, the United States contends that the DOD procurement contracts funded under
"general research " program elements and those "for improvements and upgrades under the
military aircraft " program elements are purchases of services. Otherwise, DOD procurement
contracts that are specifically for systems acquisitions under the "military aircraft" program
elements are purchases of goods, under Article 1.1(a)(1)(iii) of the SCM Agreement.1463
8.330. Regarding the procurement contracts that it considers are p roperly characterized as
purchases of services, the United States argues that the measures do not involve financial
contributions under any of the subparagraphs of Article 1.1(a)(1) of the SCM Agreement. While the
Appellate Body declared "moot" the original panel's interpretation of Article 1.1(a)(1)(i) of the SCM
Agreement as excluding transactions properly characterized as "purchases of services ", such a
declaration means only that the panel should not have reached the issue. 1464 The original panel 's
reasoning is nevertheless still compelling and persuasive. 1465 Accordingly, the procurement
contracts that are properly characterized as purchases of services do not fall within the definition
of a financial contribution under Article 1.1(a)(1) of the SCM Agreement.1466

1460 United States' second written submission, paras. 371 and 415.
1461 United States' second written submission, para. 272. Moreover, the United States argues that
procurement contracts or assistance instruments are the only mechanisms through which DOD is legally
authorized to provide payments, facilities, or equipment to private entities, and therefore, contracts pursuant
to these are the only evidence to determine whether DOD provides any payments or support to Boeing.
(United States' second written submission, para. 274).
1462 United States' first written submission, paras. 312, 317, 379-388, and 412-414. In addition, the
United States argues that the European Union has failed to provide evidence on "military aircraft" program
elements for the period after 2006, and that all evidence prior to that time "consists exclusively of
cross-references to the 2006 CRA Report", which, according to the United States, "relies almost entirely on the
subjective impressions of CRA staff at that time". For one, the United States submits that the failure to include
evidence cited in the CRA reports as exhibits to its submission in this dispute violates the Panel's Working
Procedures. In addition, it submits that reliance on the CRA Report, amounts to "an entirely ex post and
speculative approach to the facts" that runs afoul of the "ex ante, fact-based examination" that is required by
the SCM Agreement. Thus, the United States argues "{t}here is nothing identifying the relevant transactions,
explaining their terms or putting them in the context of the time at which the parties entered into the
agreement", thereby preventing the Panel from thoroughly scrutinizing the measures, and signifying that the
European Union failed to make a prima facie case in respect of these transactions. (United States' first written
submission, para. 399 and fns 664 and 665 (citing Appellate Body Report, US – Large Civil Aircraft (2nd
complaint), para. 706)). See also United States' response to Panel question No. 30, para. 133.
1463 United States' first written submission, para. 309; second written submission, paras. 363, 388, and
390.
1464 United States' second written submission, para. 383.
1465 United States' second written submission, paras. 383, 401, and 425. See also ibid. paras. 226-231.
1466 United States' first written submission, paras. 310, 389, and 419-424. Moreover, the United States
considers the logic of the Appellate Body in Canada – Renewable Energy / Canada – Feed-In Tariff Program, in

8.331. Finally, the United States argues that the European Union has failed to establish that
intellectual property rights accruing to Boeing pursuant to activities conducted under the
aeronautics R&D measures are financial contributions. First, as a factual matter, the United States
argues that there is no transfer of intellectual property rights to Boeing under U.S. law, as the
patent is the property of the person who made the invention. Second, intellectual property is not a
"good" and therefore cannot be the subject of a financial contribution in the form of a government
provision of goods within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement. Third, any
intellectual property rights developed as a result of work under a DOD procurement contract ar e
an effect of the contract, not an independent financial contribution.1467
8.332. Certain of the third parties (Brazil, Canada, Japan, and Korea) make arguments as to the
appropriate scope of Article 1.1(a)(1) of the SCM Agreement in relation to the aeronautics R&D
measures and transactions that may be characterized as involving purchases of services. These
arguments are summarized in our assessment of whether the post -2006 NASA aeronautics R&D
measures involve financial contributions, in Section 8.2.2.3.1 above.
8.2.3.3.3 Evaluation by the Panel
8.333. The task before us is to determine whether the DOD aeronautics R&D measures involve
financial contributions to Boeing within the meaning of Article 1.1(a)(1) of the SCM Agreement.
This requires us to deter mine whether the DOD aeronautics R&D measures can properly be
characterized as involving any of the particular forms of financial contribution identified in
subparagraphs (i) through (iii) of Article 1.1(a)(1).
8.334. In order to undertake that evaluation, we mus t first examine the measures to determine
their relevant characteristics, and then consider whether, in light of a proper interpretation of
Article 1.1(a)(1), these measures, properly characterized, fall within the scope of that
provision.1468
8.335. There are aspec ts of the DOD aeronautics R&D measures that it is important to bear in
mind as part of this characterization exercise. First, the measures involve payments and the
access to DOD facilities (and for some of the measures, equipment, and employees). Second,
those payments and access to DOD facilities, equipment, and employees occur through particular
categories of legal instruments, namely "assistance instruments " and "procurement contracts ".
Finally, those legal instruments are funded through particular RDT&E program elements with
particular programmatic objectives that are reflected also in the objectives of the legal instruments
funded under them.
8.336. In examining the relevant characteristics of the DOD aeronautics R&D measures, it is
important to consider both the program elements as well as the legal instruments which are the
means through which the research goals of those program elements are implemented, and which
set forth the terms and conditions on which particular aspects of the research work are to be
conducted. The program elements and legal instruments are integrally connected with each other.
While the characterization exercise ultimately focuses on the assistance instruments and
procurement contracts as the direct legal means through which the paymen ts and access to
facilities (and in some cases equipment and employees) are provided, which is consistent with the
approaches taken by the panel and the Appellate Body in the original proceeding, these legal
instruments cannot be characterized in the abstr act, but only in the context of the DOD RDT&E
program elements through which they are funded.
8.337. In Sections 8.2.3.2.3 and 8.2.3.2.4 of this Report, we describe the nature of R&D
conducted under the tw o general categories of RDT&E program elements, namely, S&T/general
aircraft and systems acquisition/military aircraft program elements, and the differing procedures
by which that R&D is commissioned. It is clear to us from that discussion, as well as from our

concluding that a purchase of goods under Article 1.1(a)(1)(iii) occurs "when a 'government' … obtains
possession … over a good by making a payment of some kind (monetary or otherwise)" means that where a
government obtains entitlement to the supply of a service by making a payment of some kind, there would
likewise be a purchase of a service. (United States' first written submission, para. 390 (citing Appellate Body
Reports, Canada – Renewable Energy / Canada – Feed-In Tariff Program, para. 5.123)).
1467 United States' second written submission, paras. 443-447.
1468 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 589.

review of the RDT&E program budgets, procurement contracts, assistance instruments, and other
evidence concerning the RDT&E program elements, that the acquisition of a weapon system is a
large and complex engineering development project that occurs ov er many years, covers a
multitude of technical and bureaucratic processes and phases and involves a wide variety of
participants.
8.338. Systems acquisition/military aircraft RDT&E procurement commences with the JCIDS
process, which is a "requirements generation" process for analysing the military 's capability needs
and gaps. 1469 The materiel solutions are those that are determined to meet the military needs
identified in the JCIDS process. 1470 The technologies that are developed, matured, and tested are
those that will be integrated into the weapon system.1471 The integration of the technologies into a
single weapon system and the development of manufacturing processes that occurs during the
EMD phase are all necessary prerequisites to production and deployment of the wea pon
system.1472 In other words, these long-term, highly complex research and engineering projects are
ultimately directed towards equipping the U .S. armed forces with highly specialized , technical
items, for which DOD is the only buyer in the United States an d the predominant buyer in the
world.
8.339. Similarly, S&T/general aircraft RDT&E procurement, while not directed toward s technology
solutions for a specific weapon system, is directed towards the same objective of equipping the
U.S. armed forces. With the exception of the explicitly "dual-use" RDT&E program elements, which
we discuss in paragraph 8.346 below, there is no reference in the objectives of the S&T/general
aircraft program elements to the goal of promoting the competitive ness of the U.S. aeronautics
industry. This is an important and fundamental distinction between the NASA aeronautics R&D
programmes and the DOD RDT&E program elements before us.
8.340. In addition, the DOD assistance instruments and procurement contracts should b e
understood in the broader context of the function and activities of DOD. The mission of the DOD is
to provide the military forces needed to deter war and protect the security of the United States.
Title 10 of the United States Code governs the organizati on, structure and operation of the U .S.
Armed Forces. Several sections within the title charge the secretaries of the military departments
(Army, Navy, and Air Force) with responsibility to "equip" the armed forces. 1473 DOD is the
exclusive buyer of air weapo nry and weapons technology in the United States. 1474 The products
that DOD ultimately procures are highly sophisticated and technically complex weapon systems
designed to meet identified military needs of the United States Government. They require
extensive technological development over a period of many years as a necessary precursor to their
production and deployment.
8.341. As we have explained in Section 8.2.3.2.3 of this Report, DOD assistance instruments and
procurement contracts fund R&D work to produce military technologies for military purposes, with
the exception of DOD assistance instruments funded under RDT&E program elements that have
the explicit objective of developing dual -use technologies. Th is concept of "dual-use", which
describes the explicit objectives of certain of the DOD RDT&E program elements , encompasses
both the application to military needs of technology solutions developed by industry for civilian
application (military in -bound) and the flow of technologies from military-developed contexts to
commercially useful application in civilian contexts.1475
8.342. It is important to note that the European Union uses the term "dual-use" in a different
sense from the sense outlined in the preceding paragraph.

1469 Schwartz Report, (Exhibit USA-115), pp. 3 and 4.
1470 Schwartz Report, (Exhibit USA-115), p. 7.
1471 Schwartz Report, (Exhibit USA-115), p. 8.
1472 Schwartz Report, (Exhibit USA-115), p. 10.
1473 Schwartz Report, (Exhibit USA-115), p. 2.
1474 The United States also has the largest defence budget of any country in the world. For example, the
U.S. defence budget was estimated to be USD 600.4 billion in 2013, compared to the next largest defence
budgets of USD 112.2 billion for China and USD 68.2 billion for Russia. (IISS, Military Balance 2014 Press
Statement, 5 February 2014, (Exhibit USA-487), p. 2). The U.S. defense budget is divided into five broad
budget categories: military personnel, operations & maintenance, procurement, RDT&E and military
construction. (CRA Report, (Exhibit EU-29), p. 4).
1475 Second Supplemental Razgaitis Declaration, (Exhibit EU-1398) (BCI), para. 14.

8.343. The European Union us es the term "dual -use" to refer to the military technologies
developed by Boeing under the various RDT&E program elements that the European Union
considers, based on the opinions of its experts, have potential applicability to Boeing LCA. 1476 As
explained in paragraph 8.296 the European Union 's DOD-related subsidy challenge concerns the
funding and access to facilities, equipment, and employees provided to Boeing for "R&D applicable
to the development, design and production of LCA ".1477 In paragraphs 7.86 to 7.88 of
Section 7.3.1 of this Report, we explain the process by which the European Union identified the
specific aspects of the various RDT&E pr ogram elements that it considers could potentially have
application to Boeing's LCA development.1478
8.344. Accordingly, the European Union's conception of what it considers to be "dual-use" R&D
should not be confused with the meaning of "dual -use" used to describe the explicit objectives of
certain of the DOD RDT&E program elements.
8.345. In the original proceeding, the panel identified the Dual -Use Applications and Dual -Use
Science and Technology (PE 0602805F) program element, and the Manufacturing
Technology/Industrial Preparedness program elements for both the Air Force (PE 0603771F and
0708011F) and Navy (PE 0708011N) , as having the explicit objective of developing "dual-use"
R&D.1479 As the budget estimates for the Air Force Dual Use Science & Technology (DUS&T)
program element explain, the policy underlying the DUS&T program element was to enable the Air
Force to leverage industry investments in advanced technologies that are mutually advantageous
to both the Air Force and Industry (i.e. military in -bound dual-use).1480 A DOD Directive explains
that the fundamental policy underlying the various ManTech program elements is to address the
situations in which the private sector cannot or will not make the necessary investments in
manufacturing technologies that are necessary to produce DOD materiel on a timely basis.1481
8.346. The European Union 's claims in this proceeding cover the DUS&T and Air Force and Navy
ManTech program elements.1482 In addition, the European Union 's claims cover the Defense -Wide
ManTech (PE 0603860Z) program element which funded two assistance instruments with Boeing in
the 2007 -2012 period. 1483 These RDT&E program elements have explicit dual -use objectives.
Moreover, these program elements have funded only assistance instruments with Boeing, so are
not relevant to our characterization of the DOD procurement contracts.1484
8.347. In identifying the relevant characteristics of the DOD assistance instruments and
procurement contracts, below, we bear in mind the foregoing aspects which we consider relevant
to their proper characterization.

1476 See also Section 7.3.6 of this Report.
1477 European Union's request for the establishment of a panel, paras. 11 and 12.
1478 The European Union's expert, Mr Rumpf, describes his assignment as being to estimate the amounts
of funding provided to Boeing by the RDT&E program elements that could benefit Boeing's commercial airplane
division. (Rumpf Report, (Exhibit EU-23), para. 1.1). Rumpf indicates that his identification of the relevant
S&T/general aircraft RDT&E program elements is based on his opinion as to the program elements and
activities that he considers involve "dual-use", non-engine aircraft R&D. (See Rumpf Report, (Exhibit EU-23),
para. 2.1). Similarly, Mr Rumpf's discussion of the systems acquisition/military aircraft RDT&E program
elements often refers to his opinion regarding the "potential" applicability to Boeing LCA, or "potential" to
benefit Boeing's LCA development. (See e.g. Rumpf Report, (Exhibit EU-23), para. 4.2 in relation to the C-17
and KC-46, and para. 4.3.4 in relation to the P-8A).
1479 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1148. The original panel appears to
have counted the Air Force and Navy ManTech program elements as a single program element.
1480 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1147.
1481 U.S. DOD Directive, "Manufacturing Technology (ManTech) Program", No. 4200.15
(19 September 2002), (Exhibit EU-295), p. 2.
1482 We note that Boeing received no funding under the DUS&T or ManTech (Navy) program elements
over the 2007-2012 period. (United States' first written submission, paras. 348 and 365).
1483 The European Union also challenges particular projects under both the IP ManTech (PE 0708011S)
program element and Technology Transfer (PE 0604317F) program element, but as explained in Section 7.3.3
of this Report, the Panel is not satisfied that any measures exist under these program elements and
accordingly does not further consider these alleged measures in its analysis of whether the DOD aeronautics
R&D measures involve specific subsidies that cause adverse effects.
1484 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1149.

8.2.3.3.3.1 DOD assistance instruments
8.348. The assistance instruments before us encompass those that were funded under the 23
original RDT&E program elements since the original proceeding, and certain post -2006 assistance
instruments funded under "additional" RDT&E program elements that we have found to be within
the scope of this proceeding (collectively, post-2006 assistance instruments).1485
8.349. In the original proceeding, the Appellate Body found that the payments and access to DOD
facilities provided to Boeing under the DOD assistance instruments constituted financial
contributions within the meaning of Article 1.1(a)(1) of the SCM Agreement.1486
8.350. As we explain in Section 8.1.3 of this Report, the United States has modified the pre -2007
DOD assistance instruments, and certain post -2006 DOD assistance instruments, to grant a
commercial use licence to DOD in respect of Boeing -owned patents. 1487 We note that the
United States does not allege that it has modified the terms of any post -2006 assistanc e
instruments in a way that results in those assistance instruments no longer constituting financial
contributions.1488
8.351. Moreover, the United States concedes that those post -2006 assistance instruments that
have not been modified by the DOD -Boeing Patent Lice nce Agreement operate in the same
manner as the DOD assistance instruments that were before the panel and Appellate Body in the
original proceeding, and that the Appellate Body's characterization of those assistance instruments
would apply to those post-2006 assistance instruments.
8.352. We agree that there is nothing in the nature or terms of the modified post -2006 DOD
assistance instruments, or the unmodified post -2006 DOD assistance instruments, that would
warrant characterizing them, under Article 1.1(a)(1), any differently from the way that the
Appellate Body had characterized the DOD assistance instruments before it in the original
proceeding.
8.353. We therefore find that the payments and access to DOD facilities, equipment, and
employees, provided to Boeing thr ough the post -2006 assistance instruments are
financial contributions within the meaning of Article 1.1(a)(1) of the SCM Agreement.
Specifically, the payments provided by DOD constitute financial contributions as a direct
transfer of funds within the meani ng of Article 1.1(a)(1)(i), and the provision of access
to facilities, equipment, and employees qualifies as a government provision of goods or
services other than general infrastructure within the meaning of Article 1.1(a)(1)(iii) of
the SCM Agreement.
8.2.3.3.3.2 DOD procurement contracts
8.354. We now consider the proper characterization of the DOD procurement contracts for
purposes of Article 1.1(a)(1). The procurement contracts before us encompass those that were at
issue in the original proceeding which, for reasons we explain in Section 7.3.2 of this Report, we
have found to be within the scope of this compliance proceeding, as well as post -2006
procurement contracts funded under the 23 original RDT&E program elements and certain
post-2006 p rocurement contracts funded under "additional" RDT&E program elements that we
have found to be within the scope of this proceeding.
8.355. As there were no findings at the conclusion of the original proceedings as to whether the
DOD procurement contracts constituted financial contributions, the United States has not modified
the terms of the pre -2007 procurement contracts, whether through the DOD -Boeing Patent
Licence Agreement or otherwise. There is accordingly no basis for distinguishing between pre-2007

1485 Para. 7.548 above provides a summary of the DOD aeronautics R&D measures that we have found
are within the scope of this proceeding, including the DOD assistance instruments funded under the
"additional" RDT&E program elements.
1486 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 625.
1487 DOD-Boeing Patent Licence Agreement, (Exhibit EU-401) (BCI). See Section 8.1.3.2 for a summary
of the relevant terms of the DOD-Boeing Patent Licence Agreement.
1488 Rather, the modifications to those assistance instruments are said to go to the issue of whether the
measures continue to confer a benefit.

and po st-2006 procurement contracts in our analysis of whether these instruments involve
financial contributions. Our analysis of the relevant characteristics of the DOD procurement
contracts therefore covers both the pre -2007 procurement contracts that were bef ore the original
panel and the post -2006 procurement contracts challenged for the first time in this compliance
proceeding.
8.356. The European Union argues that the DOD procurement contracts share all of the relevant
characteristics of the pre-2007 NASA procurement contracts and DOD assistance instruments that
led the Appellate Body to conclude that those instruments were collaborative research
arrangements "akin to a species of joint venture", which involved financial contributions to Boeing.
The United States responds that pointing to certain common characteristics is not sufficient, and
that a proper consideration of all of the characteristics of the DOD procurement contracts in fact
leads to the conclusion that some are properly characterized as purchases of services and outside
the scope of Article 1.1(a)(1), or as purchases of goods under Article 1.1(a)(1)(iii).
8.357. In the original proceeding, the Appellate Body examined various aspects of the NASA
procurement contracts and DOD assistance instruments, and ultima tely concluded that both sets
of measures were most properly characterized as collaborative research undertakings. For
example, with respect to the NASA procurement contracts, the Appellate Body said:
The transactions are collaborative arrangements that a re composite in nature in that
they involve various elements that are interlinked. The arrangements are akin to a
species of joint venture.1489
8.358. Of particular significance, the Appellate Body referred to evidence suggesting that the
relationship between NASA and Boeing in the particular context was one of "partnership".1490
Similarly, when discussing the DOD assistance instruments, the Appellate Body referred to the
composite nature of the transactions (as involving a combination of funding and access to
facilities), the collaborative nature of the transactions (as involving a pooling of monetary and non-
monetary resources on the input side and a sharing of the fruits of the research on the output
side) and crucially, that th ese transactions were undertaken in pur suit of a common goal for the
benefit of both DOD and Boeing.1491
8.359. We will examine the relevant characteristics of the DOD procurement contracts with a view
to determining whether, like the NASA procurement contracts and DOD assistance instruments
before the A ppellate Body, the relationship between DOD and Boeing in the particular context is
one of partnership, involving collaboration in pursuit of a common goal for the mutual benefit of
DOD and Boeing.
8.360. To begin, we recall that under U.S. law, procurement contr acts are used where the U .S.
Government is acquiring property or services for its direct benefit or use. 1492 The original panel
noted that all of the DOD procurement contracts that had been submitted in that proceeding
provided for the payment of a fee. 1493 The vast majority of the DOD procurement contracts before
the Panel follow the same structure: Boeing as the contractor receives reimbursement of its costs
actually incurred (primarily in the form of salaries, materials and overheads) and in most cases, a
fixed fee (as opposed to an "incentive" fee). According to the United States, the fee typically
represents between [[HSBI]] of the reimbursable costs.1494
8.361. Although the European Union 's claims cover the provision of DOD facilities, and in some
cases, equipment an d employees to Boeing under the procurement contracts, there is nothing
before us to suggest that the provision of facilities, equipment, and employees is anything but
marginal. We note that the European Union does not specifically identify any facilities, equipment
or employees that DOD allegedly provides to Boeing under any of the DOD procurement contracts.
Indeed, in summarizing the reasons why the DOD procurement contracts "satisfy the Appellate
Body's test" for demonstrating that they are "akin to joint ventures that provide equity infusions ",

1489 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 597.
1490 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 598-600.
1491 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 609.
1492 See para. 8.298(c) above.
1493 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1151.
1494 United States' response to Panel question No. 67, para. 33.

the European Union notes only that DOD commits to provide financial resources, and argues that
the absence of any provision of non-monetary resources and employees by DOD is not fatal to the
characterization of th e DOD procurement contracts as "akin to joint ventures that provide equity
infusions".1495
8.362. In short, under the DOD procurement contracts, DOD provides payments to Boeing, in
return for which Boeing performs specific R&D work as set forth in the various deliv ery orders and
as described in accordance with statements o f work or performance requirements. The payments
for the most part represent Boeing 's costs of performing the R&D work, plus a negotiated fee,
representing Boeing's profit.
8.363. The European Union argues that Boeing additionally contributes financial resources such as
non-reimbursed Independent Research and Development ( IR&D) expenditures, which it uses to
develop its background intellectual property to the "joint undertaking" between DOD and Boeing
under the procurement contracts. 1496 These expenditures are internal costs that contractors like
Boeing incur in order to maintain the technological competence and expertise that enable them to
provide the R&D services for which they are contracted. These expendi tures are not specified in
the procurement contracts as contributions to be made by Boeing and we do not consider that
Boeing's privately funded IR&D expenditures can be considered a contribution of "financial
resources" to a "joint undertaking" with DOD. Nor do we consider that, in making use of its own
intellectual property and know-how in order to carry out the R&D work for DOD, Boeing can be
said to be "contributing" its intellectual property to a joint venture with DOD.
8.364. While there are payments provide d by DOD in exchange for the performance of R&D by
Boeing, it is important to understand that this exchange occurs in a particular commercial context.
As is clear from our discussion in Section 8.2.3.2.4 of the way in which R&D is commissioned
under the RDT&E program elements, the research topics are set by DOD and are based primarily
on "user needs "; i.e. military needs identified by DOD on the basis of strategic defense
imperatives. In the systems acquisition/military aircraft context, those user needs are further
refined in that they are directed to the development of specific technologies necessary for the
creation or upgrading of specific weapon systems. Given the scale and complexity of the R&D
work, it is reasonable that contractors such as Boeing would have input into the process in order to
ensure that they are able to perform the work, and that the R&D will meet DOD 's requirements
and presumably, ultimately lead to full -rate production of weapon systems. However, unlike the
situation where NASA commissions aeronautics research, the R&D commissioned under DOD
procurement contracts is solely directed to meeting DOD 's military needs, independent of
enhancing the competitive position of contractors such as Boeing. The interac tion between DOD
and Boeing therefore takes place in this different commercial context, and while it necessarily
involves DOD and Boeing working together, the nature and purpose of this interaction is not the
same as when two partners work together to set research topics based on their aligned interests in
the outcomes.
8.365. The European Union also points to the allocation of intellectual property rights between
DOD and Boeing under the DOD procurement contracts as a "sharing of the fruits of the research "
that is indicative of a joint undertaking or collaborative arrangement. As the original panel
explained, the allocation of patents is uniform across all U.S. Government R&D contracts and
agreements, including NASA procurement contracts, DOD assistance instrumen ts and DOD

1495 European Union's second written submission, paras. 446-448. The United States responds that any
such access to facilities, equipment, and employees is "not significant" with respect to S&T/general aircraft
procurement contracts and is "rare" as regards systems acquisition/military aircraft procurement contracts.
(United States' first written submission, paras. 388 and 418; second written submission, paras. 375 and 377).
The United States asserts that in any case, the European Union has provided no evidence in support of its
contention that DOD provides Boeing with access to DOD facilities or employees, and any provision of
equipment is highly limited. (United States' first written submission, para. 385; second written submission,
para. 367).
1496 European Union's second written submission para. 446, as clarified in European Union's response to
Panel question No. 16, paras. 112 and 113. Specifically, the European Union clarifies that it does not argue
that Boeing's non-reimbursed, internal IR&D expenditures are a contribution of financial resources under the
DOD procurement contracts in the same way as Boeing shares costs under DOD assistance instruments.
Rather, with respect to the former, there is a time lag between the time that Boeing funds its own IR&D and
then uses the background intellectual property created from that IR&D as its "contribution" to the "joint
undertaking" pursuant to a particular procurement contract.

procurement contracts.1497 For present purposes, we note that where DOD employees and Boeing
employees work together under a DOD procurement contract on a research effort that results in an
invention, the allocation of ownership of patent rights is as follows:
a. Where a DOD employee makes an invention in the course of work, the U.S. Government
will have sole ownership of the invention, and thus the right to obtain a patent. This is
because the U.S. Government employee who made the invention would be recognized as
the inventor, and his or her interest in the patent that would issue in that employee 's
name would pass to the U.S. Government.1498
b. Where a Boeing employee makes an invention in the course of work, Boeing has title to
the invention and thus the r ight to obtain a patent. 1499 This results from the application
of the Bayh -Dole Act and associated legislative instruments and implementing
regulations. The U.S. Government receives a government use license in Boeing
inventions made in the performance of a DOD procurement contract.1500
c. Where DOD and Boeing employees jointly make an invention in the course of work, the
resulting patent would issue jointly in the names of the DOD and Boeing employees, and
by operation of the laws, regulations and contract clauses discussed in (a) and (b)
above, DOD and Boeing would each own an undivided share in rights under the
patent.1501
8.366. In respect of rights to technical data, such as research results developed or delivered
under DOD procurement contracts, any data delivered under an R&D contract funded solely by the
U.S. Government (such as the DOD procurement contracts) is "unlimited rights data ", meaning
that the U.S. Government obtains unlimited rights to use the technical data as it sees fit, both
inside and outside the government.1502
8.367. Therefore, under a DOD procurement contract, there is a "sharing" of intellectual property
rights resulting from Boeing's performance of the R&D work, which occurs by operation of U.S. law
in relation to all U.S. Government R&D contracts, regardless of the agency or the contractor.
However, as we explain in Section 8.2.3.4, contextual factors suggest that the "balance" of that
sharing is substantially more in DOD 's favour and less in Boeing 's favour than under the DOD
assistance instruments, or NASA procurement contracts. Most significantly, DOD is commissioning
R&D services to support the development of military systems for DOD 's own distinct purposes.
Unlike the DOD assistance instruments, or NASA procurement contracts, DOD's objectives do not
include, or align with, advancing Boeing 's development of technologies applicable to LCA. With

1497 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1149.
1498 This is by virtue of a U.S. regulation which provides for the U.S. Government to obtain the title to
any invention made by a U.S. Government employee. The United States Code of Federal Regulations, Title 37,
section 501.6 provides that, with certain limited exceptions, the U.S. Government obtains title to any invention
made by a U.S. Government employee during working hours, or with a contribution of government facilities,
equipment, materials, funds or information, or of time or services of other government employees on official
duty, or which bears a direct relation to or is made in consequence of the official duties of the inventor.
1499 As Razgaitis explains, in the United States, patent ownership generally vests with the party whose
employees are its inventors. (Razgaitis Declaration, (Exhibit EU-1262) (BCI), para. 24).
1500 United States Code of Federal Regulations, Title 48, section 52.227-12, (Exhibit USA-368). This
government use license gives the U.S. Government the rights to: (a) use the invention without paying
additional fees or royalties to Boeing in all future contracts between Boeing and any agency of the U.S.
Government anywhere in the world; and (b) authorize other contractors to use the invention without any
additional fees or royalties in all future contracts between that contractor and any agency of the U.S.
Government anywhere in the world (thereby providing such other contractors with a license defence against an
infringement proceeding covering the contractor's use of the patented invention in the performance of a
contract for the U.S. Government).
1501 United States Code of Federal Regulations, Chapter 37, section 501.6, (Exhibit USA-310); Patent
Rights in Inventions Made with Federal Assistance, United States Code, chapter 35, sections 200-212, (Exhibit
EU-220), sections 201 (c), (e) and (i), and 202(a); Memorandum on Government Patent Policy, (Exhibit
EU-1062); Executive Order 12591, "Facilitating access to science and technology", 10 April 1987, (Exhibit
EU-238); and United States Code of Federal Regulations, Title 48, sections 27.300-306, (Exhibit EU-221),
sections 27.303(a) and (b).
1502 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1300. As the original panel explained,
data rights apply to so-called "technical data", which means "recorded information (regardless of the form or
method of the recording) of a scientific or technical nature (including computer databases and computer
software documentation)". (Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1298).

respect to Boeing -owned patents that may arise from performing the R&D work for DOD, DOD
obtains a government use licence that enables it to fully exploit Boeing 's patents for DOD 's
purposes, as we explain more fully in paragraphs 8.422 and 8.423. DOD also obtains unrestricted
rights to the data. Boeing 's ownership of the patents to inventions made by its employees in the
course of work under a DOD procurement contract does give Boeing the legal right to exploit the
military technologies in question for commercial purposes. Howev er, as we explain in
paragraphs 8.422 to 8.425 the particular commercial context means that this legal right is in
practice restricted.
8.368. This different "balance" of allocation of intellectual property rights that results from the
performance of work unde r a DOD procurement contract also affects our assessment of whether
DOD and Boeing can be said to share in the "risks and rewards" of the commissioned R&D. While
the outcome of R&D performed under many of the DOD procurement contracts (especially under
S&T/general aircraft program elements) is uncertain, the risks and rewards are borne principally
by DOD. Under the vast majority of the DOD procurement contracts, Boeing is paid its costs for
performing the R&D and earns a negotiated fee or profit, which is a smaller proportion of the
overall cost.1503 Boeing does not appear to risk very much at all, as it is paid its costs and will
make a profit regardless of whether the research yields the desired outcomes for DOD. Aside from
the fee or profit that Boeing earns on completion of the contracted research tasks, the rewards of
the successful outcome of the research are primarily and in practical terms captured by the
government use licence, owing to the fact that the technologies in question are military and DOD
is Boeing's only customer for such technologies. Although some of the military technologies may
also have potential civil applications, Boeing's practical ability to exploit those technologies for civil
applications is limited by legal restrictions on the use of information and technologies developed
under the DOD procurement contracts outside the military context.1504
8.369. We have considered the relevant characteristics of the DOD procurement contracts in their
particular context, including: the objectives of the RD T&E program elements through which the
procurement contracts are funded, which are purely military in nature and independent of
objectives such as promoting the competitiveness of the U.S. aeronautics industry (an important
difference we see between DOD an d NASA in commissioning aeronautics R&D) ; the nature of the
research conducted under the RDT&E program elements ; the ways in which R&D is commissioned
under the RDT&E program elements ; as well as the nature of the respective performance
obligations of DOD and Boeing under the procurement contracts. 1505 We have considerable
difficulty in concluding that the DOD procurement contracts are functionally like or equivalent to
joint venture arrangements or collaborative undertakings. We do not see enough in the
relationship between DOD and Boeing under the DOD procurement contracts that points to it being
one of "partnership", "collaboration" or "joint-venture", in which both parties act in pursuit of a
common goal for their mutual benefit.
8.370. As we have explained, we d o not regard the allocation of intellectual property rights
between DOD and Boeing under DOD procurement contracts as transforming the relationship
between DOD and Boeing under DOD procurement contracts from purchaser and seller to joint
venture partners.1506 We regard the risks and rewards of the R&D as being principally for DOD.
8.371. In sum, we are not persuaded, when we consider all of the relevant characteristics of the
DOD procurement contracts in their totality and proper context, that DOD and Boeing can be

1503 Mr Razgaitis explains that the essential feature of "cost plus a fee" or "profit" R&D contracts from
the perspective of the commissioned party is that it does not expect to lose money on the R&D. If the
challenges of performing the R&D are greater than proposed, the commissioned party will either receive
additional funding (at the commissioning party's option) or will reduce the scope of work. All that is at risk for
the commissioned party is possibly the relatively small fee. (Second Supplemental Razgaitis Declaration,
(Exhibit EU-1398), para. 40). We do not consider that the same conclusion applies with respect to the NASA
procurement contracts that involve payment of a fee to Boeing because, as we explain in para. 8.151, the fact
that one of the objectives of the NASA commissioned R&D is to promote the competitiveness of the U.S.
aeronautics industry means that Boeing indirectly shares the risks of the R&D being unsuccessful.
1504 The principal legal restrictions on the dissemination of military technologies and data are described
in Section 8.2.3.2.5 above.
1505 These characteristics are discussed in detail in Sections 8.2.3.2.2 through 8.2.3.2.4 above.
1506 If it were, it would effectively mean that every time the U.S. Government commissions R&D under a
procurement contract, regardless of the identity of the agency or commissioned party, the objectives of the
research, or the other terms of the contract, the parties would be considered to be in a form of joint venture or
collaborative undertaking. We do not think this would be a reasonable outcome.

considered to be parties with broadly aligned interests engaging in a collaborative enterprise in
which they both have a significant stake in the risks and returns. 1507 Rather, their relationship is
principally one in which DOD acquires R&D services from Boeing.
8.372. We acknowledge that there are special features of the DOD procurement contracts that in
some respects obscure what we see as this basic relationship between DOD and Boeing of buyer
and seller. DOD procurement contracts are the legal instruments through which DOD commissions
contractors such as Boeing to undertake complex process es of developing and maturing
technologies for application to particular military systems in various stages and over long periods
of time.1508 However, the interaction that occurs b etween DOD and Boeing in connection with this
engagement is qualitatively different from the collaboration that occurs between partners in a
collaborative venture, in which both are mutually invested in the outcome. The interaction between
DOD and Boeing under the DOD procurement contracts is fundamentally directed to DOD acquiring
what DOD needs (independently of Boeing 's commercial interests), and to Boeing performing the
work that meets DOD's needs.
8.373. The United States argues that certain of the procuremen t contracts that are for systems
acquisition (i.e. "military aircraft " program elements) are most appropriately characterized as
involving purchases of goods within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.
According to the United States, where the work performed by Boeing under a procurement
contract involves modifying an existing aircraft, the proper characterization of that procurement
contract is as a purchase of services because Boeing would not be producing a new good.
However, if th e work requires Boeing to either bring a product into service (e.g. bringing a
systems acquisition project to the point where full rate production could begin) or to produce a
new component for integration into the aircraft, the transaction should be treat ed as a purchase of
goods.1509
8.374. We note, first, that whether we characterize the payments and access to DOD facilities,
and where applicable, DOD equipment and employees, provided to Boeing through the
procurement contracts as purchases of services , or as purchases of goods , this characterization
does not affect the outcome of our analysis of whether the measures are subsidies. 1510 The key
point emerging from our analysis above is that the DOD procurement contracts involve purchases
by DOD as buyer, from Boeing a s seller, and that, as such, there is no basis to characterize these
contracts in the same way that the Appellate Body characterized the NASA procurement contracts
and DOD assistance instruments in the original proceeding. This conclusion does not depend u pon
whether the objects of the purchases are services or goods. Moreover, as discussed below, in view
of our characterization of the transactions as purchases of services, our determination of whether
these measures confer a benefit, assuming that they are financial contributions, involves an
examination of whether DOD paid more than adequate remuneration for these services. If we
treated the transactions as purchases of goods, we obviously would apply the same approach,
consistent with Article 14(d) of the SCM Agreement, and arrive at the same conclusion.
8.375. In any event, we consider that while the work performed by Boeing under DOD
procurement contracts funded under the military aircraft RDT&E program elements is directly
related to the development of partic ular weapon systems , and may result in a new product or a
new version of an existing system, this does not alter the fact that the immediate object s of these
contracts are activities, including research, testing and evaluation, which are best characterized as

1507 The DOD procurement contracts differ from the NASA procurement contracts in this fundamental
respect.
1508 The processes through which DOD commissions R&D under the RDT&E program elements are
described in general terms in Section 8.2.3.2.4 above.
1509 United States' first written submission, paras. 309 and 419-423; second written submission,
paras. 390, 400, 405, and 413. Thus, the United States argues that the pre-2007 funding for the V-22/CV-22
and Joint Strike Fighter projects is most appropriately characterized as a purchase of goods, as was certain of
the F/A-18 project funding that involved bringing the new version into service, and the C-17 product
development funding for bringing the C-17 into service. This work can be contrasted with procurement
contracts involving upgrades to existing systems, which the United States considers are better characterized as
purchases of services. (United States' second written submission, para. 388).
1510 We also recall that, in respect of a number of the program elements that the United States considers
to involve purchases of goods, we have found in Section 7.3 that there is either no measure in existence
involving the particular program element, or the measures involving such program elements are not within the
scope of this proceeding.

services.1511 As we have previously explained, the weapon systems that DOD ultimately buys are
complex. Their acquisition necessarily entails an extensive period of technological development,
which is the work that Boeing performs under the DOD procuremen t contracts at issue in this
proceeding. Boeing is paid for performing the R&D work, which may involve integrating various
sub-systems and producing models or prototypes for developmental testing and evaluation.
However, this aspect of producing a product for the purpose of development and testing is part of
the overall R&D activity, and is distinct from the full -rate production of a weapon system, which is
covered by distinct contractual arrangements between DOD and its contractors.1512
8.376. We therefore find our selves unable to characterize the DOD procurement contracts in a
similar manner to the way in which the Appellate Body: (a) characterized the NASA procurement
contracts and DOD assistance instruments ; and (b) through an interpretive process that involved
analogizing them to equity infusions, concluded that the payments that were part of the joint
venture arrangement constituted a direct transfer of fund s within the meaning of
Article 1.1(a)(1)(i), and that the provision of facilities, equipment, and employe es constituted a
provision of goods or services within the meaning of Article 1.1(a)(1)(iii). 1513 Given the nature of
the research that DOD commissions Boeing to undertake under the DOD procurement
contracts, DOD's objectives in commissioning that research an d the consequent nature
of the relationship between DOD and Boeing in performing their respective obligations
under the DOD procurement contracts, we regard payments and access to DOD facilities,
and where applicable, DOD equipment and employees, provided to Boeing through the
DOD procurement contracts , as most appropriately characterized as purchases of
services.
8.377. The issue that next arises is whether the se transactions, properly characterized as
purchases of R&D services, fall within the scope of transacti ons that are financial contributions
within the meaning of Article 1.1(a)(1) of the SCM Agreement.
8.378. We have concluded that it is not necessary for us to definitively address this interpretive
issue because, even if we were to consider that the DOD procurem ent contracts, properly
characterized as purchases of R&D services, constitut e financial contributions within the meaning
of Article 1.1(a)(1), we would ultimately conclude, for the reasons we explain in Section 8.2.3.4 of
this Report, that the European Union has failed to establish that the DOD procurement contracts
confer a benefit within the meaning of Article 1.1(b).
8.379. Since we do not make a finding on the primary argument of the European Union that the
payments and provision of access to facilities, equipment, and employees pursuant to DOD
procurement contracts funded under the challenged RDT&E program elements constitute financial
contributions, within the meaning of Article 1.1(a)(1) of the SCM Agreement, we now proceed to
consider an argument made by the European Union in the alternative with respect to how the DOD
aeronautics R&D measures constitute financial contributions.
8.380. According to this alternative argument, "the transfer to Boeing of patent and other
intellectual property rights in the technologies and data developed under the RDT &E Program
additionally constitutes a provision of 'goods … other than general infrastructure' within the
meaning of Article 1.1(a)(1)(iii) of the SCM Agreement".1514 The European Union argues, first, that

1511 See also Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1162.
1512 The European Union also notes that DOD itself distinguishes RDT&E appropriations, which fund the
development, test and evaluation of equipment, materiel or computer application software from "procurement"
appropriations, which fund the purchases of major end items and defense systems. The European Union
submits therefore that the "procurement" appropriations category of DOD's budget funds purchases of goods,
not the RDT&E appropriations category. (European Union's second written submission, para. 462; and Defense
Acquisition University, "Lesson 10: Financial Management: Program/Budget Execution", available at:
<https://learn.dau.mil/CourseWare/1_9/rem/summary_L10.html>, accessed 1 September 2016, (Exhibit
EU-1101), pp. 2/9 and 3/9).
1513 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 624.
1514 European Union's first written submission, para. 370; second written submission, para. 464. The
European Union has explained that while it agrees that "the intellectual property rights are an effect of the
contract" it considers that "in the alternative, it is possible to conceptualise one of the financial contributions
arising from that same contract as a provision of goods". The European Union indicates in this connection that,
unlike the original proceeding, in this compliance proceeding it "is not challenging the provision of patent rights
as a separate subsidy distinct from the DOD RDT&E contracts from which they arise, as it did before the
original panel". (European Union's second written submission, para. 465).

patents, rights to trade secrets, and rights to data are goods on the basis that the term "good" is
generally defined as "property or possessions" and that therefore "the transfer of a patent, as well
as of rights to trade secr ets and undisclosed data, constitutes the transfer of property – i.e. the
transfer or provision of a good". 1515 Second, the European Union submits that "the United States
'provides' Boeing with these patents and other rights in association with the RDT&E fund ing
agreements" because U .S. law and regulations generally provide contractors with the right to
receive title to inventions that arise from a funding agreement with the U.S. Government.1516
8.381. The European Union's alternative argument as to how the DOD procurement contracts give
rise to financial contributions , within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement
raises two questions: (a) whether patents and other intellectual property rights can be treated as
"goods" within the specific sense of t he term as used in Article 1.1(a)(1)(iii) of the SCM
Agreement; and, if so, (b) how under the transactions at issue the government could be construed
as "providing" such goods to Boeing.
8.382. While there is wide and uncertain use of the term "goods" in general parlance, the term is
typically applied to tangible products, as distinguished from intangible services (a distinction made
in the context of trade law and trade policy). 1517 Specifically with respect to Article 1.1(a)(1)(iii),
the Appellate Body has observed that the ordinary meaning of the term "goods" "includes items
that are tangible and capable of being possessed" and that "'goods' are tangible items". 1518 The
European Union argues that intellectual property rights are "goods" within the meaning of
Article 1.1(a)(1)(iii) because: (a) the term "good" is defined as "property or possessions" ; and (b)
patents, rights to trade secrets and rights to data are considered intellectual property, as
evidenced by the fact that U.S. law explicitly states that "patents sha ll have the attributes of
personal property".1519 However, in making these arguments the European Union fails to take into
account the fact that the Appellate Body has only defined "goods" as used in Article 1.1(a)(1)(iii)
in terms of tangible items. Given the context of this term, and the use of the term "services" in the
same sentence, the dictionary definition, as well as the Appellate Body's earlier finding, we see no
basis to extend the sense of goods in this context to encompass all possible forms of property.
8.383. We note, in this connection, that intellectual property rights are generally understood to be
economic assets and, in the form of patents, are tradeable categories of property; they are usually
treated by national jurisdictions and international or ganizations as immaterial property 1520, or
intangible assets.1521
8.384. Patent law distinguishes a product or process from the patent right which can prevent third
parties from making, using, offering for sale, selling, or importing the product that is the subject
matter of a patent, or in case of patent-protected process, from using the process, and from using,
offering for sale, selling, or importing a product obtained directly by this process. 1522 Similarly, the

1515 European Union's first written submission, para. 370.
1516 European Union's first written submission, para. 370.
1517 This practice conforms with the Oxford English Dictionary's most pertinent definition of "goods" as
"{t}hings that are produced for sale; commodities and manufactured items to be bought and sold;
merchandise, wares … Now also (Econ.): economic assets which have a tangible, physical form (contrasted
with services)." (Oxford English Dictionary online, definition of "good", available at:
<http://www.oed.com/view/Entry/79925>, accessed 1 September 2016).
1518 Appellate Body Report, US – Softwood Lumber IV , para. 59. ("{i}n particular, we agree with the
Panel that the ordinary meaning of the term 'goods', as used in Article 1.1(a)(1)(iii), includes items that are
tangible and capable of being possessed.") See also ibid. paras. 58 -60 and 64. See also Appellate Body Report,
US – Large Civil Aircraft (2nd complaint), para. 619 and fn 1295 ("'{g}oods' are tangible items. They are often
contrasted against services, which are intangible").
1519 European Union's first written submission, para. 370. We recall that, as in other contexts, the
Appellate Body emphasized that "municipal law classifications are not determinative" in the context of
characterizing "goods" for purposes of Article 1.1(a)(1) of the SCM Agreement. (See Appellate Body Report, US
– Softwood Lumber IV, para. 56).
1520 See e.g. the reference to "Immaterialgüterrechte" for industrial property in Germany.
1521 WIPO defines intellectual property rights as intangible assets. (See e.g. The Value of Intellectual
Property Assets at <http://www.wipo.int/sme/en/ip_business/ip_asset/value_ip_assets.htm>, accessed
1 September 2016). The Oxford Dictionary lists "intangible" as a synonym of "immaterial": "{n}ot tangible;
incapable of being touched; not cognizable by the sense of touch; impalpable." (Oxford English Dictionary
online, definition of "intangible", available at:
<http://www.oed.com/view/Entry/97332?redirectedFrom=intangible#eid>, accessed 1 September 2016).
1522 See TRIPS Agreement, Article 28.1.

data rights that have been discussed in this dispute refer to the right to prevent a party from using
data or disseminating data to third parties for their use for a period of time.
8.385. As property rights and assets, intellectual property rights are thus usually distinguished
from goods as such: This is apparent in the TRIPS Agreement itself, which distinguishes between
goods, and intellectual property rights that are embedded in such goods. Consequently, the TRIPS
Agreement refers, for example, to "goods or services protected by the trademark" and defines the
function of trademarks as distinguishing goods or services of one enterprise from another, setting
such an intellectual property right in a different category from goods as such . S imilarly, a
trademark is "applied" to a good and trademarks are registered "in respect of" goods.1523 The
TRIPS Agreement's requirements relating to the enforcement of intellectual property rights,
including border measures, systematically distinguish intellectual property rights from goods that
involve such rights, involve the infringeme nt of intellectual property rights, or that are protected
by them.1524
8.386. In sum, in light of the foregoing considerations, we find unpersuasive the European Union's
argument that intellectual property rights are goods within the meaning of Article 1.1(a)(1)(iii).
8.387. On the basis of this conclusion, we do not, strictly speaking, need to address the second,
consequent question, that of whether "the United States 'provides' Boeing with these patents and
other rights in association with the RDT&E funding agreements". 1525 For the sake of completeness,
however, we turn to that question, assuming arguendo that intellectual property rights may be
considered as goods under Article 1.1(a)(1)(iii).
8.388. The European Union argues that the United States "provides" Boeing with patents and
other rights on the grounds that "US law and regulations generally provide contractors with the
right to receive title to inventions that arise from a funding agreement with the US
government".1526 Hence, this use by the European Union of the term "provid es" does not refer to
the transfer or assignment to Boeing of existing intellectual property rights, and particularly of
patents, actually held by the U .S. Government. The intellectual property rights that may be
concerned are "foreground" intellectual property, based on inventions developed in the course of
the contracted research. By definition, no such intellectual property rights could have existed at
the time of the contract ; they could only come into existence subsequently. None of the
intellectual property rights resulting from DOD procurement contracts were at any stage owned by
the U .S. Government, and could therefore not have been transferred or assigned by the
Government.
8.389. Accordingly, the use of the term "provide" in this context would need to enc ompass the
enactment of legislation that allocated to Boeing the entitlement "to receive title to" inventions
that result from research undertaken by Boeing pursuant to a U.S. Government R&D contract. This
is the view that the European Union appears to tak e; i.e. that where a law lays down the
conditions under which rights to title to inventions can be obtained, the government thereby
"provides" these rights within the meaning of Article 1.1(a)(1)(iii). The Appellate Body has
observed that the term "provide " has been defined as "supply or furnish for use; make available"
and "to put at the disposal of". 1527 The Appellate Body has also explained that there must be a
"reasonably proximate relationship" between the governmental action of providing the good or
service and the use or enjoyment of the good or service by the recipient. 1528 It stated that "a
government must have some control over the availability of a specific thing being 'made
available'".1529 The European Union does not explain how its interpretation of "pr ovide" can
encompass situations where a law merely defines the conditions under which a "right to take title"
can be acquired in the future, in the event that a patentable invention, yet to exist, is
subsequently developed, and in particular does not explain how its reading is consistent with these
Appellate Body pronouncements.

1523 See TRIPS Agreement, Articles 15, 16, 19, and 20.
1524 See TRIPS Agreement, Articles 53, 51, and 44.
1525 European Union's first written submission, para. 370.
1526 European Union's first written submission, para. 370.
1527 Appellate Body Report, US – Softwood Lumber IV, para. 69.
1528 Appellate Body Report, US – Softwood Lumber IV, para. 71.
1529 Appellate Body Report, US – Softwood Lumber IV, para. 71. (emphasis original)

8.390. For the foregoing reasons, we reject the European Union's alternative argument
that the alleged "transfer to Boeing of patent and other intellectual property rights in
the technolo gies and data developed under the challenged DOD RDT&E programmes"
constitutes a financial contribution in the form of government provision of goods within
the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.
8.391. In light of our findings in this Section, we address in the next section: (a) whether the
payments and access to DOD facilities, equipment, and employees provided through DOD
assistance instruments, which we f ind to be financial contribution s within the meaning of
Article 1.1(a)(1), confer a benefit within the meaning of Article 1.1(b ); and (b) whether, assuming
arguendo that the payments and provision of access to DOD facilities, and where applicable, DOD
equipment and employees, provided through DOD procurement contracts, properly characterized
as purchases of R&D services, are financial contributions within the meaning of Article 1.1(a)(1),
these measures confer a benefit within the meaning of Article 1.1(b).
8.2.3.4 Whether there is a benefit
8.2.3.4.1 Main arguments of the parties and third parties
8.392. The European Union argues that the financial contributions provided through the post-2006
DOD assistance instruments, the terms of which were modified by the DOD -Boeing Patent Licence
Agreement of 23 September 2012, confer a benefit for the same reasons as in the case of the pre-
2007 DOD assistance instruments modified by the DOD-Boeing Patent Licence Agreement.1530
8.393. In addition, with respect to the DOD procurement contracts, the European Union argues
that the Appellate Body 's reasoning in the original proceeding ; i.e. that the NASA procurement
contracts and DOD assistance instruments conferred a benefit based on the distribution of patent
rights, applies equally to the DOD procurement contracts, given the finding that the distribution of
patent rights between DOD and i ts contractors is uniform across all DOD procurement contracts
and assistance instruments.1531 The European Union considers that the market -based comparisons
performed by the Appellate Body to determine whether the NASA procurement contracts and DOD
assistance instruments conferred a benefit on Boeing are highly relevant to the benefit
determination in respect of other aeronautics R&D measures, such as the DOD procurement
contracts. However, the Panel may also consider additional evidence provided by the parties in this
proceeding to establish a market benchmark for those other aeronautics R&D measures.1532
8.394. The European Union refers to the examples of collaborative R&D agreements
commissioned by non -U.S. Government entities discussed by its technology licensing e xpert,
Mr Razgaitis. The private collaborative R&D agreements surveyed and discussed by Mr Razgaitis
demonstrate that the U.S. Government offers Boeing better terms with respect to the allocation of
intellectual property rights than Boeing could receive in the market.1533 Similarly, the Bayh -Dole
regime for allocating intellectual property rights under U.S. Government R&D contracts, as well as
DOD's elimination of its recoupment policy (both of which the European Union considers have the
explicit, non -commercial purpose of assisting U .S. industry), demonstrate that the financial
contributions with respect to DOD procurement contracts are not provided on the basis of
commercial considerations. 1534 Indeed, the European Union considers that the benefit resulting

1530 See paras. 8.8 to 8.15 above.
1531 European Union's first written submission, para. 374. See also European Union's opening statement
at the meeting with the Panel, para. 28. The European Union argues that, based on precisely the same
evidence considered by the Appellate Body in its own analysis of "benefit", it demonstrates that the "funding
and support" provided to Boeing by DOD, whether through procurement contracts or assistance instruments,
confers exactly the same benefit in the same manner. (European Union's second written submission,
para. 482).
1532 European Union's opening statement at the meeting with the Panel, para. 28.
1533 European Union's response to Panel question No. 24, para. 135.
1534 European Union's second written submission, para. 520 (referring to U.S. DOD, Final Rule,
"Recoupment of Nonrecurring Costs on Sales of U.S. Items", 58 FR 16497 (29 March 1993), (Exhibit EU-279));
response to Panel question No. 24, para. 135.

from the DOD procurement contracts is evidenced, in part, by the "systematically skewed (in
comparison to the market) allocation of patent rights" in U.S. Government R&D contracts.1535
8.395. The European Union argues that the fact that the primary objective of the "LCA-relevant"
R&D at issue in this dispute may be military does not affect the overall conclusion that the DOD
procurement contracts (and assistance instruments) provide a benefit to Boeing. Under all such
procurement contracts and assistance instruments, the U.S. Government "systematically receives
less than a commissioning party would in a market -based transaction, and Boeing systematically
receives more than a commissioned party would in a market -based transaction".1536 In any case,
one would also expect the U .S. Government, if it were acting according to market considerations,
to "use its tremendous bargaining power to extract economic benefit from the dual use aspects of
the resulting technologies" so that it could re-invest in further R&D with a military objective.1537
8.396. The European Union rejects the arguments of the United States that competitive bidding in
the award of DOD procurement contracts ensures that DOD did not pay more than adequate
remuneration in its DOD procurement contracts. It argues that the App ellate Body rejected a
similar argument made by the United States in the context of the original DOD assistance
instruments, and submits that these arguments can be rejected by the Panel on the same
basis.1538
8.397. The European Union considers that both evidence of the terms that the market would have
offered, and evidence of whether a financial contribution was provided on the basis of commercial
considerations, can be relevant to determining the existence of benefit. 1539 In the present case,
both types of evidence indicate that the DOD procurement contracts provide a benefit. In addition,
the United States has provided no evidence to support its assertions that the intellectual property
rights allocated to Boeing through any of the aeronautics R&D contracts and agre ements were
provided in exchange for Boeing accepting a lower profit margin, lower levels of cost
reimbursement, or a lower fixed-price contract.1540
8.398. The United States argues, that , for the same reasons as in the case of the pre -2007
assistance instruments 1541, the financial contributions provided through the DOD post -2006
assistance instruments modified by the DOD -Boeing Patent Licence Agreement , do not confer a
benefit.

1535 European Union's response to Panel question No. 25, para. 138. See also European Union's response
to Panel question No. 26, para. 162: "{r}ather, once, as here, it is clear that there is a benefit associated with
systematically gifting the relevant IP rights in advance, that should be sufficient for the purposes of the
{benefit} analysis." European Union's comments on the United States' response to Panel question No. 67,
paras. 13 and 65: "{t}he distribution of IP {under DOD procurement contracts and assistance instruments} is
always the same, and it is always more favourable to Boeing than it is to any commissioned party in the
market, and less favourable to DOD than any commissioning party in the market. As the development of
technology and IP is the whole purpose of the R&D contracts, this necessarily leads to a finding that benefit
exists, as was well understood by the Appellate Body". Mr Razgaitis also opines that the lack of bargaining
power over intellectual property ownership under U.S. Government R&D contracts discredits the
United States' arguments regarding the impact of competitive bidding on the exchange of value in DOD and
NASA procurement contracts. According to Mr Razgaitis, because of the provisions of U.S. law that "preclude"
DOD and NASA from bargaining over ownership of intellectual property rights, Boeing does not need to
"underbid" to fully account for the net present value of the foreground intellectual property. Mr Razgaitis
considers that there is no evidence that Boeing, or any other commissioned party, in practice reduces its
RDT&E costs because of the Bayh-Dole provisions. (Second Supplemental Razgaitis Declaration, (Exhibit
EU-1398), para. 49).
1536 European Union's comments on the United States' response to Panel question No. 67, para. 13.
1537 European Union's comments on the United States' response to Panel question No. 67, para. 13.
1538 European Union's second written submission, para. 519; response to Panel question No. 25,
para. 140. The European Union also argues that the discussion by the Appellate Body of the potential relevance
of competitive bidding to the benefit determination in the Canada – Renewable Energy / Canada – Feed-in
Tariff Program case should be understood in the context of the market situation in that case: a standard
contract established by a provincial power authority vis-à-vis a large number of suppliers for a fungible good
(electricity) at a standard price. By contrast, the present situation involves a small number of
privately-informed, heterogeneous suppliers submitting bids to asymmetrically informed government agencies
over a heterogeneous product (R&D) with an uncertain outcome. (European Union's response to Panel question
No. 25, para. 137; comments on the United States' response to Panel question No. 83, para. 119 and fn 201).
1539 European Union's response to Panel question No. 24, para. 134.
1540 European Union's comments on the United States' response to Panel question No. 67, para. 25.
1541 See paras. 8.16 to 8.22 above.

8.399. With respect to DOD procurement contracts, the United States argues that the fact DOD
was "buying something" in the transactions must play a role in the benefit analysis, even if the
Panel ultimately rejects the United States ' arguments that these measures are not financial
contributions because they are purchases of services.1542
8.400. The context prov ided by Article 14(d) of the SCM Agreement indicates that the proper
standard for assessing whether government purchases confer a benefit is the adequate
remuneration standard. Under this standard, a benefit would exist only if the U.S. Government
paid too much for the rights it obtained. The European Union fails to address this standard.1543 The
United States considers this a critical point because governments often seek to buy things that a
commercial actor would not want or does not need. The adequate remuneration standard therefore
focuses on what the government purchased, and not what a private entity would have purchased
in similar circumstances, and asks whether the government paid too much (i.e. more than
adequate remuneration) for what it sought to buy.1544
8.401. The United States disagrees with the European Union that the Appellate Body's rejection of
the relevance of competitive bidding to the question whether the pre -2007 DOD assistance
instruments conferred a benefit, applies also to DOD procurement contrac ts.1545 The United States
argues that the Appellate Body 's statement regarding competitive bidding in the original
proceeding addressed only DOD assistance instruments, which the Appellate Body had
differentiated from DOD procurement contracts. The Appellate Body's statements regarding
competitive bidding in Canada – Renewable Energy / Canada – Feed-in-Tariff Program indicate
that the relevance of competitive bidding to the analysis of benefit depends on the facts. 1546
Moreover, economically a rational bidder will factor the cost or value of a fixed term of a bid into
the economic value of the overall package, and adjust its bid accordingly.1547
8.402. The United States asserts that most DOD procurement contracts were subject to full and
open competition, and those that we re not arose primarily because Boeing was doing follow -on
work, or had been down -selected from contracts that had been subject to full and open
competition. The Panel can therefore have a high degree of confidence that DOD did not pay more
than adequate remuneration in its procurement contracts.1548
8.403. The United States criticises the European Union 's approach to determining the commercial
consistency of the aeronautics R&D contracts and agreements as being based on only one term of
the contract (i.e. the allocat ion of patent rights). According to the United States, a thorough and
systematic review of the evidence indicates that the terms under which the U.S. Government
commissions research work are no more advantageous to the recipient than comparable

1542 United States' first written submission, paras. 391 and 425.
1543 United States' first written submission, paras. 392 and 426; second written submission, paras. 384
and 426.
1544 United States' second written submission, paras. 232 and 233. Although this argument appears in
the section of the United States' submission concerning the NASA aeronautics R&D measures, the
United States explains that its observations as to why the post-2006 NASA procurement contracts do not
confer a benefit apply also to the DOD procurement contracts. (United States' second written submission,
para. 384).
1545 United States' second written submission, para. 235. See Appellate Body Report, US – Large Civil
Aircraft (2nd complaint), para. 665: "intellectual property is not open to bidding; it is determined by US law.
Because each bidder knows in advance that this particular aspect of the transaction will not be altered with
respect to the competitors, ownership of any resulting intellectual property will not be a determinative element
in how each bidder structures its proposals."
1546 Appellate Body Reports, Canada – Renewable Energy / Canada – Feed-in-Tariff Program,
para. 5.228: "{a}lternatively, such benchmark may also be found in price-discovery mechanisms such as
competitive bidding or negotiated prices, which ensure that the price paid by the government is the lowest
possible price offered by a willing supply contractor."
1547 United States' second written submission, para. 237.
1548 United States' first written submission, paras. 393 and 427. The United States asserts that 23 out of
30 NASA procurement contracts and 41 out of 61 DOD procurement contracts were subject to "full and open
competition", which involved a public solicitation of proposals and consideration of all offers. Where that was
not the case, U.S. procurement regulations gave DOD and NASA "alternative strategies to inject competition
into the process". The United States asserts that only three of 29 NASA procurement contracts and 19 of 61
DOD procurement contracts resulted from "sole source" solicitation. (United States' response to Panel question
No. 83, para. 82; Competition in DOD contracts with Boeing for FY 2007-FY 2012, (Exhibit USA-508); and
Competition in NASA contracts with Boeing for FY 2007-FY 2012, (Exhibit USA-509)).

commercial transactions.1549 This analysis should extend beyond patent rights to consider how
other aspects of the contract affect the balance of value between the parties, in particular the price
that commercial commissioning parties pay for the rights they acquire.1550
8.404. Moreover, the United States considers that the evidence of commercial collaborative R&D
arrangements before the Panel shows that, except for the issue of ownership of patent rights
"where NASA and DOD contracts mirror the most prevalent commercial practice ", there is no
standard division of intellectual property rights. Rather, parties to commercial research contracts
delineate patent rights in a variety of ways to suit their interests and objectives. The only normal
market practice is for the parties to pay for the intellectual property rights that they require, and
not to pay for the rights they do not require.1551
8.405. In this context, the United States notes that DOD is the exclusive buyer of modern air
weaponry and weapons technology in the United States. Thus, when it comes to military
applications of an invention invented during work under a DOD or NASA procurement contract, the
government use licence is de facto exclusive, in the sense that the contractor "loses the economic
leverage provided by ownership of the intellectual property rights with respect to future sales to its
primary customer, DoD ".1552 For an invention with purely or predominantly military applications,
the government use licence represents essentially all of the economic value of a patent. In t his
respect, the United States argues that the area covered by the government use licence granted to
DOD (and NASA) under the procurement contracts is broader than the comparable rights granted
to commissioning parties in the non -government collaborative R &D arrangements in evidence
before the Panel and discussed by Messrs Berneman and Razgaitis. [***].1553
8.406. Certain of the third parties (Brazil, Japan, and Korea) make arguments regarding the
existence of a benefit within the meaning of Article 1.1(b) of the SCM Agreement. These
arguments are summarized in Section 8.1.2 above.
8.2.3.4.2 Evaluation by the Panel
8.407. In this Section of the Report, we evaluate whether three categories of DOD aeronautics
R&D measures confer a benefit on Boeing within the meaning of Article 1.1(b) o f the SCM
Agreement:
a. six post-2006 DOD assistance instruments included in annex B of the United
States' Compliance Communication (these having been amended by the DOD -Boeing
Patent Licence Agreement)1554;
b. post-2006 DOD assistance instruments that have not be en modified by the DOD -Boeing
Patent Licence Agreement; and
c. DOD procurement contracts (both pre-2007 and post-2006).

1549 United States' response to Panel question No. 67, para. 11.
1550 The United States argues that a narrow approach to benefit, focused on isolated terms of a
transaction, is contrary to the SCM Agreement. It notes that in EC and certain member States – Large Civil
Aircraft, the panel and Appellate Body considered all aspects of the transaction, including the interest rate,
term of loan, royalties, fees, and expected delivery schedules as part of the evaluation as to whether, as a
whole, the terms the EU member States offered to Airbus were more favourable than those available in the
market. (United States' response to Panel question No. 67, para. 13).
1551 United States' response to Panel question No. 67, para. 28.
1552 United States' response to Panel question No. 67, para. 15.
1553 United States' response to Panel question No. 67, paras. 24 and 27.
1554 Annex B to the United States' Compliance Communication lists the DOD assistance instruments that
were subject to the DSB recommendations and rulings in the original proceeding (the pre-2007 DOD assistance
instruments), along with a further six DOD assistance instruments that came into existence after the panel
request in the original proceeding. These "modified post-2006 DOD assistance instruments" are referred to in
paragraph 5 of the United States' Compliance Communication and are explicitly identified in the United States'
response to the Panel's request for information pursuant to Article 13 of the DSU, dated 28 February 2013,
response to question No. 23(c), para. 48.

8.2.3.4.2.1 Certain post-2006 DOD assistance instruments that have been modified by
the DOD-Boeing Patent Licence Agreement
8.408. We find in Section 8.1.3 of this Report that the grant to DOD of commercial use rights in
respect of Boeing-owned patents under the pre -2007 DOD assistance instruments effected by the
DOD-Boeing Patent Licence Agreement has not brought those instrument s into line with prevailing
market practices for collaborative R&D arrangements in such a way as to remove the benefit that
the Appellate Body had found was conferred through the pre -2007 DOD assistance instruments in
the original proceeding. This finding and the underlying analysis equally apply to the six post -2006
assistance instruments that have been modified by the DOD-Boeing Patent Licence Agreement.1555
8.409. We therefore find that the financial contributions in the form of payments and
access to DOD facilities, equipment, and employees, provided through certain post-2006
assistance instruments that have been modified by the DOD -Boeing Patent Licence
Agreement, confer a benefit within the meaning of Article 1.1(b) of the SCM Agreement.
8.2.3.4.2.2 Post-2006 assistance i nstruments that have not been modified by the DOD -
Boeing Patent Licence Agreement
8.410. The United States confirms that the DOD -Boeing Patent Licence Agreement applies only to
the agreements listed in Attachment A thereto, and does not affect patent rights in re spect of any
other DOD assistance instruments, such as the post -2006 assistance instruments (other than the
six post -2006 assistance instruments specifically identified as having been modified by the
DOD-Boeing Patent Licence Agreement).1556
8.411. As explained abo ve, the DOD -Boeing Patent Licence Agreement granted DOD , as
commissioning party, a limited commercial use licence in respect of Boeing -owned patents arising
from work performed by Boeing under the DOD assistance instruments to which it applies. In
Section 8.2.3.4.2.1 above, we conclude, based on our assessment of the evidence of comparable
private collaborative R&D agreements , and of the opinions of the parties ' respective technology
licensing experts, that Boeing as commissione d party under the modified DOD assistance
instruments remains in a more favourable position as regards its ability to commercially exploit
Boeing-owned patents than the commissioned parties under the private collaborative R&D
agreements.
8.412. The "unmodified" DOD assistance instruments do not grant DOD a commercial use licence
in respect of Boeing-owned patents. Boeing therefore has a more extensive ability to commercially
exploit its patents under these DOD assistance instruments than it has under the pre -2007 DOD
assistance instruments and those post-2006 DOD assistance instruments that have been modified
by the DOD -Boeing Patent Licence Agreement. Given that we conclude that the pre -2007 DOD
assistance and those post -2006 DOD assistance instruments that have been modified by the
DOD-Boeing Patent Licence Agreement , confer a benefit on Boeing, logically we must also
conclude that the post-2006 DOD assistance instruments that have not been modified to grant
DOD a commercial use licence, confer a benefit.
8.413. This conclusion is also consistent with the Appellate Body 's finding that the pre -2007 DOD
assistance instruments in the original proceeding, which contain the same allocation of rights in
respect of patents as the "unmodified", post -2006 DOD assistance instrume nts now before us,
involved a more favourable allocation of intellectual property rights to Boeing as commissioned
party than the allocations to commissioned parties under [***] and therefore conferred a benefit
on Boeing.
8.414. We therefore find that the finan cial contributions in the form of payments and
access to DOD facilities, equipment, and employees , provided to Boeing through the
post-2006 DOD assistance instruments that have not been modified by the DOD -Boeing
Patent Licence Agreement , confer a benefit within the meaning of Article 1.1(b) of the
SCM Agreement.

1555 See para. 8.49 above.
1556 United States' response to Panel question No. 87, para. 158.

8.2.3.4.2.3 DOD procurement contracts
8.415. In Section 8.2.3.3.3, we characterize the payments and access to DOD facilities, and
where applicable, DOD equipment and employees, provided to Boeing through the DOD
procurement contracts as principally and predominantly being purchases of R&D services by DOD
from Boeing. In this Section of the Report, we evaluate whether, assuming arguendo that these
transactions constitute financial contributions within the meaning of Article 1.1(a)(1), they confer a
benefit within the meaning of Article 1.1(b).
8.416. We recall that the original panel made no benefit findings as regards the DOD procurement
contracts, owing to its view that the DOD procurement contr acts were properly characterized as
"purchases of services" and thus were outside the scope of Article 1.1(a)(1). The issue of whether
the payments and access to DOD facilities provided to Boeing through the DOD procurement
contracts constitute financial contributions that confer a benefit, was not addressed on appeal.1557
8.417. In evaluating whether the payments and access to DOD facilities, and where applicable,
DOD equipment and employees, provided to Boeing through the DOD procurement contracts
properly before us in this proceeding confer a benefit, we must first address the relevant standard
that we should apply. The European Union argues that we should apply the same benefit analysis
as that applied by the Appellate Body in concluding that the original NASA pro curement contracts
and DOD assistance instruments conferred a benefit. The United States argues that the proper
standard for assessing whether a financial contribution confers a benefit depends on the nature of
the financial contribution, and in the case o f the DOD procurement contracts, the fact that DOD
was "buying something" in the transactions must play a role.
8.418. Given our characterization of the DOD procurement contracts as principally and
predominantly involving purchases of R&D services by DOD from Bo eing, we consider that,
consistent with Article 14(d) of the SCM Agreement, the determination of whether the payments
and access to DOD facilities, and where applicable, DOD equipment and employees, provided to
Boeing through the DOD procurement contracts confer a benefit on Boeing , involves an
assessment of whether Boeing was paid adequate remuneration for performing the R&D work.
8.419. The European Union's benefit arguments in respect of the DOD procurement contracts are
premised on the assumption that the DOD procurement contracts, like the NASA procurement
contracts and DOD assistance instruments, are properly characteri zed as composite transactions
that are "akin to a species of joint venture ", which are "analogous to " equity infusions, and
therefore involve financial contributions within the meaning of Article 1.1(a)(1)(i) and (iii) of the
SCM Agreement. The European Union has presented evidence of private actor collaborative R&D
arrangements, which it regards as demonstrating that DOD essentially "paid too much" because
Boeing, as the commissioned party , obtained ownership of the inventions resulting from the R&D
work that it performed (and thus the rights to obtain patents in respect of those inventions), while
DOD obtained a government use licence in respe ct of those patents. According to the European
Union, such an allocation of ownership of inventions is inconsistent with what market actors
commissioning and performing R&D would negotiate, as evidenced by the various private actor
collaborative R&D arrangements submitted into evidence and discussed in the BCI Appendix.1558
8.420. As we explain in Section 8.2.3.3.3, we do not characterize the DOD procurement contracts
as collaborative R&D arrangements. We therefore do not consider that a focus on the allocation of
intellectual property rights as the "output" of a joint venture undertaking is an appropriate means
of determining whether DOD as the purchaser of R&D services from Boeing, paid too much for
what it acquired. The question of whether Boeing was paid adequate remuneration for performing
the R&D work for DOD requires a consideration of all of the terms of the transaction, including how
much DOD paid in relation to the work that Boeing performed.

1557 The Appellate Body declared moot the panel's finding that DOD procurement contracts are properly
characterized as "purchases of services", and thus not financial contributions under Article 1.1(a)(1). It then
indicated that it did not "complete the analysis regarding the USDOD procurement contracts at issue in this
dispute" as neither party had requested it to do so. (Appellate Body Report, US – Large Civil Aircraft (2nd
complaint), para. 620, fn 1298).
1558 See Appendix 1.

8.421. Even if we were to assess whether the financial contributions assumed to be provided
through the DOD procurement contracts confer a benefit on Boeing by focusing solely on the
allocation of the intellectual property rights arising from the performance of the R&D, in isolation
from the other t erms of the transaction, we would not regard the private collaborative R&D
agreements as appropriate benchmarks. As we note in paragraph 8.337, the DOD procurement
contracts involve complex, long-term purchases of R&D services by DOD from Boeing for the
development of weapon systems. While the examples of private collaborative R&D agreements
submitted in evidence (and discussed in greater detail in the BCI Appendix 1559) sufficiently
resemble the relevant characteristics of the NASA procurement contracts and DOD assistance
instruments, in terms of the mutuality of interests that is an inherent feature of collaborative R&D
arrangements or R&D alliances, there is no such similarity between the private collaborative R&D
agreements and the DOD procurement contracts. 1560 Unlike DOD assistance instruments, there is
no cost-sharing between DOD and Boeing, and no relationship of collaboration between DOD and
Boeing wherein they can be said to undertake a project of mutual interest. Unlike the NA SA
procurement contracts, the objectives of the commissioned R&D do not include enhancing the
competitiveness of the U .S. aerospace industry. Rather, as we have said, the fundamental nature
of the DOD-Boeing relationship under the DOD procurement contracts is one of purchaser of R&D
services for DOD and supplier of those services for Boeing.
8.422. In the context of the DOD procurement contracts, it appears to us that the government
use licence granted to DOD in respect of Boeing -owned patents that may result fro m the
performance of the R&D work captures the economic value of the R&D for DOD. The
European Union's technology licensing expert, Mr Razgaitis, says that the value of intellectual
property rights depends upon what such rights permit the recipient to do "in real commercial
terms".1561 Under the DOD procurement contracts, the government use licence enables DOD to
use Boeing -owned patents without paying royalties. Third-party contractors to the
U.S. Government (including Boeing 's competitors) also have the righ t to practice those patents
royalty-free in any work they conduct for the U .S. Government. As DOD is the sole purchaser of
modern air weaponry in the United States, Boeing 's ability to commercially exploit the R&D is, in a
practical sense, limited. Moreover, Boeing's practical ability to exploit any military technologies for
commercial purposes outside the military context is circumscribed by U .S. legal restrictions on the
use of military technologies and data, such as classification of in formation under Ex ecutive
Order 12958 and export-controls under the ITAR and EAR.1562
8.423. Boeing's practical ability to commercially exploit patents that it owns as a result of
performing R&D work for DOD, and the practical consequences of the government use licence
granted to DO D, differ in the context of DOD assistance instruments and DOD procurement
contracts. Although the formal allocation of patent ownership and use rights is the same under
both types of instrument, DOD assistance instruments by definition involve "assistance" in the
sense of a transfer of a thing of value to a recipient.1563
8.424. It is reasonable to assume that the nature of R&D undertaken in such a collaborative
context would be expected by the parties to yield outcomes that Boeing would have the practical
ability to commercially exploit, otherwise a commercial actor like Boeing would be unlikely to
contribute to the costs of performing the R&D and there would be no legal basis for the DOD to
have selected an assistance instrument as the appropriate instrument for t he transaction with
Boeing. Indeed, the fact that many of the assistance instruments were funded through program
elements with explicitly dual-use objectives would tend to support this conclusion.

1559 See Appendix 1.
1560 We discuss the relevant characteristics of the DOD procurement contracts in Section 8.2.3.3.3 of
this Report. Our discussion of the private collaborative R&D agreements submitted in evidence is set forth in
the BCI Appendix (Appendix 1).
1561 Razgaitis Declaration, (Exhibit EU-1262) (BCI), para. 43. We note also that the European Union
suggests that the "formal ownership over patents" is not nearly as relevant as a focus on the "actual effective
distribution of the rights, taking into account the value of various non-exclusive and exclusive licences", noting
that the value of patent ownership can be, and often is, redistributed through licensing, including through
exclusive licences. (European Union's comments on the United States' response to Panel question No. 67,
para. 46). (emphasis original)
1562 See Section 8.2.3.2.5 for a description of the main legal restrictions on the dissemination of military
technologies and data.
1563 See Section 8.2.3.2.2 for a discussion of the legal framework governing the use of DOD
procurement contracts and assistance instruments.

8.425. On the other hand, DOD and Boeing engage with each other o n a different footing in the
context of the DOD procurement contracts. As we have explained above, in this context, the
government use licence would, as a practical matter, occupy the field of possibilities for
commercial exploitation of the military techn ologies, and Boeing's practical ability to commercially
exploit its patented technologies, whether in a military or non -military context, is consequently
more limited. We therefore disagree with the assertions made by the European Union that,
whether the R&D in question is funded through procurement contracts or assistance instruments,
"the US Government systematically receives less than a commissioning party would in a
market-based transaction, and Boeing systematically receives more than a commissioned pa rty
would in a market-based transaction."1564
8.426. For the foregoing reasons, we do not regard the evidence of allocation of intellectual
property rights under the private actor collaborative R&D agreements discussed in the BCI
Appendix1565 as being probative of whet her the payments and access to DOD facilities, and where
applicable, DOD equipment and employees, provided to Boeing through the DOD procurement
contracts, confer a benefit on Boeing.
8.427. We also wish to address a line of argumentation advanced by the Europea n Union
concerning the relevance of DOD 's termination of its recoupment policy in 1992 to the question of
whether the payments and access to DOD facilities, and where applicable, DOD equipment and
employees, provided to Boeing through the DOD procurement contracts, confer a benefit.
8.428. Between 1967 and 1992, the U.S. Government required contractors to reimburse DOD for
nonrecurring costs when contractors made or intended to make commercial sales using dual -use
technologies that had been funded with DOD invest ment.1566 DOD's stated purpose of this policy
was as follows:
It is the policy of the Department of Defense to recover a fair share of its investment
in nonrecurring costs related to products, and/or a fair price for its contribution to the
development of rel ated technology, when the products are sold, and/or when
technology is transferred … .1567
8.429. The U.S. Government terminated the DOD recoupment policy in June 1992. 1568 In doing
so, it noted that the change in policy "will assist the U.S. defense industry to be mor e competitive
on a global basis by reducing contracting costs through economies of scale, pricing incentives, and
reduced administrative burdens".1569
8.430. The European Union argues that the recoupment policy that was in place from 1967 until
1992 had been implem ented by the U.S. Government to ensure that DOD did not subsidize
industry. It refers in this regard to a U.S. Government response to a report on U.S. Government
support to the U .S. commercial aircraft industry that had been commissioned by the European
Communities:
These policies also recognize the potential for crossover into development and
production of civilian aircraft of benefits that may result from government support of
research and development (R&D) on military items. … One of the objectives in

1564 See e.g. European Union's opening statement at the meeting with the Panel, para. 30; response to
Panel question No. 67, paras. 69 and 74; and comments on the United States' response to Panel question
No. 67, paras. 13, 17-22, and 63-67.
1565 See Appendix 1.
1566 Letter from GAO to D. B. Fascell, Chairman, Committee on Foreign Affairs, House of
Representatives, B-214394, 6 September 1984, (Exhibit EU-274), p. 2.
1567 United States Code of Federal Regulations, Title 48, section 271.002 (1989), (Exhibit EU-275),
section 271.002(a). (emphasis added)
1568 Statement of M. Fitzwater, White House Press Secretary, "New Policy on Federal Defense
Procurement", Dispatch, Vol. 3, No. 26, 29 June 1992, (Exhibit EU-277); U.S. DOD Directive, No. 2140.2
(13 January 1993), (Exhibit EU-278), reference (a). The 1992 Agreement between the European Communities
and the Government of the United States of America concerning the application of the GATT Agreement on
Trade in Civil Aircraft on trade in large civil aircraft, which was the subject of a serious prejudice claim by the
European Communities in the original proceeding entered into force on 17 July 1992.
1569 U.S. DOD, Final Rule, "Recoupment of Nonrecurring Costs on Sales of U.S. Items", 58 FR 16497
(29 March 1993), (Exhibit EU-279), p. 1.

implementing this policy is to ensure that civil aircraft companies remain commercially
competitive based on their own investment and technology.1570
8.431. The European Union considers that the recoupment policy "is evidence that DOD research
in-fact has dual -use benefits for civil aircraft " and demonstrates the United States ' knowledge of
the technological and pricing advantages for LCA that contractors receive from participating in
DOD research.1571 Furthermore, by "maintaining its policy of not recouping a fair share of DOD's
contribution to commercial sales" since 1992, it can be inferred that the United States intends that
Boeing receive such advantages.1572
8.432. The United States argues that the change in recoupment policy in 1992 is irrelevant to this
proceeding and does not support the European Union 's contentions. 1573 This is because the
recoupment regulations, when they were in effect, would not have applied to the research
challenged in this proceeding, or to the Boeing aircraft that allegedly applied those
technologies.1574 Moreover, the United States argues that DOD did not terminate the recoupment
policy to give industry free access to commercially applicable technology. Rather, as DOD
explained in 1992 when implementing the final rule terminating the recoupment policy, "this final
rule will assist the U.S. defense industry to be more competitive on a global basis by reducing
contracting costs through economies of scale, pricing incentives, and reduced administrative
burdens".1575 The United States asserts that the recoupment policy was terminated because it
imposed unnecessary burdens on both the U.S. Government and on contractors.1576 In addition, as
many of DOD 's procurement contracts are cost -based, the anticipated cost reductions would
translate directly to lower acquisition costs for DOD. Consequently, the United States argues, the
recoupment regulations and their subsequent cancellation do not indicate that the challenged
RDT&E program elements have the objective of conferring commercial advantages on commercial
products.1577
8.433. We are satisfied that the termination of the 1992 recoupment policy suggests that the U.S.
Government recognizes "the potential for crossover into development and production of civilian
aircraft of benefits that may result from government support of resea rch and development (R&D)
on military items ".1578 However, this recognition is expressed in very general terms and is not

1570 European Union's first written submission, para. 240(emphasis original); second written submission,
para. 396; response to Panel question No. 29, para. 176 (referring to U.S. Government, Response to the EC-
Commissioned Report "U.S. Government Support of the U.S. Commercial Aircraft Industry", (March 1992),
(Exhibit EU-276), p. 13).
1571 European Union's second written submission, para. 397; response to Panel question No. 29,
para. 176.
1572 European Union's second written submission, para. 397 (emphasis original); response to Panel
question No. 29, para. 176.
1573 United States' second written submission, para. 325; comments on the European Union's response
1574 United States' second written submission, para. 325; comments on the European Union's response
to Panel question No. 29, para. 164. The United States notes that this issue was raised by the European
Communities in the original proceeding and that the United States had explained the application of the former
recoupment rules in comments on a question posed by the original panel:
Under those rules, DoD required recoupment fe es only for commercial sales of a "DoD developed
item or a derivative of a DoD developed item." A "DoD developed item" would be a weapons
system itself or other product whose development costs DoD paid, while a "derivative" of a DoD
developed item was defi ned as one that "consists of common parts equal to, or more than
10 percent of the Defense item." DoD does not develop large civil aircraft, and Boeing's large
civil aircraft do not have a commonality of more than ten percent with any DoD -developed
article. Therefore, the old recoupment rules would not have applied to sales of large civil aircraft.
(United States' comments on the European Communities' response to Panel question No. 196(ii), para. 340
(fns omitted))
The United States emphasizes that current Boeing LCA do not meet the definition of a derivative defense
product for purposes of the former recoupment policy because they do not use parts that represent 10 percent
of the value of a defense item. (United States' comments on the European Union's response to Panel question
No. 29, para. 164 and fn 236).
1575 U.S. DOD, "Recoupment of Nonrecurring Costs on Sales of U.S. Items", United States Code of
Federal Regulations, Title 58, No. 16497 (29 March 1993), (Exhibit USA-400), p. 1.
1576 United States' comments on the European Union's response to Panel question No. 29, para. 164.
1577 United States' second written submission, para. 325; comments on the European Union's response
1578 U.S. Government, Response to the EC-Commissioned Report "U.S. Government Support of the U.S.
Commercial Aircraft Industry", (March 1992), (Exhibit EU-276), p. 13.

sufficiently linked to the DOD -sponsored R&D at issue in this proceeding. Indeed, we are not
persuaded, based on the evidence before us, that DOD's previous recoupment policy would have
applied to the DOD-sponsored R&D at issue in this proceeding. This is because there is insufficient
evidence before us that would enable us to conclude that Boeing LCA would have fallen within the
definition of a "derivative" of a DOD developed item under the previous recoupment rules. In sum,
we do not regard DOD 's termination of the recoupment policy in 1992 as providing probative
evidence in support of an inference that the DOD procurement contracts (or as sistance
instruments) before us in this proceeding confer a benefit on Boeing.
8.434. In sum, the European Union has not discharged its burden of demonstrating that the
payments and access to DOD facilities, and where applicable, DOD equipment and employees,
provided to Boeing through the DOD procurement contracts, assuming these transactions involved
financial contributions, confer a benefit on Boeing.
8.435. The United States has presented evidence that in its view demonstrates that DOD
employed competitive practices in awarding the DOD procurement contracts to ensure that DOD
did not pay too much for the services that it contracted Boeing to perform. In light of our
conclusion that the European Union has failed to discharge its burden to demonstrate that the
payments and access to DOD facilities, and where applicable, DOD equipment and employees,
provided to Boeing through the DOD procurement contracts, confer a benefit on Boeing, we do not
consider it necessary to further address this evidence, or the United States ' arguments that the
DOD procurement contracts were awarded on a competitive basis and that this demonstrates that
DOD did not pay more for the R&D than it should have.
8.436. Therefore, the Panel finds that, assuming arguendo that the payments and access to DOD
facilities, and where applicable, equipment and employees, provided to Boeing through DOD
procurement contracts funded under the relevant RDT&E program elements, which we have
characterized as principally purchases of R&D services by DOD from Boeing, were t o involve
financial contribution s within the meaning of Article 1.1(a)(1), the European Union has not
established that the y confer a benefit within the meaning of Article 1.1(b). As a consequence,
there is no basis to find that the United States has failed to withdraw the subsidy within the
meaning of Article 7.8 of the SCM Agreement through these measures.
8.437. In this Section 8.2.3.3 of the Report, we find that:
a. Transactions between DOD and Boeing under post -2006 DOD assistance
instruments, whether or not modified by the DOD -Boeing Patent Licence
Agreement, involve financial contributions that confer a benefit.
b. Assuming arguendo that the payments and access to any DOD facilities, and
where applicable, equipment or employees provide d to Boeing through DOD
procurement contracts funded under the relevant RDT&E program elements,
which we have characterized as principally purchases of R&D services by DOD
from Boeing, were to involve financial contribution s within the meaning of
Article 1 .1(a)(1), the European Union has not established that they confer a
benefit within the meaning of Article 1.1(b).
8.438. In light of this finding, we next evaluate whether the subsidies provided through the
post-2006 DOD assistance instruments are specific withi n the meaning of Article 2 of the SCM
Agreement.

8.2.3.5 Whether the subsidy is specific
8.2.3.5.1 Main arguments of the parties
8.439. The European Union argues that the subsidies provided through the post-2006 DOD
assistance instruments are specific within the meaning of Articl es 2.1(a) and 2.1(c) of the SCM
Agreement.1579
8.440. With regard to Article 2.1(a), the European Union relies on the original panel 's finding that
the DOD aeronautics R&D subsidies were specific to a "group of enterprises or industries " within
the meaning of Artic le 2.1(a) "given the fairly narrow focus of R&D performed " under the
challenged RDT&E program elements.1580 With regard to Article 2.1(c), the European Union recalls
that the original panel found that the DOD aeronautics R&D subsidies were specific because ,
whether viewed at the level of the individual RDT&E program elements, or the RDT&E Program as
a whole, DOD RDT&E went predominantly to firms in the defence industry. 1581 The European Union
notes that the United States did not appeal these findings, and argues that they should continue to
hold true for the original RDT&E program elements and are fully applicable to any additional
RDT&E program elements , given that these additional program elements have the same relevant
characteristics and are funded pursuant to the same overarching DOD RDT&E Program.1582
8.441. The European Union rejects the argument of the United States that , for purposes of the
analysis under Article 2.1(a), the subsidy at issue is the allocation of rights in patents on terms
more favourable than availa ble in the market. The European Union submits that the subsidies
consist not just of patent rights but also the provision of funding and support to Boeing for
LCA-relevant R&D through certain of the original program elements, royalty-free beneficial use of
LCA technologies developed with the subsidies provided under the original RDT&E program
elements and additional subsidies to Boeing in the form of funding and access to government
facilities, equipment, and employees provided under additional program elem ents. The
European Union explains, in this respect, that while it considers the intellectual property rights
distribution when evaluating the benefit conferred, the "benefit" comprises not only the provision
of intellectual property, but also the provision of payments, and access to government facilities,
equipment, and employees , "for less than what a market -based actor would demand ". The
consideration of intellectual property rights distribution, and comparison to intellectual property
rights distribution in market benchmarks is "just a means to the end of determining the existence
of benefit from these financial contributions – it is not the 'benefit' of the 'subsidy', in and of
itself".1583
8.442. Thus, the European Union considers that the reasoning of the Appell ate Body in the
original proceeding , regarding the non -specificity of the allocation of patent rights as a
self-standing subsidy , is not applicable to the assessment of specificity of the DOD aeronautics
R&D subsidies before this Panel. The European Union recalls the Appellate Body 's statement that
its findings in connection with the specificity of the allocation of patent rights, if considered to be a
self-standing subsidy, "do not traverse " the original panel's findings related to the payments and
access to NASA facilities, equipment, and employees . The Europea n Union alleges that the
United States is now attempting to use the Appellate Body 's findings to traverse the original
panel's findings, in exactly the way that the Appellate Body cautioned that they could not be
used.1584 The European Union denies the United States ' allegation that it has alleged a different
subsidy with respect to DOD aeronautics R&D funding and other support for aeronautics R&D from
that in the original proceeding , and asserts that it s claims address the exact same subsidies as
were found to exist in the original proceedings, and the continuation of those subsidies through
successor and closely-related aeronautics R&D programmes.1585

1579 European Union's first written submission, paras. 386 and 387. We note that the European Union
does not appear to make its argument under Article 2.1(c) in the alternative.
1580 European Union's first written submission, para. 386; second written submission, para. 523.
1581 European Union's first written submission, para. 386; second written submission, para. 523.
1582 European Union's second written submission, para. 524.
1583 European Union's second written submission, paras. 526-530. (emphasis original)
1584 European Union's second written submission, paras. 531-533.
1585 European Union's comments on United States' response to Panel question No. 28, para. 181.

8.443. The United States argues that "the patent rights subsidy alleged by the European Union" is
not specific, within the meaning of Article 2.1 (a) of the SCM Agreement , because it is available
under any U.S. G overnment contract.1586 The standard addressed by Article 2.1(a) of the SCM
Agreement is whether access to th e subsidy is limited. With respect to DOD assistance
instruments, which the European Union alleges involve financial contributions in the form of
payments and provision of goods and services, the only benefit alleged is that Boeing receives
more favourable rights in patents than would be the case if a commercial actor had funded the
research. The specificity analysis should therefore be based on that subsidy.1587
8.444. The United States argues that the European Union incorrectly characterizes its claims as to
the existence of a benefit with regard to NASA and DOD contracts and agreements. According to
the United States, the European Union has not argued "that {DOD} paid Boeing too much for the
work Boeing conducted and the intellectual property rights that resulted ", or "that no
market-based actor would make payments, or provide facilities, equipment, and employees to
obtain research results that the market -based actor sought ".1588 Rather, the European Union 's
allegation of the existence of a benefit is limited to the f act that Boeing receives more favourable
rights in respect of patents than would be the case if a commercial actor had funded the research.
Thus, the specificity analysis must be limited to Boeing's allocation of rights in patents that is more
favourable than under a commercial transaction.1589
8.445. The United States recalls, in this respect, that the Appellate Body in the original proceeding
found that the attribution of patent rights, if considered as a "free-standing subsidy" is not specific,
because it is available under any U.S. Government R&D contract, by any agency, in any sector.1590
The United States also recalls that the Appellate Body indicated that a subsidy provided through a
particular program me, considered separately, will not be considered specific whe re multiple
authorities implement the same measure.1591
8.446. The United States considers that the Appellate Body 's statement that its findings with
respect to whether the allocation of patent rights , if considered as a subsidy by itself, was specific
"do not trav erse the panel 's findings of specificity relating to the payments and other support
provided under the NASA USDOD contracts and agreements ", is not germane to this proceeding
because the European Union is alleging a different financial contribution and ben efit, which
requires a different analysis of specificity.1592
8.447. The United States considers that the European Union 's contention that specificity exists
under Article 2.1(a) because R&D performed is limited to defence topics , does not address the
standard established by the SCM Agreement (whether access to the subsidy is limited) because
the European Union has never established or even claimed that DOD aeronautics R&D
programmes, taken as a whole, are a subsidy to Boeing.1593
8.448. The United States argues that the Eur opean Union 's specificity arguments concerning
Article 2.1(c) are similarly flawed in that they address only the DOD aeronautics R&D programmes.
The European Union has presented no evidence as to de facto specificity because access to the
treatment in ques tion (the allocation of patent rights) is available through U.S. Government
contracting.1594
8.2.3.5.2 Evaluation by the Panel
8.449. The issue before us is whether the subsidies provided through the post -2006 DOD
assistance instruments are specific within the meaning of Article 2.1 (a); i.e. whether "the granting

1586 United States' first written submission, section 3.3.4.4.4.
1588 United States' second written submission, paras. 252, and 269. See also United States' first written
submission, paras. 259 and 260; second written submission paras. 248 and 255.
1589 United States' first written submission, para. 259; second written submission, paras. 248, 252, 255,
and 269.
1590 United States' first written submission, para. 291.
1591 United States' second written submission, para. 269.
1592 United States' first written submission, paras. 254 and 255.
1594 United States' first written submission, para. 293.

authority, or the legislation pursuant to which the granting authority operates, explicitly limits
access to the subsidy to certain enterprises".1595
8.450. The disagreement between the parties on whether access to the subsi dy is explicitly
limited pertains to the same issue that we considered above in Section 8.2.2.5 in relation to the
post-2006 NASA procurement contracts and Space Act Agreements ; namely, the appropriate
characterization of the "subsidy" provided to Boeing through the DOD assistance instruments and
the corresponding identification of the "legislation" pursuant to which the "granting authority "
operates1596, which frames the assessment of whether access to the subsidy is explicitly li mited to
certain enterprises for purposes of Article 2.1(a).
8.451. The European Union argues that, for purposes of determining of whether access to the
subsidy is explicitly limited, the "subsidy" should be defined, in this case, as payments and the
provision of access to facilities, equipment, and employees on terms more favourable than
available in the market and that, as such, the subsidy is exactly the same "subsidy", access to
which the original panel found to be explicitly limited. 1597 The United States argues that the
subsidy should be defined in terms of the allocation of rights in patents on terms more favourable
than available in the market and that, as such, the subsidy is the same "subsidy", access to which
the Appellate Body found not to be explicitly limited in the original proceeding.1598
8.452. Before addressing this question of how the relevant subsidy should be defined in this case
in order to ensure a proper analysis of whether access to the subsidy is explicitly limited, we
briefly recall the relevant findi ngs made in the original proceeding by the panel and the Appellate
Body which are relied upon by the parties in support of their opposing views.
8.453. First, in the original proceeding, the panel found that the payments and access to DOD
facilities provided to Boeing through DOD assistance instruments were financial contributions that
conferred a benefit on Boeing, on the basis that no commercial entity would provide payments and
access to its facilities and personnel to another commercial entity on the conditio n that the other
entity perform R&D activities principally for the benefit and use of that other entity. 1599 The panel
then assessed whether these subsidies were specific within the meaning of Article 2 on the basis
that the individual RDT&E program elements appeared to be the "relevant frame of reference".1600
Thus, the question the panel asked was whether the individual RDT&E program elements were
"specific" for purposes of Article 2 of the SCM Agreement. Answering that question in the
affirmative, the panel fo und that the "fairly narrow focus of R&D " performed under the 23
individual RDT&E program elements indicated that the subsidies provided through the assistance
instruments under those program elements were specific within the meaning of Article 2.1(a) of
the SCM Agreement.1601
8.454. Although the panel 's specificity findings were not appealed, its financial contribution and
benefit findings were. The Appellate Body upheld the panel 's findings on financial contribution and

1595 See paras. 8.208 through 8.210 above.
1596 While an explicit limitation on access to the subsidy may also result from "pronouncements or other
actions of the granting authority" (Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 757),
our understanding is that the European Union bases its allegation that "access to the subsidy" is subject to an
explicit limitation on what it considers to be relevant legislative and regulatory provisions pursuant to which the
subsidy is granted.
1597 In this view, the relevant "legislation pursuant to which the granting authority operates" consists of
the relevant legislative and regulatory provisions that authorize, and define the objectives of, DOD aeronautics
and space R&D programmes.
1598 In this view, the relevant "legislation pursuant to which the granting authority operates" consists of
the legislative framework and implementing regulations governing the distribution of intellectual property
rights in U.S. Government R&D contracts.
1599 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1184.
1600 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1195.
1601 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1196. The panel also considered that,
even if it were necessary to examine specificity at the level of the RDT&E Program as a whole, the European
Communities had demonstrated de facto specificity, within the meaning of Article 2.1(c) of the SCM
Agreement, by showing that between 1991 and 2005, almost half of all RDT&E funding went to five
enterprises, all of which form part of the same industry. (Panel Report, US – Large Civil Aircraft (2nd
complaint), para. 7.1197).

benefit, but on the basis of significantly di fferent reasoning, particularly as regards the benefit
determination.1602
8.455. Second, the question of specificity of the subsidies provided through the original DOD
assistance instruments was also considered in the original proceeding in respect of the European
Communities' separate claim regarding the allocation of NASA and DOD patent rights, when
viewed independently from the provision of payments and access to facilities, equipment, and
employees, as a self -standing subsidy.1603 In addressing this claim, the orig inal panel concluded
that the allocation of patent rights, if assumed arguendo to be a self -standing subsidy, would not
in any event be specific, given that "the allocation of patent rights is uniform under all
U.S. Government R&D contracts, agreements, an d grants, in respect of all U.S. Government
departments and agencies, for all enterprises in all sectors ".1604 The European Union appealed this
finding, as well as the panel's interpretation of Article 2.1 of the SCM Agreement.
8.456. The Appellate Body observed that there may have been "some overlap" in the relationship
between the European Communities' claim that payments and access to facilities, equipment, and
employees were subsidies, on the one hand, and its claim that the allocation of patent rights was a
self-standing subsidy, on the other. 1605 The Appellate Body proceeded to address the
parties' appeal of the panel 's finding on the basis that neither party had appealed the panel 's
approach to the potential overlap between the European Communities' claims; howev er, the
Appellate Body emphasized that "any findings {it} make{s} in connection to the specificity of the
allocation of patent rights do not traverse the Panel 's findings of specificity relating to the
payments and other support provided under the NASA/USDOD contracts and agreements".1606
8.457. While the Appellate Body expressed reservations regarding the panel 's use of arguendo
reasoning1607, it ultimately upheld the panel 's finding that the allocation of patent rights under the
challenged DOD assistance instruments, if conceived as a separate subsidy, was not specific within
the meaning of Article 2.1(a). In particular, the Appellate Body:
a. Affirmed the panel 's assessment of whether the "patent rights " subsidies in question
were specific by reference to the legal fram ework that exists in the United States for the

1602 The Appellate Body found that the panel had not made a proper comparison of the terms of the
DOD assistance instruments (and NASA procurement contracts) with the terms of a market transaction, as
required under Article 1.1(b), and that the panel's reasoning as to whether the payments and access to
facilities provided under the DOD assistance instruments conferred a benefit could not be sustained. (Appellate
Body Report, US – Large Civil Aircraft (2nd complaint), para. 647). The Appellate Body completed the analysis
by determining whether the "disposition of intellectual property rights under the NASA/USDOD measures at
issue is consistent with what occurs in transactions between two market actors". (Appellate Body Report, US –
Large Civil Aircraft (2nd complaint), para. 653). In the course of undertaking this analysis, the Appellate Body
expressed the view that "the allocation of intellectual property rights is pre-determined under the US legal
framework". (Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 661). It concluded, based
on a comparison of the intellectual property rights terms of certain contracts, which it had decided to treat as
market benchmarks for purposes of completing the analysis, that "transactions in the market result in an
equilibrium that is more favourable to the commissioning party than in the measures before us". (Appellate
Body Report, US – Large Civil Aircraft (2nd complaint), para. 662). Consequently, it found that the funding and
support provided under the DOD assistance instruments conferred a benefit on Boeing, within the meaning of
Article 1.1(b) of the SCM Agreement. (Appellate Body Report, US – Large Civil Aircraft (2nd complaint),
para. 666).
1603 See Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1276-7.1294, for a description
of Bayh-Dole Act, its associated legislative instruments and implementing regulations, and accompanying
NASA-specific implementing regulations.
1604 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1276-7.1294. The panel found that
the U.S. Government has a general policy in place granting government contractors the option to retain title to
inventions that arise from a funding agreement with the U.S. Government, pursuant to the Bayh-Dole Act,
1983 Presidential Memorandum, the 1987 Executive Order, and the general and NASA-specific regulations.
(See Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1276-7.1294).
1605 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 726-728 and 740.
1606 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 730.
1607 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 741. The Appellate Body
expressed the view that the panel should have first determined whether a subsidy exists, stating that "the
assessment of specificity under Article 2.1 depends on how the subsidy was defined under Article 1.1, leaving
little, if any, room for the adoption of an arguendo approach". (Appellate Body Report, US – Large Civil Aircraft
(2nd complaint), para. 739).

allocation of patent rights under U.S. Government R&D contracts and agreements , and
pursuant to which NASA and DOD as granting authorities operate.1608
b. Focused on the legislative and regulatory framework regulati ng the allocation of patent
rights arising from R&D funded by the U .S. Government, which revealed that the
eligibility to receive the alleged "subsidy" is not limited to the class of enterprises that
conducts aerospace R&D, and thus concluded that there wa s no a basis on which to find
that such a subsidy is explicitly limited to certain enterprises , and therefore specific
within the meaning of Article 2.1(a) of the SCM Agreement.1609
8.458. The Appellate Body reversed the panel for failing to address the European Communities'
claim of de facto specificity under Articles 2.1(c).1610
8.459. As noted above, the parties disagree on whether the subsidies at issue in this proceeding
are the same subsidies as those that were found to exist by the original panel , and should be
found to be specific under Article 2.1(a) based on the same analysis that led the original panel to
find the original measures to be specific; or whether the subsidies at issue here are different, such
that the subsidies should be found to be non -specific, in acco rdance with the Appellate Body 's
analysis of the European Union 's separate claim with respect to the allocation of NASA and DOD
patent rights as a self-standing subsidy.
8.460. While we disagree with the European Union 's assertion that its claim in this proceedin g
regarding the alleged post-2006 DOD assistance instruments concerns the exact same subsidies as
were found to exist in the original proceeding and were found to be specific by the original panel,
we also do not accept the United States ' argument that the subsidies at issue are the same
subsidies found to be non -specific by the Appellate Body in the context of its analysis of the
European Communities ' challenge to the allocation of patent rights under all NASA and DOD
procurement contracts and assistance instruments as a self-standing subsidy.
8.461. The measures challenged by the European Union in this proceeding are factually the same
type of measures as those challenged in the original proceeding i.e. payments and the provision of
access to facilities, (and in some cases) equipment and employees , under DOD assistance
instruments. However, we have found these measures to constitute subsidies on a legal basis that
differs from the basis upon which the panel in the original proceeding found the measures to be
subsidies. In our view, this different legal characterization of the measures as subsidies means
that in determining whether "access to the subsidy " is explicitly limited , we cannot presume that
the finding of the original panel , that the subsidies granted through the original DOD assistance
instruments were specific under Article 2.1(a), is still applicable.
8.462. Particularly with regard to our finding on how the financial contributions at issue confer a
benefit on Boeing, we note that in the original proceeding t he panel found a benefit on the basis
that "no private entity acting pursuant to commercial considerations, would provide payments (and
access to its facilities and personnel) to another commercial entity on the condition that the entity
perform R&D activi ties principally for the benefit and use of that other entity. At a minimum, it
would be expected that some form of royalties or repayment would be required in the event that
financial contributions were provided on such terms. "1611 In this proceeding, we f ind that the
financial contributions provided under the DOD assistance instruments confer a benefit on the
basis that the allocation of rights to own and use patents under those measures is more favourable
to Boeing as commissioned party than the allocation of rights to own and use patent is to
commissioned parties under collaborative R&D agreements between private parties. In our view,
the different basis on which we determine in this proceeding that the payments and any access to
DOD facilities, equipment, and employees provided through the DOD assistance instruments

1608 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 760.
1609 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 782, 788, and 789.
1610 The Appellate Body found that the panel's overall analysis was "incomplete and cannot be
sustained" because the panel chose not to address the European Communities' claim of de facto specificity
under Article 2.1(c) of the SCM Agreement. (Appellate Body Report US – Large Civil Aircraft (2nd complaint),
para. 793). Having reversed the panel, the Appellate Body stated that it was not persuaded that NASA or DOD
exercised discretionary authority with respect to the allocation of patent rights, or that the share of NASA
contracts and DOD funding received by Boeing was disproportionate, so as to support a finding of specificity
under Article 2.1(c). (Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 799 and 800).
1611 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1039.

constitute a financial contribution that confers a benefit means that we cannot adopt the original
panel's finding of specificity regarding the pre-2007 DOD assistance instruments without first
examining whether such an approach remains appropriate.1612
8.463. However, we do not consider that, as argued by the United States, the fact that the focus
of our benefit analysis is the allocation of patent rights logically leads to the conclusion that the
subsidy at issue should be defined as the allocation of patent rights on terms more favourable than
available in the market and that , for purposes of determining whether access to the subsidy is
limited we must treat the Bayh -Dole Act, its associated legislative instruments and implementing
regulations as the relevant subsidy scheme. Since a subsidy within the meaning of Article 1 is
defined in terms of financial contribution and benefit, it stands to reason that both financial
contribution and benefit must be ta ken into consideration in an analysis of whether access to the
subsidy is explicitly limited. Therefore, while we agree that the nature of the benefit found to exist
obviously is a key consideration in the specificity analysis under Article 2.1(a), the que stion of
whether access to the subsidy is explicitly limited cannot always be answered by focusing solely on
the benefit.1613 In our view, the United States ' argument fails to properly consider the benefit in
relation to the financial contribution and the par ticular context in which that financial contribution
occurs.
8.464. As is clear from Sections 8.1.3 and 8.2.3.5.2, our benefit assessment has been conducted
in the context of a characterization of the DOD assistance instruments as collaborative R&D
agreements between DOD and Boeing. In this context, we considered it appropriate to assess
whether the financial contributions provide a benefit on the basis of an examination of how the
R&D partners agree to al locate the ownership of inventions, the right to licence patents obtained
from inventions discovered in the course of the collaboration, and the use of data generated from
the collaboration. Whether this will be the case for other R&D contracts and agreeme nts concluded
between NASA, DOD or indeed , any other U.S. Government agencies, will depend very much on
the programmes in question, and a consideration of all of the terms of the transaction s, including
those relevant to the characterization of the financial contribution and benefit.
8.465. For example, our characterization of the payments (and any access to DOD facilities,
equipment or employees) provided to Boeing through DOD procurement contracts, as principally
involving purchases of R&D services, has led us to conclude that, even assuming such transactions
involved financial contributions, it would not be appropriate to undertake the benefit determination
by focusing exclusively on the allocation of patent rights, or intellectual property rights more
generally, in isolation from the other terms of the purchase. Thus, in the context of our
characterization of the DOD procurement contracts as purchases of R&D services, the same
allocation of patent rights that applies by virtue of the Bayh -Dole Act and related le gislative
instruments and implementing regulations would not result in the measures in question being
subsidies.1614
8.466. Because the role of the allocation of intellectual property rights in our analysis of whether a
measure constitutes a subsidy depends upon the particular context, we consider that , in
ascertaining whether access to the subsidy , is explicitly limited, we cannot treat the allocation of
intellectual property rights on terms more favourable than available in the market as being the
relevant "subsidy" in and of itself. We therefore disagree with the premise on w hich the
United States' argument is based, namely, that the "subsidy" at issue is the "same subsidy" that
the Appellate Body addressed in the context of the European Communities ' challenge to t he
allocation of patent rights under all NASA procurement contracts and DOD assistance instruments
with Boeing as a "self-standing subsidy". While our benefit determinations in respect of the DOD
assistance instruments do turn in certain respects on the allocation of patent rights set forth in the
Bayh-Dole regime, this is not because of the Bayh -Dole regime itself, but because , in the context
of the DOD assistance instruments, a focus on the allocation of patent rights is appropriate. This is
not necessari ly the case for every U.S. Government R&D procurement contract, agreement or
grant, as is demonstrated by our conclusion that a focus on the same allocation of patent rights in

1612 In this respect, we interpret the Appellate Body's statement, at para. 730 of its report, that any
findings it makes in connection with the specificity of the allocation of patent rights "do not traverse the Panel's
findings of specificity relating to the payments and other support provided under the NASA USDOD contracts
and agreements" particularly in light of footnote 1534, as a statement regarding the scope of the appeal.
1613 See also Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), paras. 377
and 378.
1614 See paras. 8.420 through 8.426 above.

the context of the DOD procurement contracts is inadequate to demonstrate that those measures,
assuming they are financial contributions, confer a benefit.
8.467. This being so, we consider that the appropriate legislative and regulatory framework for
assessing whether the payments (and any access to DOD facilities, equipment or employees)
provided to Boeing through DOD assistance instruments , are specifi c within the meaning of
Article 2 of the SCM Agreement, involves DOD as the granting authority, and the RDT&E program
elements which fund the DOD assistance instruments. Given that the focus of R&D performed
under the RDT&E program elements is narrowly directed toward research to meet current and
future military needs in relation to the development of specific weapon systems, and that even
those few RDT&E program elements that have explicitly dual-use objectives concern development
of technologies with military and civil applications that are narrowly-focused, we conclude that the
subsidies provided to Boeing through the post-2006 DOD assistance instruments funded under the
RDT&E program elements are specific within the meaning of Article 2.1(a) of the SCM Agreement.
8.468. In light of this finding, we do not consider it necessary to address the European Union 's
argument under Article 2.1(c).
8.469. Therefore, the Panel finds that subsidies provided to Boe ing through the
post-2006 DOD assistance instruments are specific within the meaning of Artic le 2.1(a)
of the SCM Agreement.
8.470. Finally, we note that the European Union also argues that the subsidies provided to Boeing
through the post-2006 DOD assistance instruments are specific pursuant to Article 2.3 of the SCM
Agreement. Article 2.3 provides that "{a}ny subsidy falling under the provisions of Article 3 shall
be deemed to be specific". We reject this argument because, in Section 10 of this Report, we find
that the European Union has failed to establish that any subsidy at issue in this proceeding is
prohibited by Articles 3.1 and 3.2 of the SCM Agreement.
8.2.3.6 Amount of the subsidy and amount of the financial contribution
8.2.3.6.1 Amount of the subsidy provided to Boeing through the DOD assistance
instruments
8.471. In the previous Section, we f ind that payments and access to DOD facilities, equipment,
and employees , provided to Boeing through the post -2006 DOD assistance instruments funded
under the relevant RDT&E program elements are specific subsidies within the meaning of Articles 1
and 2 of the SCM Agreement.
8.472. In this Section, we address the parties ' arguments regarding the amount of the subsidy
provided to Boeing by the post -2006 DOD assistance instruments. The amount of the subsidy
refers to the amount or magnitude of the benefit conferred by the financial contribution; i.e. the
quantification of the advantage conferred on Boeing by the financial contribution, compared to
what Boeing would have obtained in a market transaction.1615
8.473. The European Union does not propose a specific estimate of the amount of the benefit
conferred by the payments and provision of access to DOD facilities, equipment, and employees
under the DOD assistance instruments funded through the relevant RDT&E p rogram elements.
Rather, as with the NASA procurement contracts, cooperative agreements, and Space Act
Agreements, the European Union argues that the amount of the benefit is a multiple of the
financial contribution. Specifically, the European Union argues that, given the Appellate Body 's
"focus on the allocation of IP rights ", the value of the benefit conferred on Boeing by the DOD
assistance instruments is based on the value of the technology developed from those aeronautics
R&D instruments.1616

1615 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 690 and 691 (explaining
that the original panel, in seeking to estimate the amount of funds transferred to Boeing under the relevant
NASA procurement contracts, as well as the value of Boeing's access to NASA facilities, equipment, and
employees under the NASA instruments, had been estimating the amount of the "financial contribution", rather
than the amount of the "benefit").
1616 European Union's first written submission, para. 385.

8.474. To recall, in Section 8.2.3.4.2, the Panel finds that the payments and provision of access to
DOD facilities, equipment , and employees to Boeing through the post -2006 DOD assistance
instruments (those that were modified by the DOD -Boeing Patent Licence Agreement, as well as
those that were not so modified), funded under the relevant RDT&E program elements, confer a
benefit on Boeing because the allocation of intellectual property rights and related licence rights
under those instruments is more favourable to Boeing as commissioned party than the
corresponding allocations to commissioned parties under the private collaborative R&D agreements
before the Panel which evidence prevailing market practices for collaborative R&D arrangements.
Accordingly, the amount of the benefit (and thus, th e subsidy) must logically correspond to the
value of the difference between the terms regarding the allocation of intellectual property rights
and related licence rights on which the financial contributions we re provided to Boeing under the
DOD assistance instruments, and the terms regarding the allocation of intellectual property rights
and related licence rights under which the financial contributions would have been provided in a
market-based collaborative R&D arrangement.
8.475. We address above the European Union's argument that the value of the benefit conferred
on Boeing by the NASA aeronautics R&D subsidies is a multiple of the financial contributions
provided by those instruments.1617 In doing so, we conclude that the European Union's approach is
not based on a correct legal understanding of what constitutes the benefit conferred by the
aeronautics R&D subsidies, and conflates the concept of the "benefit" conferred by the financial
contribution with the "effects" of a subsidy. 1618 Consistent with its arguments on this issue in the
context of the NASA aeronautics R&D subsidies, the European Union cites as support for its
approach statements by the Appellate Body in the original proceeding .1619 However, these
statements were made in the context of the Appellate Body's adverse effects findings, not its
benefit findings. We reject the European Union's arguments that the value of the benefit conferred
by the DOD assistance instruments is a multiple of the financial contributio n for the same reasons
that we reject this argument in the context of the NASA aeronautics R&D subsidies.1620
8.476. There is insufficient evidence on the record as to the amount of the subsidy in the sense of
the advantage conferred on Boeing resulting from the di fference between the terms regarding the
allocation of intellectual property rights and related licence rights on which financial contributions
were provided to Boeing under the post -2006 DOD assistance instruments at issue and the terms
regarding the allocation of intellectual property rights and related licence rights on which financial
contributions would have been provided to Boeing in a market -based collaborative R&D
arrangement.
8.477. In light of the foregoing, we are unable to accept the European Union's arguments
regarding the amount of the benefit provided to Boeing through the post -2006 DOD assistance
instruments under the relevant aeronautics R&D programmes. We therefore find that there is
insufficient evidence on the record as to the amount of the subsidy.
8.2.3.6.2 Amount of the financial contribution provided to Boeing through the DOD
assistance instruments
8.478. The European Union estimates that the total amount of the financial contribution,
comprising all post-2006 payments as well as the value of access to DOD facilities, equipment, and
employees, under both procurement contracts and assistance instruments, is USD 2. 895 billion
between 2007 and 2012.1621 The United States submits evidence valuing the payments received by
Boeing under the DOD assistance instruments at [***] between 2007 and 2012.1622 With respect

1617 See paras. 8.238 to 8.240 above.
1618 See paras. 8.238 to 8.240 above.
1619 See European Union's first written submission, para. 385 (citing Appellate Body Report, US – Large
Civil Aircraft (2nd complaint), para. 945, quoting Panel Report, US – Large Civil Aircraft (2nd complaint),
para. 7.1760: "by their nature, the aeronautics R&D subsidies 'multiply the benefit from a given expenditure'").
1620 See paras. 8.238 to 8.240 above.
1621 European Union's first written submission, para. 371. The European Union also provides an updated
estimate of USD 4.513 billion between 2007 and 2014. (See Subsidies to Boeing's LCA Division (2013-2014
Update) (Exhibit EU-1451), p. 3).
1622 Funds Obligated to Air Force Agreements with Boeing for FY 2007-FY 2012, by program element,
(Exhibit USA-108) (BCI); Funds obligated to other DOD entities' contracts and agreements with Boeing,
FY 2007-FY 2012 (revised 1 December 2014), (Exhibit USA-157) (BCI); and Funds obligated to Navy contracts
and agreements with Boeing, FY 2007-FY 2012, (Exhibit USA-273) (BCI). This figure includes payments

to access to DOD facilities, equipment, and employees , the United States argues that only one
agreement provided for access to facilities, the value of which is negligible.1623
8.2.3.6.2.1 Main arguments of the parties
8.479. In arriving at its estimate of the amount of the financial contribution, the European Union
takes as a starting point the full amount of the annual budget appropriation for each of the
challenged DOD RDT&E program elements. To recall, these are the program elements identified by
the European Union under which so -called "dual -use" research that allegedly contributed to
Boeing's LCA division was conducted. These program elements can be divided into two categories;
S&T/general aircraft program elements, and system s acquisition/military aircraft program
elements.1624 The European Union's approach to the valuation of the amount of the financial
contributions provided by the relevant RDT&E program elements varies depending on the category
of program element.
8.480. For the S&T/general aircraft program elements, after having identified the total amounts of
annual DOD funding for the relevant program element, the European Union allocates to Boeing a
portion of that total based on the percentage of Boeing 's share of the market for U .S. military
products.1625
8.481. For the systems acquisition/military aircraft program elements, the European Union first
determines the amount of total annual funding for each program element that was provided to
Boeing, and then determines, based on the opinion of its expert Mr Rumpf, the percentage of
funding received under each such program element that can be deemed to be associated with so-
called "dual-use" R&D.1626
8.482. This methodology results in a figure of USD 5.275 billion between 2007 and 2012.1627 The
European Un ion notes, however, that this figure represents DOD spending on "dual-use"
technology; i.e. technology with both military and civil application s, and that it is appropriate to
consider on ly the portion related to civil application as constituting the finan cial contribution to
Boeing. The European Union therefore allocates to Boeing a percentage of this total figure, based
on the percentage of Boeing's total revenue represented by Boeing's LCA division.1628 The resulting
figure, which the European Union treats as its estimate of the total annual amount of the financial
contribution provided to Boeing by DOD, is USD 2.895 billion between 2007 and 2012 , and
USD 4.513 billion between 2007 and 2014.
8.483. The European Union acknowledges that this "top -down" methodology fo r calculating the
amount of DOD's financial contribution to Boeing does not distinguish between procurement
contracts and assistance instruments, but argues that this is irrelevant because the original panel's
distinction between these types of instruments was rendered moot by the Appellate Body. 1629 The
European Union considers that the United States ' evidence of the amounts paid to Boeing under
specific assistance instruments and procurement contracts is unreliable, pointing to a U.S.
Government Accountabili ty Office report criticising DOD 's financial management systems.1630

received under the Long Range Strike Bomber program element, for which we have previously found there is
no measures in existence within the scope of the European Union's claims regarding that RDT&E program
element. (See para. 7.216 above).
1623 This was assistance instrument FA8650-08-2-3834, which provided access to NASA Langley's
V/STOL wind tunnel. The United States notes that the assistance instrument does not place a value on this
access but asserts that Boeing had limited access, the value of which would be unlikely to modify the total
value of DOD contributions appreciably. (See United States' first written submission, para. 277; and Air Force
Agreement FA8650-08-2-3834, SOW, (Exhibit USA-110) (HSBI), p. 1).
1624 See Section 8.2.3.2.3.
1625 Rumpf Report, (Exhibit EU-23). This is calculated using data from Boeing's annual financial reports,
and industry-wide data compiled by the Aerospace Industries Association.
1626 Rumpf Report, (Exhibit EU-23), pp 9-16.
1627 European Union's first written submission, para. 371.
1628 European Union's first written submission, para. 371; and DOD Subsidies to Boeing's LCA Division
(Exhibit EU-37).
1629 European Union's second written submission, para. 469 (citing Appellate Body Report, US – Large
Civil Aircraft (2nd complaint), fn 1298).
1630 European Union's second written submission, para. 472 (citing U.S. Government Accountability
Office, "DOD Financial Management: Improved Controls, Processes and Systems Are Needed for Accurate and
Reliable Financial Information", No. GAO-11-933T, 23 September 2011, (Exhibit EU-1102)).

Further, the European Union argues that the value of the financial contribution is not limited to the
value of payments made to Boeing, and thus the United States ' estimate impermissibly exc ludes
the value of other forms of support that DOD has provided.1631
8.484. The United States submits evidence of the payments made under the assistance
instruments funded by the challenged RDT&E program elements since 2006.1632 The United States
confirms that this evi dence is based on reporting by DOD agencies responsible for overseeing the
expenditure of funds under the challenged program elements. 1633 The United States also argues
that, while the European Union criticises the United States' figures for being based on allegedly
unreliable DOD financial management systems, the European Union 's figures, which are based on
DOD budget data for each program element, are also the product of DOD's financial management
systems.1634
8.485. The United States considers that the European Union 's "top-down" methodology for
calculating DOD's financial contribution to Boeing is based on a number of impermissible
assumptions. First, the European Union's methodology assumes that the amount of funding
received by Boeing under a particular program ele ment is in proportion to Boeing 's share of the
military aircraft market.1635 Further, there is no basis for the European Union's assumption that the
percentage of so-called "dual-use" funding received by Boeing that is "attributable" to LCA has any
relationship to the percentage of total Boeing revenue s that is represented by Boeing's LCA
sales.1636 Finally, the European Union 's methodology fails to distinguish between payments
received by Boeing under DOD procurement contracts and those received under DOD assist ance
instruments.1637 The United States concludes that its evidence is the more probative as to the
value of the financial contributions.1638
8.2.3.6.2.2 Evaluation by the Panel
8.486. The parties' estimates of the amount of the financial contribution provided to Boeing by
DOD through the assistance instruments differ significantly because they are based on different
calculation methodologies.
8.487. Like its estimate of the financial contribution provided by the NASA aeronautics R&D
subsidies, the European Union adopts a "top-down" methodology, based on estimating the
proportion of the total annual budgets of the relevant DOD RDT&E program elements through
which DOD's procurement contracts and assistance instruments with Boeing are funded that can
be allocated to Boeing. The United States adopts a "bottom-up" methodology, which estimates the
value of payments made to Boeing under the individual DOD assistance instruments which , since
2006, received funding under the challenged RDT&E program elements.
8.488. We recall that in the original proceeding, the European Communities estimated the amount
of the financial contribution represented by the DOD aeronautics R&D measures as USD 2.4 billion
between 1991 and 2006, using broadly the same methodology for estimating the amount of the
financial contrib ution that the European Union uses in th is proceeding.1639 The original panel
rejected the European Communities' estimate because it did not distinguish between payments
received by Boeing under procurement contracts, and those received under assistance
instruments.1640 This was significant because the panel had previously found that, while the DOD

1631 European Union's second written submission, para. 471.
1632 Funds obligated to Air Force Agreements with Boeing, FY 2007-FY 2012, by program element,
(Exhibit USA-108) (BCI); Funds obligated to other DOD entities' contracts and agreements with Boeing,
FY 2007-FY 2012 (revised 1 December 2014), (Exhibit USA-157) (BCI); and Funds obligated to Navy contracts
and agreements with Boeing, FY 2007-FY 2012, (Exhibit USA-273) (BCI).
1633 United States' second written submission, para. 261.
1634 United States' second written submission, para. 260.
1636 United States' first written submission, para. 300.
1637 United States' first written submission, para. 301.
1638 United States' second written submission, para. 260.
1639 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1199-7.1204.
1640 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1206.

assistance instruments constituted a specific subsidy to Boeing, the DOD procurement contracts
did not.1641
8.489. We are similarly unable to accept the European Union 's estimat e of the amount of the
financial contribution for the DOD aeronautics R&D subsidies in this proceeding . The
European Union's estimate suffers from the same legal deficiencies as its "top-down" estimate of
the financial contribution element of the NASA aero nautics R&D subsidies. 1642 First, it does not
correspond to the nature of the financial contributions as found by the Panel; i.e. as payments and
the provision of access to DOD facilities (and where applicable, DOD equipment and employees)
provided to Boeing through assistance instruments funded under the relevant RDT&E program
elements. Additionally, there is no rational basis to justify the main assumptions underpinning the
European Union 's methodology; namely, that the portion of the total annual budget for each
RDT&E program element received by Boeing corresponds to Boeing 's share of the U.S. military
aviation market, or that the share of DOD funding of "dual -use" R&D that is applicable to LCA
corresponds to the percentage of Boeing 's total revenues represe nted by Boeing's LCA sales.
These deficiencies are compounded by the fact that it is impossible under the European Union 's
methodology to distinguish between payments and access provided under procurement contracts,
and payments and access provided under assistance instruments. We have previously determined
that only payments and access provided under assistance instruments involve specific subsidies to
Boeing. It would therefore be improper to adopt an estimate of the payments and access to
facilities (and equipment and employees) provided to Boeing under DOD assistance instruments
that includes the value of payments and access to facilities (and equipment and employees )
provided to Boeing under DOD procurement contracts. We do not consider, therefore, that the
European Union's methodology for estimating the amount of the financial contributions provided to
Boeing through the DOD aeronautics R&D subsidies is capable of yielding an estimate that is
probative of the value of those financial contributions.
8.490. The United States' estimate of the value of the financial contribution s provided to Boeing
by the DOD aeronautics R&D subsidies is based on evidence submitted originally in response to the
Panel's request under Article 13 DSU . Question 23 of the Panel's reques t to the United States
sought:
{A} list describing all technical data developed by Boeing, in whole or in part in the
course of work performed, or with the use of government facilities, equipment,
property, funds , or services of government employees, under each of the program
elements listed in question 26, and any additional program elements identified in
response to question 25, from FY 2006 – present … .1643
8.491. In response, the United States submitted a list of all DOD assistance agreements under
which Boeing received payments or access to facilities, equipment or employees under the
challenged RDT&E program elements. 1644 The United States later submitted, for those assistance
instruments which received payments after 2006, a list of the specific payments received .1645 This
list covers payments received by Boeing under the three categories of assistance instruments that
we find involve specific subsidies to Boeing:
a. pre-2007 DOD assistance instruments funded under the original challenged RDT&E
program elements that re ceived payments from the relevant program elements in the
post-2006 period1646;

1641 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1206.
1642 See paras. 8.272 and 8.273 above.
1643 United States' response to the Panel's request for information pursuant to Article 13 of the DSU,
dated 28 February 2013, response to question No. 23, para. 76. The United States provided a "List of DOD
Cooperative Agreements, TIAs and OTAs" as Exhibit US-13-6.
1644 List of DOD Cooperative Agreements, TIAs and OTAs, (Exhibit US-13-6).
1645 Funds Obligated to Air Force Agreements with Boeing for FY 2007-FY 2012, by program element,
(Exhibit USA-108) (BCI); Funds obligated to other DOD entities' contracts and agreements with Boeing,
FY 2007-FY 2012 (revised 1 December 2014), (Exhibit USA-157) (BCI); and Funds obligated to Navy contracts
and agreements with Boeing, FY 2007-FY 2012 (Exhibit USA-273) (BCI).
1646 There is some discrepancy in the United States' submissions as to the number of DOD assistance
instruments funded by the "additional" challenged RDT&E program elements. A review of the United States'
evidence indicates that only one such program element which has been found to be within the scope of the

b. post-2006 assistance instruments funded under the original RDT&E program elements
that received payments from the relevant program elements in the post-2006 period1647;
c. post-2006 ass istance instruments funded under the "additional" RDT&E program
elements that the Panel has ruled are within the scope of this proceeding and which
received payments from those program elements in the post-2006 period.1648
8.492. According to the United States ' evidence, the total amount of post -2006 payments
received under the aforementioned three categories of assistance instruments is approximately
[***].1649
8.493. As regards the value of access to DOD facilities, and where applicable, DOD equipment and
employees, provided to Boeing through the DOD assistance instruments, the United States argues
that only one assistance instrument provided such access. This was Air Force Agreement
FA8650-08-2-3834, which provided Boeing with access to the NASA 's Langley 14x22 foot V/STOL
wind tunnel for a "defined series of tests ".1650 The United States argues that, given the relatively
limited nature of Boeing 's access to the wind tunnel facilities, it is "unlikely to modify the total
value of DOD's contributions appreciably".1651 The European Union did not specifically address this
issue, and there is no indication in the United States' evidence with respect to Air Force Agreement
FA8650-08-2-3834 as to the value of the temporary access provided to the NASA wind tunnel
facility.1652 We note, howeve r, that the United States ' evidence with respect to the NASA
aeronautics R&D subsidies estimates the value of access to a different wind tunnel model at
approximately [***].1653 We consider it reasonable for present purposes to treat this figure as the
best a vailable evidence before us as to the value of access provided to the NASA wind tunnel
facility under Air Force Agreement FA8650-08-2-3834.
8.494. The European Union argues that the United States' data as to the value of payments made
under individual DOD instrum ents is unreliable because DOD 's financial management systems

proceeding, the Materials and Biological Technology (PE 0602715E) program element funded any assistance
instruments. These were: HR011-06-2-0008, FA8650-07-2-7716 and HR0011-10-2-0001. (See Funds
obligated to Air Force Agreements with Boeing, FY 2007-FY 2012, by program element, (Exhibit USA-108)
(BCI); and Funds obligated to other DOD entities' contracts and agreements with Boeing, FY 2007-FY 2012
(revised 1 December 2014), (Exhibit USA-157) (BCI)). None of the remaining "additional" RDT&E program
elements funded any assistance instruments.
1647 These are the following assistance instruments: N00173-08-2-C009 (this instrument was funded by
an "unknown PE" but the United States nonetheless includes it in an "abundance of caution", (see
United States' first written submission, para. 274); FA8650-08-2-3834; and FA8650-11-2-2834. (See
United States' first written submission, para. 271; second written submission, para. 258; Funds obligated to Air
Force Agreements with Boeing, FY 2007-FY 2012, by program element, (Exhibit USA-108) (BCI); and Funds
obligated to Navy contracts and Agreements with Boeing, FY 2007-FY 2012, (Exhibit USA-273) (BCI)).
1648 These are the following assistance instruments: F49620-00-2-0384, F33615-03-2-2200,
F3315-03-2-5202, FA8650-04-2-3449, FA8650-04-2-5000, and FA8650-2-3503. (See United States' first
written submission, para. 278; and Funds obligated to Air Force Agreements with Boeing, FY 2007-FY 2012, by
program element, (Exhibit USA-108) (BCI)).
1649 Funds obligated to Air Force Agreements with Boeing, FY 2007-FY 2012, by program element,
(Exhibit USA-108) (BCI); Funds obligated to other DOD entities' contracts and agreements with Boeing,
FY 2007-FY 2012 (revised 1 December 2014), (Exhibit USA-157) (BCI); and Funds obligated to Navy contracts
and agreements with Boeing, FY 2007-FY 2012 (Exhibit USA-273) (BCI). Unlike in the original proceeding, the
United States' evidence includes post-2006 payments made under both procurement contracts and assistance
instruments funded by all of the challenged RDT&E program elements, including the systems
acquisition/military aircraft program elements. This figure of USD 39.97 million represents USD 44.37 million
less the USD 4.4 million in pre-2011 payments made under the Long Range Strike Bomber program element
which we have previously ruled is outside the scope of the European Union's claims regarding that program
element. (See para. 7.216 above).
1650 United States' first written submission, para. 277; Air Force Agreement FA8650-08-2-3834, SOW,
(Exhibit USA-110) (HSBI), p. 1.
1651 United States' first written submission, para. 277.
1652 Air Force Agreement FA8650-08-2-3834, SOW, (Exhibit USA-110) (HSBI), p. 1.
1653 Equipment provided under NASA contracts and agreements (revised 1 December 2014),
(Exhibit USA-271) (BCI). This exhibit also values access to different wind tunnel facilities, provided under a
different procurement contract, at USD 2,000, but this figure represents only the cost of sending the wind
tunnel model to Boeing. (See Equipment provided under NASA contracts and agreements (revised
1 December 2014), (Exhibit USA-271) (BCI), fn 3).

have been criticised by the U.S Government Accountability Office. 1654 We do not consider that a
review that is generally critical of DOD 's financial management systems necessarily impugns the
specific reports that the United States received from the DOD agencies responsible for overseeing
the expenditure of funds under the challenged program elements, wh ich is the basis for the
United States' evidence.1655 To the extent that it does, the European Union 's methodology, which
relies on DOD's reported RDT&E program element budget data, would be equally affected. In any
case, we do not consider that the European Union 's generalized criticism of DOD's financial
management systems justifies rejecting the evide nce on which the United States ' estimate is
based.
8.495. Finally, we note that in response to a Panel question seeking information regarding the
magnitude of difference in Airbus and Boeing pricing in sales campaigns, the European Union
submitted an update for 2 013 and 2014 of the amounts of the financial contribution provided by
the U.S. subsidies that are alleged to cause adverse effects through a price causal mechanism.
This information includes estimates of the amounts of the financial contributions provided through
the DOD aeronautics R&D measures for 2013 and 2014, based on the European Union 's
"top-down" methodology.1656 There is no corresponding updated information regarding the
amounts of the financial contributions provided through the DOD assistance instru ments for 2013
and 2014 based on the United States ' methodology. The absence of an estimate for 2013 and
2014 based on the United States' methodology does not, however, mean that the Panel considers
it appropriate to adopt the European Union's 2013 and 2014 figures as the best available evidence
of the amounts of the financial contributions provided to Boeing through the DOD assistance
instruments for those years. This is because the legal deficiencies in the European Union 's
methodology are too significant.1657
8.496. We find that, to the extent that the amount of the financial contribution provided
to Boeing through the DOD aeronautics R&D subsidies is relevant to the Panel 's
assessment of whether the United States ' has withdrawn the subsidy or taken
appropriate steps to remove the adverse effects, within the mea ning of Article 7.8, the
United States' estimate of approximately [***] is a more credible estimate of the
amount of the financial contribution provided to Boeing through the DOD assistance
instruments funde d under the relevant RDT&E program elements between 2007 and
2012.
8.2.3.7 Conclusion
8.497. In light of our findings above regarding financial contribution, benefit, and specificity, we
conclude that:
a. The European Union has established that certain transactions between DOD and Boeing
pursuant to post -2006 DOD assistance instruments involve specific subsidies within the
meaning of Articles 1 and 2 of the SCM Agreement. While we are unable to estimate the
amount of the subsidy on the basis of the evidence on the record, to the extent that it is
relevant to the Panel's assessment of whether the United States has withdrawn the
subsidy or taken appropriate steps to remove the adverse effects within the meaning of
Article 7.8 of the SCM Agreement, we find the United States' estimate of the amount of

1654 European Union's second written submission, para. 472 (citing U.S. Government Accountability
Office, "DOD Financial Management: Improved Controls, Processes and Systems Are Needed for Accurate and
Reliable Financial Information", No. GAO-11-933T, 23 September 2011, (Exhibit EU-1102)).
1655 United States' second written submission para. 261.
1656 European Union's response to Panel question No. 164, para. 114; and Subsidies to Boeing's LCA
Division (2013-2014 Update), (Exhibit EU-1451), pp. 2 and 23-26. The United States did not submit an update
of its estimates of the amount of the financial contribution provided to Boeing through the DOD assistance
instruments in its comments on the European Union's responses to the third set of Panel questions.
1657 The European Union's estimates also include allocations from RDT&E program elements for which
the Panel has found there are no measures in existence, or the measures are outside the scope of this
proceeding. This is the case with respect to the AWACS (PE 0207417F) program element, the KC-46, Next
Generation Aerial Refueling Aircraft (PE 0605221F) program element, the Multi-Mission Maritime Aircraft (P-8A)
(PE 0605500N) program element, the Technology Transfer (PE 0604317F) program element, the IP ManTech
(PE 0708011S) program element, and the Long Range Strike Bomber (PE 0604015F) program element. (See
Section 7.3.3.3).

the financial contribution provided through the DOD assistance instruments of [***]
between 2007 and 2012 to be the most credible estimate.
b. The European Union has not established that certain transactions between DOD and
Boeing purs uant to DOD procurement contracts involve specific subsidies within the
meaning of Articles 1 and 2 of the SCM Agreement, on the grounds that, assuming
arguendo that these measures were to involve a financial contribution within the
meaning of Article 1.1( a)(1)(i) of the SCM Agreement, they do not confer a benefit
within the meaning of Article 1.1(b) of the SCM Agreement.
8.2.4 FAA aeronautics R&D measure
8.2.4.1 Introduction
8.498. In this Section of the Report, we evaluate the European Union 's claim that the FAA
aeronautics R&D measure is a specific subsidy within the meaning of Articles 1 and 2 of the SCM
Agreement and that, by granting or maintaining th is subsidy after the end of the implementation
period, the United States has failed to withdraw the subsidy within the meani ng of Article 7.8 of
the SCM Agreement. The Panel concluded in Section 7.4 above that Boeing 's participation in the
FAA CLEEN Program pursuant to the Boeing CLEEN Agreement constitutes a measure taken to
comply within the scope of this proceeding.
8.499. Our analysis proceeds as follows:
a. In Section 8.2.4.2, we clarify aspects of the Boeing CLEEN Agreement identified by the
European Union as a specific subsid y which it alleges the United States grants or
maintains after the end of the implementation period and provide relevant background
information.
b. We evaluate whether the Boeing CLEEN Agreement challenged by the European Union
involves a financial contribution ( Section 8.2.4.3) which confers a benefit
(Section 8.2.4.4) within the meaning of Article 1 of the SCM Agreement.
c. To the extent that we find that the Boeing CLEEN Agreement involves a financial
contribution that confers a benefit, we evaluate in Section 8.2.4.5 whether any such
subsidy is specific within the meaning of Article 2 of the SCM Agreement.
d. We address the question of the amount of the subsidy and the amount of the financial
contribution in Section 8.2.4.6.1.
8.2.4.2 The measure at issue
8.2.4.2.1 The European Union's panel request
8.500. In its panel request in this proceeding, the European Union alleges that the FAA, working
in collaboration with NASA under the FAA Continuous Lower Energy, Emissions and Noise (CLEEN)
Program, maintains subsidies that presently benefit U.S. LCA producers by: ( a) "provid{ing}
Boeing with funding and access to government facilities, equipment, and employees for R&D
applicable to the development, design, and production of LCA"; or ( b) "providing Boeing with
royalty-free use of the technologies developed with such funding and support, or use of such
technologies on preferential terms ".1658 The European Union 's panel request states that "{s}uch
R&D support is authorized by 49 U .S.C. §§ 44501 -44517, 48102, and periodic reauthorization
legislation".1659

1658 European Union's request for the establishment of a panel, para. 15.
1659 European Union's request for the establishment of a panel, para. 15.

8.501. In the European Union's first written submission, its financial contribution arguments refer
to the proper characterization of the Boeing CLEEN Agreement, an Other Transaction Agreem ent
which governs Boeing's work under the FAA CLEEN Program.1660
8.502. In response to a question from the Panel, the European Union explained that its challenge
is directed at the Boeing CLEEN Agreement, as this "is the only contract or agreement with Boeing
under the FAA CLEEN Program ".1661 The European Union indicates that its challenge includes
"CLEEN Program funding for Boeing 's ecoDemonstrator" which, it submits, funded a series of test
flights pursuant to the Boeing CLEEN Agreement.1662
8.503. Taking into account the Euro pean Union's panel request and its subsequent clarification,
we consider that the European Union 's challenge is directed at the Boeing CLEEN Agreement, in
particular, the "funding and access to government facilities, equipment, and employees " provided
directly to Boeing pursuant to the Boeing CLEEN Agreement. The funding and access is limited to
those payments made, and facilities, equipment, and employees provided, to Boeing and not
funding or support allocated to other CLEEN participants.
8.2.4.2.2 The FAA CLEEN Program and the Boeing CLEEN Agreement
8.504. The FAA inaugurated the FAA CLEEN Program in early 2008 in furtherance of the National
Aeronautics Research and Development Plan, with the objective to develop aeronautics R&D
programmes focused on inter -agency environ mental and performance goals for the "N+1
generation" of LCA designed to enter service in the 2015 to 2018 time -frame, focusing on the
most well -developed, near -term commerciali zable technologies. 1663 The FAA created the FAA
CLEEN Program, while NASA created the Environmentally Responsible Aviation (ERA) Project under
its Integrated Systems Research Program, to "guid{e} coordinated efforts to bring to maturity new
technologies to reduce fuel burn, emissions, and noise".1664 In 2009, the FAA, whose R&D activities
are focused on "civil aviation research and development ", solicited research proposals for the FAA
CLEEN Program from industry.1665 In June 2010, the FAA entered into five -year R&D agreements
with Boeing and four propulsion -focused companies on a 50 % cost-sharing basis: Boeing, General
Electric, Honeywell, Pratt & Whitney, and Rolls -Royce North America. The total FAA contribution
under all of the agreements was set at USD 125 million.1666
8.505. Boeing's work under the FAA CLEEN Program is governed by the CLEEN Other Tr ansaction
Agreement DTFAWA -10-C-0030 (the Boeing CLEEN Agreement), which entered into effect on
22 June 2010.1667 Under this agreement, the FAA maintains the authority to determine the work
that will be undertaken 1668, while Boeing manages the project, conducts the work and prepares
reports on that work for the FAA. 1669 Specifically, Boeing is responsible for the integrated
management of the FAA CLEEN Program as well as two categories of R&D activities1670:

1660 European Union's first written submission, para. 218; and Boeing CLEEN Agreement, (Exhibit
EU-17).
1661 European Union's response to Panel question No. 11, para. 77.
1662 European Union's response to Panel question No. 11, para. 78.
1663 R. Jefferies, FAA, "CLEEN (Continuous Lower Energy, Emissions and Noise) Program Technologies
Development" Presentation at the NASA ERA Bidder's Conference, 19 February 2010, (Exhibit EU-253), pp. 5,
6 and 8; Executive Office of the President, National Science and Technology Council, National Aeronautics
Research and Development Plan, (December 2011), (Exhibit EU-254), pp. 27-30 and 50-53; and J. Wolfe,
NASA, "Aeronautics Research Mission Directorate Update with Emphasis on Integrated Systems Research",
Presentation at the 48th AIAA Aerospace Sciences Meeting, 4 January 2010, (Exhibit EU-255), p. 10.
1664 See para. 7.280 above and Executive Office of the President, National Science and Technology
Council, National Aeronautics Research and Development Plan, (2 February 2010), (Exhibit EU-16), p. 11.
1665 CLEEN Solicitation, (Exhibit EU-20); and R. Jefferies, FAA, "Continuous Lower Energy, Emissions,
and Noise (CLEEN) Program Technologies Development", Presentation, 27 October 2010, (Exhibit EU-256),
p. 6.
1666 FAA Fact Sheet, "Continuous Lower Energy, Emissions, and Noise (CLEEN) Program", 24 June 2010,
(Exhibit EU-257).
1667 Boeing CLEEN Agreement, (Exhibit EU-17), p. 1. Note that the period of performance commenced to
run on 21 June 2010.
1668 Boeing CLEEN Agreement, (Exhibit EU-17), parts B.3 and F.2.
1669 Boeing CLEEN Agreement, (Exhibit EU-17), parts C and E.3.
1670 Boeing CLEEN Agreement, (Exhibit EU-17), part I, sections C.1.2 and C.3.

a. technology maturation – research to mature specified technolog ies through to the
prototype development stage on three research projects: wing adaptive trailing edges,
ceramic matrix composite acoustic exhaust nozzles, and the use of alternative fuels; and
b. flight testing and assessment, including flight testing of a broad suite of technologies
through Boeing's ecoDemonstrator programme.
8.2.4.3 Whether there is a financial contribution
8.2.4.3.1 Main arguments of the parties and third parties
8.506. The European Union argues that the Boeing CLEEN Agreement has the same
characteristics as the NASA procurement contracts and DOD assistance instruments before the
original panel, and that the Panel should therefore conclude that the payments and access to
government facilities, equipment, and employees provided to Boeing under the Boeing CLEEN
Agreement are similarly financial contributions under Article 1.1(a)(1) of the SCM Agreement.
8.507. The European Union argues that the Boeing CLEEN Agreement shares many of the same
characteristics that led the Appellate Body to conclude that the NASA procurement c ontracts and
DOD assistance instruments before the original panel constitute d transactions that were "akin to a
species of joint venture", which were analogous to a type of equity infusion, and therefore financial
contributions within the meaning of Articl e 1.1(a)(1) of the SCM Agreement. Specifically, the
European Union considers that payments under the Boeing CLEEN Agreement qualify as a direct
transfer of funds within the meaning of Article 1.1(a)(1)(i) while the provision of access to
facilities, equipment, and employees qualifies as a government provision of goods or services other
than general infrastructure under Article 1.1(a)(1)(iii).1671
8.508. The European Union contends that, l ike the NASA procurement contracts and DOD
assistance instruments before the ori ginal panel, the Boeing CLEEN Agreement involves payments
by the FAA as well as the commitment of non -monetary resources. In addition, the
European Union argues that there is an element of collaboration in determining what research is to
be done, that Boeing develops valuable intellectual property rights, including patents, data rights ,
and Boeing-owned trade secrets, and that the FAA and Boeing share the fruits of their research on
the basis of patent and data rights provided under the Agreement. 1672 The European Union further
contends that the transactions in question possess the same features that led the Appellate Body
to conclude that the NASA procurement contracts and DOD assistance instruments before the
original panel were analogous to equity infusions. These include that funding is provided in
expectation of some kind of return in the form of scientific and technical information, discoveries,
and data expected to result from the research performed; there is no certainty that research will
be successful; the funders ' risks are limited to the amount of money they commit and the
opportunity cost of other support they provide; and the FAA as the funder contributes to the
project by providing access to facilities, equipment, and employees, as some equity inve stors
would also do.1673
8.509. The European Union also argues, in the alternative, that "the transfer to Boeing of patent
and other intellectual property rights in the technologies and data developed under the FAA CLEEN
Program additionally constitutes a provision of 'goods … other than general infrastructure ' within
the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement ".1674 As in the case of NASA
aeronautics R&D measures, the European Union requests the Panel not to consider this alternative
conception of the financial contribution "unless it rejects the European Union's primary contentions
with respect to the characterization of the challenged aeronautics R&D measures".1675
8.510. The United States does not dispute that the Boeing CLEEN Agreement provides Boeing with
funding in the form of payments. 1676 The United States di sagrees that Boeing is provided with

1671 European Union's first written submission, para. 218.
1672 European Union's first written submission, para. 218.
1673 European Union's first written submission, para. 218; second written submission, para. 338.
1674 European Union's first written submission, para. 219. (emphasis added)
1675 European Union's response to Panel question No. 32, para. 197.
1676 United States' first written submission, para. 481 ("{t}he {European Union} asserts that the CLEEN
Program provides a financial contribution to Boeing in the form of (i) funding; (ii) access to government

access to government facilities, equipment or employees under the Boeing CLEEN Agreement. The
United States argues that contractual language in the Boeing CLEEN Agreemen t referring, for
instance, to USD 1,610,150.00 as "Facilities and Equipment ", does not indicate that Boeing was
provided facilities or equipment of this value by FAA , but instead, refers to a "type of funding
available in FAA 's system (i.e., Operations, R& D, F&E, etc.) ".1677 In addition, the United States
argues that the fact that Boeing may have been granted access to NASA test facilities pursuant to
work under the FAA CLEEN Program is irrelevant to the question of whether the Boeing CLEEN
Agreement provided facilities to Boeing.1678 The United States considers that Boeing's participation
in a "CLEEN kick off meeting" or Boeing's participation in semi -annual government-led consortium
meetings to discuss CLEEN research does not constitute access to government employees.1679
8.511. Finally, the United States argues that the European Union has failed to establish prima
facie that intellectual property rights accruing to Boeing pursuant to activities conducted under the
Boeing CLEEN Agreement constitute a financial contribution. As a factual matter, the United States
argues that there is no transfer of intellectual property rights to Boeing under U.S. law, as the
patent is the property of the person who made the invention, and FAA does not transfer any
patent to Boeing. Moreover, intellectual property is not a "good" within the meaning of the covered
agreements and therefore cannot be a financial contribution in the form of a government provision
of goods within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.1680
8.512. Certain of the third parties ( Brazil, Canada, Korea, and Japan) make arguments as to the
determination of the existence of a financial contribution within the meaning of Article 1.1(a)(1) of
the SCM Agreement. These arguments are summarized in paragraphs 8.96-8.99 above.
8.2.4.3.2 Evaluation by the Panel
8.513. The question before us is whether payments to Boeing and the alleged provision to Boeing
of access to government facilities, equipment, and employees pursuant to the Boeing CLEEN
Agreement constitute s a financial contribution within the meaning of Article 1 of the SCM
Agreement. We recall our discussion in paragraphs 8.106 to 8.111 above of the Appellate Body 's
characterization of the NASA procurement contracts and DOD assistance instruments in the
original proceeding as involving financial contributions.
8.514. The United States does not dispute that Boeing receives payments under the Boeing
CLEEN Agreement. However, the United States disagrees that under this Agreement the FAA
provides Boeing with access to government facilities, equipment or employees.
8.515. We note that, much like the transactions pursuant to the NASA procurement contracts and
DOD assistance instruments in the original proceeding, both parties under the Boeing CLEEN
Agreement contribute to the arrangement. Boeing may make either cash or non -cash
contributions, including contributions of items such as equipment, facilities, labour, and office
space.1681 In ad dition, both parties share the output of their research. Boeing has title to
inventions made by Boeing employees (and thus the right to ownership of the patents in respect of
such inventions) while the U.S. Government receives a nonexclusive, royalty-free license to patent
rights for inventions for government use. 1682 Boeing may also restrict from disclosure de signated
"limited rights data".1683
8.516. Regarding whether Boeing receives access to government facilities and equipment , t he
European Union argues that the ref erence to "Facilities and Equipment " in the Boeing CLEEN

facilities, equipment and employees; and (iii) the transfer of patent and intellectual property rights. However,
the {European Union}'s assertions regarding categories (ii) and (iii) are wrong").
1677 United States' first written submission, para. 482.
1678 United States' second written submission, para. 434.
1679 United States' second written submission, para. 432. See also United States' first written
1680 United States' first written submission, paras. 484 and 485; second written submission, para. 437.
1681 Boeing CLEEN Agreement, (Exhibit EU-17), part I, section B.3.
1682 Boeing CLEEN Agreement, (Exhibit EU-17), section I.1 (incorporating clause 3.5-10); and FAA
Acquisition Management System (AMS), Clause 3.5-10, "Patent Rights – Ownership by Contractor"
(January 2009), (Exhibit EU-1063), section (d).
1683 Boeing CLEEN Agreement, (Exhibit EU-17), section I.3(a)(iii).

Agreement makes clear that agency policy allows for the provision of facilities and equipment.1684
In addition, the European Union submits that Boeing was provided access to NASA test facilities for
its CLEEN Program research. The United States argues that the reference to "Facilities and
Equipment" as a category of funding does not indicate that Boeing was actually provided facilities
or equipment of this value by FAA. Instead, this is an account that is used to "pay for research and
development that improves air navigation facilities and equipment and aviation safety
systems".1685 The United States therefore objects to including any specific amounts designated as
"Facilities and Equipment " in our estimat e of the amount of payments made to Boeing. 1686 The
United States also objects that any access to NASA test facilities provided to Boeing should be
considered in relation to the Boeing CLEEN Agreement.
8.517. The Boeing CLEEN Agreement includes several references to t he phrase "Facilities and
Equipment", referring to specific funding amounts in the appended amendments, and modifications
in specific years. 1687 FAA Order 2500.8B , which the European Union has submitted, states that
"Facilities and Equipment" funding may be generally used for a number of purposes including, "the
construction, capital lease, or lease to purchase of facilities, land, equipment development and
acquisition, initial training, initial spares , and software required to establish an operational
capability in connection with an air navigation, or experimental facility".1688
8.518. The Boeing CLEEN Agreement does not designate specific facilities or equipment items that
are to be provided to Boeing. The European Union has not provided other evidence that indicates
that FAA provides access to specific facilities or equipment to Boeing. The European Union points
to obligated amounts designated for " Facilities and Equipment " in the Boeing CLEEN Agreement,
and argues that Boeing was provided access to NASA test facilities pursuant to the Boeing CLEEN
Agreement.1689 We do not consider that the mere fact that Boeing used NASA test facilities or
equipment necessarily indicates that such access to NASA facilities was provided pursuant to the
Boeing CLEEN Agreement (as opposed to being provided pursuant to a NASA procurement
contract, cooperative agreement or Space Act Agreement ).1690 While we consider that the
reference to obligated amounts designated for "Facilities and Equipment" is not sufficient to
substantiate the European Un ion's assertion that the Boeing CLEEN Agreement involves the
provision of access to facilities and equipment to Boeing, we conclude that it is nevertheless
relevant to our assessment of whether there is a financial contribution. The Boeing CLEEN
Agreement indicates that specified amounts designated as "Facilities and Equipment" were
allocated to Boeing in certain years. These amounts were allocated to Boeing in the same way that
other funding was allocated to Boeing under the Boeing CLEEN Agreement.1691 We therefore treat
these obligated amounts designated for "Facilities and Equipment" as further payments to Boeing.
8.519. Regarding whether Boeing receives access to government employees, the European Union
contends that it is clear that government employees assisted in defining and carrying out research
under the program me. As an example of this, the European Union submits that FAA, NASA , and
AFRL employees provided "feedback" to Boeing that "helped the team focus on customer needs,
interests, and concerns", as part o f work done on an adaptive trailing edge. 1692 It further submits
that section C.4.1 of the Boeing CLEEN Agreement refers to Boeing 's participation in semi -annual

1684 European Union's second written submission, fn 515.
1685 United States' first written submission, para. 482.
1686 United States' first written submission, para. 482; second written submission, para. 434 and fn 603.
1687 See Boeing CLEEN Agreement, (Exhibit EU-17), amendment/modification Nos. 0002, 0003 and 0004
1688 U.S. Department of Transportation, Federal Aviation Administration, Funding Criteria For Operations,
Facilities and Equipment, Research, Engineering and Development, and Grants-In-Aid For Airports Accounts,
Order 2500.8B, (1 October 2006), (Exhibit EU-1059), p. 4.
1689 The United States has not provided lists of equipment and facilities provided to Boeing under the
FAA CLEEN Agreement as it did in respect of particular NASA procurement contracts, cooperative agreements,
and Space Act Agreements (See Equipment provided under NASA contracts and agreements, (revised
1 December 2014) (Exhibit USA-271) (BCI); NASA SAAs with Boeing, (Exhibit USA-60) (BCI); and Boeing use
of NASA computers, 2007-2012, (Exhibit USA-270) (BCI)).
1690 In paras. 8.263 and 8.264 above, we find that Boeing was provided access to NASA facilities and
equipment totalling approximately USD 9.36 million between FY 2007-FY 2012.
1691 See Boeing CLEEN Agreement, (Exhibit EU-17), amendment/modification Nos. 0002, p. 2 (referring
to "Additional Funding" of USD 1,610,150); 0003, p. 2 (referring to "Add Funding" USD 201,298); and 0004,
p. 2 (referring to "F&E FUNDING" of USD 4,490,050).
1692 European Union's second written submission, para. 338 (referring to Boeing Engineering Operations
and Technology, Monthly Technical progress report for June 2010, CLEEN Program, 15 July 2010 (formerly
Exhibit US-13-672), (Exhibit EU-1061) (BCI), p. 2).

consortium meetings to "present the progress and results of ongoing work to both Government
and non-Government attendees".1693 The United States disagrees that feedback provided to Boeing
by FAA, NASA , and the AFRL staff during a "CLEEN kick off meeting " is relevant because this
feedback does not constitute employees assisting Boeing in defining and carr ying out its research
under the Boeing CLEEN Agreement in a way that "defrays any of Boei ng's research -related
expenses".1694 The feedback exercise is not tantamount to a "service" to the contractor or "an
effort to help Boeing for its own sake", but is to ensure that Boeing delivers what it was committed
to deliver. 1695 Similarly, the United States argues that Boeing's participation in semi -annual
government-led consortium meetings to discuss CLEEN research is "simply a mechanism for the
government parties to ke ep apprised of Boeing 's research " and does not demonstrate that the
Boeing CLEEN Agreement provides goods and services to Boeing.1696
8.520. We are unconvinced by the United States ' argument that Boeing employees ' interaction
with FAA staff during CLEEN kick off meetings and other meetings relating to Boeing's participation
in the FAA CLEEN Program does not involve the provision of access to FAA employees . We recall
that, in its discussion of post -2006 NASA-Boeing transactions at issue, the United States refer s to
three basic types of NASA staff activity when discussing employees provided through NASA
procurement contracts and Space Act Agreements. These are: ( a) contract specialists who are
responsible for "administration and management aspects " of specific contracts ; ( b) technical
monitors who are responsible for "evaluating whether the contractor is performing the specified
work, determining whether a task is complete, and assessing whether the final report … is
complete and meets the stated objectives "; and ( c) NRA managers who "coordinate operational
aspects" such as "organizing logistics for reviews {and} gathering input from technical leads "
among other responsibilities. 1697 The United States explain s that these employees "ensure that
contractors are doing the work they are paid to do " and that this is the access to employees that
NASA provides. 1698 Given the United States ' view that these types of NASA staff participation
constitute "access" to employees under NASA contracts and agreements, we fail to see how
feedback provided by FAA employees to Boeing, ensuring that Boeing delivers what it is committed
to deliver, or gathering information regarding Boeing 's research progress under the FAA CLEEN
Program is not the provision of "access" to employees in relation to the Boeing CLEEN Agreement.
8.521. Based on the foregoing, we therefore conclude that the Boeing CLEEN Agreement is most
appropriately characterized as a collaborative R&D arrangement under which FAA provides
payments to Boeing and access to FAA employees. We do not identify on the evidence before us
that Boeing is provided access to particular U.S. Government facilities and equipment, although we
conclude that specific amounts designated as "Facilities and Equipment " should be considered
payments to Boeing. Accordingly, consistent with the approach of the Appellate Body in respect of
the NASA procurement contracts and DOD assistance instruments in the original proceeding, we
conclude that the payments under the Boeing CLEEN Agreement involve direct transfer(s) of fund s
within the meaning of Article 1.1(a)(1)(i) of the SCM Agreement , while the provision of access to
FAA employees constitutes the provision of goods or services other than general infrastructure ,
within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.
8.522. For these reasons, in light of the Appellate Body's reasoning in its
characterization of the NASA procurement contracts and DOD assistance instruments in
the original proceeding, we therefore find that payments and access to government
employees pro vided to Boeing under the Boeing CLEEN Agreement constitute s a
financial contribution within the meaning of Article 1.1( a)(1) of the SCM Agreement.
Specifically, the payments constitute a direct transfer of funds within the meaning of
Article 1.1(a)(1)(i), and the provision of access to FAA employees constitutes a

1693 European Union's second written submission, paras. 337 and 338 (referring to Boeing CLEEN
Agreement, (Exhibit EU-17), section C.4.1; and Boeing CLEEN Monthly Technical Progress Report for
June 2010, (15 July 2010) (formerly Exhibit US-13-672), (Exhibit EU-1061) (BCI), p. 2).
1694 United States' second written submission, para. 432. See also United States' first written
submission, para. 483; and second written submission, paras. 432-436.
1695 United States' second written submission, para. 435.
1696 United States' second written submission, para. 436.
1697 United States' first written submission, para. 201. The United States additionally provided estimates
for the amounts of time each of these staff types contributed to procurement contracts and Space Act
Agreements.
1698 United States' second written submission, paras. 121 and 122.

government provision of goods or services other than general infrastructure under
Article 1.1(a)(1)(iii).
8.523. In light of our finding above, we decline to address the European Union 's alternative
argument that, what it refers to as the transfer to Boeing of patent and other intellectual property
rights, could separately be considered a financial contribution under Article 1.1(a)(1)(iii) of the
SCM Agreement.
8.524. Having found that the payments to Boeing and the provision of access to FAA employees
pursuant to the Boeing CLEEN Agreement involve a financial contribution, we next consider
whether this financial contribution confers a benefit.
8.2.4.4 Whether there is a benefit
8.2.4.4.1 Main arguments of the parties and third parties
8.525. The European Union argues that the financial contribution arising from the Boeing CLEEN
Agreement confers a benefit within the meaning of Article 1.1(b) of the SCM Agreement for the
same reasons that the financial contributions provided through the NASA and DOD aeronautics
R&D programmes confer a benefit. 1699 The relevant question to determine the existence of a
benefit is whether Boeing has received financial contributions on terms more favourable than those
available to the recipient in the market. Th e European Union argues that the FAA CLEEN Program
in general, and the Boeing CLEEN Agreement in particular, results in the same distribution of
intellectual property rights as the contracts and agreements funded by the NASA and DOD
aeronautics R&D program mes. The FAA provides funding for Boeing to perform R&D for the
advancement of Boeing 's own LCA development, and then allows Boeing to take ownership over
the fruits of the R&D.1700
8.526. The European Union rejects the United States' view that the cost-sharing between FAA and
Boeing that is a feature of the Boeing CLEEN Agreement must impact the benefit analysis. The
European Union submits that , under the benefit analysis in the original proceeding, the fact that
Boeing contributed its own funds and resources under DOD assistance instruments did not change
the Appellate Body's characterization of those instruments as being akin to a species of joint
venture in which a benefit was found to exist. Thus, it is clear that the Appellate Body found the
existence of a bene fit regardless of the presence of cost -sharing. In the same way as the DOD
assistance instruments, the European Union argues that the Boeing CLEEN Agreement also seems
to account for Boeing's cost -sharing by providing Boeing with additional rights to data developed
with government funding.1701
8.527. The United States argues that t he European Union fails to identify the appropriate
benchmark with which to compare the terms of the Boeing CLEEN Agreement and has therefore
failed to make a prima facie case that the Boeing CLEEN Agreement confers a benefit under
Article 1.1(b) of the SCM Agreement.1702
8.528. The United States argues that the Appellate Body 's assessment of the existence of a
benefit in the original proceeding applied only to contracts where Boeing 's contribution w as at
most equal to that of the U .S. Government. Any monetary contribution made by the recipient to a
joint research project affects the net value obtained by the firm from the project. If the
contribution of the recipient is neglected there is a risk of overestimating the value obtained by the
firm from the project, and a finding of benefit could be made where a benefit d oes not exist.1703
The United States argues that the Appellate Body's findings on benefit in respect of the NASA

1699 European Union's first written submission, para. 221.
1700 European Union's first written submission, paras. 222-224; second written submission, paras. 346,
347, and 350-353. The European Union contends that it relies on the same benchmarks, including R&D
contracts provided by the United States, and the comparison that the Appellate Body relied upon when
analysing the NASA aeronautics R&D contracts in the original dispute. (European Union's second written
submission, para. 353).
1701 European Union's second written submission, paras. 355-357.
1702 United States' first written submission, paras. 486-488.
1703 United States' second written submission, para. 439 (referring to Appellate Body Report, US – Large
Civil Aircraft (2nd complaint) para. 663).

procurement contracts and D OD assistance instruments in the original proceeding do not apply to
the Boeing CLEEN Agreement because of the existence of a minimum cost -sharing requirement,
the fact that Boeing provides access to Boeing test aircraft , and the different way that intelle ctual
property rights are distributed. 1704 According to the United States, t he Boeing CLEEN Agreement
involves a contribution by Boeing that is greater than the FAA 's contribution, and is greater (on a
proportional basis) than any of the contracts or agreements examined by the Appellate Body in the
original proceeding. The United States considers that the European Union 's arguments do not
indicate what a market -based actor would demand, nor do they compare that with the terms of
the Boeing CLEEN Agreement, bey ond making a "superficial comparison to the IP allocation terms
of NASA and DoD agreements".1705
8.529. Certain of the third parties ( Brazil, Korea, and Japan) make arguments as to the
determination of the existence of benefit within the meaning of Article 1.1(b) of the SCM
Agreement. These arguments are summarized in Section 8.1.2 above.
8.2.4.4.2 Evaluation by the Panel
8.530. In undertaking our evaluation, we first address the relevant standard that we should apply
in determining whether the financial contributions under the Boeing CLEEN Agreement confer a
benefit.
8.531. The European Union argues that we should adopt the same benefit analysis that the
Appellate Body adopted in concluding that the NASA procurement contracts and DOD assistance
instruments at issue in the original proceeding conferred a benefit. The United States argues that
the appropriate standard for assessing whether a financial contribution confers a benefit depends
on the nature of the financial contribution , and that the assessment here mu st take into account
the degree of cost sharing involved in the Boeing CLEEN Agreement, the fact that Boeing
contributes use of Boeing test aircraft, and the degree to which intellectual property rights are
shared.
8.532. As we explain in Section 8.2.4.3.2 above, we have concluded that the Boeing CLEEN
Agreement is properly characterized as a collaborative R&D arrangement on the basis of its
relevant characteristics. Accordingly, we have found that the payments provided to Boeing under
the Boeing CLEEN Agreement are financial contributions in the form of a direct transfer(s) of funds
within the meaning of Article 1.1(a)(1)(i) of the SCM Agreement , and that any provision to Boeing
of access to FAA employees under the Boeing CLEEN Agreement constitutes the provision of goods
or services other than general infrastructure within the meaning of Article 1.1(a)(1)(iii) of the SCM
Agreement.1706
8.533. In the original proceeding, the Appellate Body characterized the NASA procurement
contracts and DOD assi stance instruments as collaborative R&D arrangements which involved
financial contributions , and then determined whether these financial contributions conferred a
benefit by comparing the allocation of intellectual property rights under those contracts and
instruments with the allocations of intellectual property rights in collaborative R&D agreements ,
which it treated as evidence of market practice. Given our conclusion that the Boeing CLEEN
Agreement is a collaborative R&D arrangement, we consider it appr opriate to adopt the same
standard for determining whether the financial contribution provided under the Boeing CLEEN
Agreement confers a benefit. We will therefore compare the allocation of intellectual property and
related licence rights in respect of pa tents between FAA and Boeing under the Boeing CLEEN
Agreement with the evidence before us concerning the allocation of such rights in collaborative
R&D arrangements between market actors.
8.534. The cost-sharing features of, and distribution of intellectual prope rty and related licence
rights under, the Boeing CLEEN Agreement resemble those of the pre-2007 DOD assistance
instruments at issue in the original proceeding (prior to their modification by the DOD -Boeing
Patent Licence Agreement), as well as those post-2006 assistance instruments that have not been
modified by the DOD -Boeing Patent Licence Agreement. 1707 As under those arrangements, Boeing

1704 United States' first written submission, paras. 486-488; second written submission, para. 438.
1705 United States' second written submission, para. 439.
1706 See para. 8.522 above.
1707 See Section 8.2.3.2.2 above.

receives payments and is provided access to U.S. Government employees. Boeing must also make
either cash or non -cash (in -kind) contributions, including items such as equipment, facilities,
labour, and office space equal to 50% or more of the total cost of work specified in the
Agreement.1708 As we explain in our evaluation of financial contribution 1709, pursuant to its
participation in the Boeing CLEEN Agreement, Boeing may retain rights to own and use any
inventions subject to gra nting the U.S. Government a nonexclusive, royalty -free license to patent
for inventions for government use.1710 Boeing may also restrict from disclosure designated "limited
rights data " that involves trade secrets or other data that is "commercial or financial and
confidential or privileged " and "pertain to items, components, or processes developed at private
expense, including minor modifications, or as otherwise identified as Limited Rights Data".1711
8.535. As we explain in Section 8.1.3 of this Report, based on our review of commercial R&D
arrangements, which the parties have submitted as evidence of relevant "market benchmarks"1712,

8.536. The fundamental balance of intellectual property rights under the Boeing CLEEN
Agreement remains one in which the U.S. Government lacks the right to obtain an exclusive
licence to practice Boeing-owned patents. Boeing's ability to commercially exploit its patents is not
contingent on any Government election not to exercise exclusive rights to licence those patents for
itself. In this respect, the allocation of intellectual property rights under the Boeing CLEEN
Agreement is more favourable to Boeing than the corresponding allocations to commissioned
parties under the private collaborative R&D agreements before the Panel.
8.537. In conclusion, we consider that the Boeing CLEEN Agreement confers a benefit based on
the same comparison to prevailing market practices for collaborative R&D arrangements that the
Appellate Body relied upon in the original proceeding to find that the NASA procurement contracts
and DOD assistance instruments conferred a benefit.
8.538. The United States argues that the value of Boeing 's contribution under the Boeing CLEEN
Agreement is greater than the corresponding value of Boeing contributions under the NASA
procurement contracts and DOD assistance inst ruments in the original proceeding, and that this
has an impact on whether the Boeing CLEEN Agreement should be found to confer a benefit.
8.539. The Appellate Body considered a similar argument by the United States in the original
proceeding; namely, that funds provided by Boeing to fund research projects under DOD
assistance instruments must be taken int o account in comparing the terms of those instruments
with market benchmarks for purposes of determining whether a benefit has been conferred. While
noting that monetary contributions by a recipient to a joint research project affect the net value
obtained by the firm from the project, and thus could distort the assessment of benefit, the
Appellate Body nevertheless noted that the findings by the original p anel did not support the
proposition that Boeing 's contribution to the projects meant that no benefit was conferred. The
Appellate Body explained:
As part of its analysis of financial contribution, the Panel found that the scope of the
government licence over data rights varied when both Boeing and the USDOD
contributed funding to the project. More specifi cally, the Panel found that the
government received only "limited rights " to the data under the assistance
instruments (which were cost -sharing transactions), as opposed to the "unlimited
rights" to the data that the government receives under USDOD procure ment contracts
(where there was no cost -sharing). Thus, according to the Panel 's description,

1708 Boeing CLEEN Agreement, (Exhibit EU-17), part I, section B.3.
1709 See para. 8.515 above.
1710 Boeing CLEEN Agreement, (Exhibit EU-17), section I.1 (incorporating clause 3.5-10); and FAA
Acquisition Management System (AMS), Clause 3.5-10, "Patent Rights – Ownership by Contractor"
(January 2009), (Exhibit EU-1063), section (d)(2).
1711 Boeing CLEEN Agreement, (Exhibit EU-17), section I.3. Boeing may also designate "Boeing
proprietary information", which includes data and technical information that is owned by Boeing and was not
first produced during the performance of the Boeing CLEEN Agreement.
1712 These private R&D agreements include Contracts A through F which were also submitted in the
original proceeding and a number of other private, commercial collaborative R&D agreements. Our evaluation
of the allocation of intellectual property rights and rights resulting therefrom (i.e. licence rights) under these
collaborative R&D arrangements is set out in a BCI Appendix (Appendix 1).

Boeing's monetary contribution to the research project is not tied to the ownership
rights over any inventions and data, which results from the operation of US la w.
Rather, Boeing's monetary contribution is consideration for the enhanced data rights
that it obtains under the assistance instruments, which grant more limited rights to
the government over the data. In the light of the Panel 's finding, it is therefore clear
that Boeing 's monetary contribution under the assistance instruments does not
change the bargain over the ownership of the inventions and data, it only changes the
bargain as to the government's licence over the data rights.1713
8.540. In the case of the Boein g CLEEN Agreement, we do not see that Boeing 's rights over any
inventions resulting from the work performed thereunder are tied to Boeing 's monetary
contribution to the research project. Rather, as discussed by the Appellate Body with respect to
the DOD assistance instruments, Boeing's monetary contribution functions as consideration for the
enhanced data rights that it obtains ; namely designated "limited rights data". We see no basis to
depart from the Appellate Body's assessment of this argument in the original proceeding in respect
of the DOD assistance instruments.
8.541. We therefore find that the financial contribution provided to Boeing through the
Boeing CLEEN Agreement confer s a benefit within the meaning of Article 1.1(b) of the
SCM Agreement.
8.2.4.5 Whether the subsidy is specific
8.2.4.5.1 Main arguments of the parties
8.542. The European Union argues that the subsidy provided through the payments and access to
facilities, equipment, and employees provided to Boeing under the FAA CLEEN Program (pursuant
to the Boeing CLEEN Agr eement) is specific within the meaning of Article 2.1(a) of the SCM
Agreement. The European Union considers that the subsid y is explicitly limited to certain aviation -
related industries because t he FAA CLEEN Program is expressly aimed at the development of
"technologies for civil subsonic jet airplanes ", and the FAA 's R&D activities, generally, are
restricted to "civil aviation research and development ".1714 The European Union argues that the
subsidy is also specific within the meaning of Article 2.1(c) as the FAA has awarded contracts
under the FAA CLEEN Program to only five aviation companies. Accordingly, the subsidy
programme is "used by a limited number of industries " which are also the predominant
beneficiaries of the subsidy.1715
8.543. As with its specificity ar guments regarding the NASA aeronautics R&D measures, the
European Union argues that the assessment of specificity should not depend on the "benefit"
determination, in the sense of the favourable distribution of intellectual property rights , but rather
should focus on the challenge to a subsidy involving funding and other support for research and
development of near -term commerciali zable LCA -related technologies arising from the Boeing
CLEEN Agreement.1716 The European Union regards the comparison of the allocations of intellectual
property rights to market benchmark instruments as "just a means to the end of determining the
existence of benefit from these financial contributions – it is not the 'benefit' or 'subsidy', in and of
itself".1717 Thus, the European Unio n submits that the findings of the panel and Appellate Body in
the original proceeding with respect to the European Union's separate challenge to the allocation of
patent rights as a self -standing subsidy are not applicable to the question of whether the s ubsidy
provided to Boeing pursuant to the Boeing CLEEN Agreement is specific.1718

1713 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 664. (fns omitted)
1714 European Union's first written submission, paras. 225 and 226 (referring to CLEEN Solicitation,
(Exhibit EU-20), p. 3; and Airport and Airway Trust Fund Authorizations, United States Code, Title 49,
chapter 481, sections 48102 and 48103, (Exhibit EU-266), section 48102(a)); second written submission,
paras. 359 and 361.
1715 European Union's first written submission, para. 227; second written submission, para. 360.
1716 European Union's second written submission, paras. 363, 366, and 368.
1717 European Union's second written submission, para. 366. (emphasis omitted)
1718 European Union's second written submission, paras. 364-365, and 367-369. See also
European Union's response to Panel question No. 28, paras. 165-168; and comments on United States'
response to Panel question No. 28, para. 183. The European Union asserts that its claim before the original

8.544. The United States argues that the Boeing CLEEN Agreement is not specific because it is not
explicitly limited to certain enterprises within the meaning of Article 2.1(a), or ot herwise de facto
specific within meaning of Article 2.1(c) of the SCM Agreement.
8.545. The United States submits that the European Union 's allegation of the existence of a
benefit is limited to the fact that Boeing receives more favourable rights in patents tha n would be
the case if a commercial actor had funded the research. Thus, the United States argues that the
specificity analysis must focus on Boeing 's receipt of rights in patents more favourable than those
available to commissioned party under a commercia l transaction. The United States recalls that in
the original proceeding, the Appellate Body concluded that the a llocation of patent rights, if taken
as a self -standing subsidy, would not be specific because it is available "under any government
contract, by any agency, in any sector ". The Boeing CLEEN Agreement is also not specific for the
same reason. Thus, the United States submits that, e ven if the Boeing CLEEN Agreement involved
an allocation of patent rights more favourable to Boeing as commissioned p arty than
corresponding allocations to commissioned parties under comparable commercial transactions
(which, it contends, the European Union has not demonstrated), such a distribution would be
consistent with the distribution of patents rights generally av ailable under all government R&D
contracts.1719 The United States argues that the European Union 's specificity claim under
Article 2.1(c) of the SCM Agreement fails for the same reasons.1720
8.2.4.5.2 Evaluation by the Panel
8.546. The first question before us is whether the su bsidy provided to Boeing under the Boeing
CLEEN Agreement is specific within the meaning of Article 2.1(a) of the SCM Agreement.
8.547. We recall our analysis and findings in Sections 8.2.2.5.2 and 8.2.3.5.2 with regard to
whether subsidies provided to Boeing through post -2006 NASA procurement contracts and Space
Act Agreements, and subsidies provided to Boeing through post-2006 DOD assistance instruments,
are specific within the meaning of Article 2.1(a) of the SCM Agreement. The fundamental question
that arose in that regard was whether, for purposes of determining whether access to the subsidy
is explicitly limited, the relevant subsidy should be understood to be the payments and the
provision of access to facilities, equipment, and employees on terms more favourable than
available in the market, as argued by the European Union ; or whether the relevant subsidy should
be understood to be the allocation of rights in patents on terms more favourable than ava ilable in
the market, as argued by the United States.1721
8.548. In our view, the arguments of the parties with respect to whether the subsid y provided to
Boeing through the Boeing CLEEN Agreement is specific within the meaning of Article 2.1(a) raise
exactly the same question.
8.549. We do not consider that, as argued by the United States, the fact that the focus of our
analysis of whether the Boeing CLEEN Agreement confers a benefit is the allocation of intellectual
property rights, logically leads to the conclusion tha t the subsidy at issue should be defined as the
allocation of intellectual property rights on terms more favourable than available in the market ,
and that for purposes of determining whether access to the subsidy is limited , we must treat the
Bayh-Dole Act, its associated legislative instruments and implementing regulations as the relevant
subsidy scheme. Since a subsidy within the meaning of Article 1 is defined in terms of financial
contribution and benefit, it stands to reason that both the financial contribution and benefit must
be taken into consideration in an analysis of whether access to the subsidy is explicitly limited.
Therefore, while we agree that the nature of the benefit found to exist is a key consideration in the
specificity analysis under A rticle 2.1(a), the question of whether access to the subsidy is explicitly
limited cannot always be answered by focusing solely on the existence of benefit.1722 In our view,

panel related to the allocation of intellectual property rights was "separate and distinct" from its claims to the
NASA and DOD aeronautics programmes. (European Union's second written submission, para. 364).
1719 United States' first written submission, para. 489; second written submission, para. 440. See also
United States' response to Panel question No. 28, paras. 124-126; and comments on European Union's
response to Panel question No. 28, paras. 153-155.
1720 United States' first written submission, para. 489.
1721 Our analysis above in Sections 8.2.2.5.2 and 8.2.3.5.2 includes a summary of relevant findings
regarding specificity made by the panel and the Appellate Body in the original proceeding.
1722 See also Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), paras. 377
and 378.

the United States' argument fails to properly consider the benefit in relation to the financial
contribution and the particular context in which that contribution occurs.
8.550. We recall that in the case of the NASA aeronautics R&D measures, we consider it
appropriate to assess whether the financial contributions provide a benefit on the basis of an
examination of the allocation of intellectual property rights because of our particular
characterization of the nature of those measures. In contrast, a s illustrated by our analysis of
benefit in relation to DOD procurement contracts, where we characterize the financial contributions
differently, we consider that a focus on the allocation of intellectual property rights as a basis to
determine the existence of a benefit is not appropriate. Thus, in the context of our characterization
of the DOD procurement contracts as purchases of R&D services, we find that the same allocation
of patent rights that applies by virtue of the Bayh -Dole Act and related legislative instruments and
implementing regulations would not result in the measures in question being subsidies. 1723
8.551. Because the role of the allocation of intellectual property rights in our analysis of whether a
measure constitutes a subsidy depends upon the particular context, we consider that in
ascertaining whether "access to the subsidy" is subject to e xplicit limitations, we cannot treat the
allocation of intellectual property rights on terms more favourable than available in the market as
being the relevant subsidy in and of itself. Therefore , we disagree with the United States that the
subsidy provided through the Boeing CLEEN Agreement can be characterized as a "patent rights
subsidy", which is the same subsidy that the Appellate Body considered in its analysis of the
European Union's alternative claim regarding the allocation of intellectual property rights as a self-
standing subsidy. As a consequence, we also disagree that the Bayh -Dole Act, its associated
legislative instruments and implementing regulations constitute the appropriate legislative and
regulatory framework that we must consider , for purposes of determining whether the legislation
pursuant to which the granting authority operates explicitly limits access to the subsidy to certain
enterprises.1724
8.552. We recall that in the case of the NASA aeronautics R&D subsidies at issue in the original
proceeding, the basis for the panel's finding of an explicit limitation of access to the subsidy was
the existence of restrictions on the scope of NASA's R&D activities to aeronautics and space and
the particular objectives pursued by NASA with these activitie s. Thus, the original panel found that
the access to the subsidy was explicitly limited to certain enterprises because the very nature of
the research inherently limited access to the subsidy to "certain enterprises that participate in
aeronautics-related R&D".1725 In our view, access to the subsidy that we have found to exist in this
proceeding in respect of the Boeing CLEEN Agreement is subject to a similar, explicit limitation. In
particular, we find that access to the subsid y is explicitly limited because the focus of the R&D
conducted under the Boeing CLEEN Agreement is aerospace-related.
8.553. Therefore, we find that the subsidy provided to Boeing through the Boeing CLEEN
Agreement is specific within the meaning of Article 2.1(a) of the SCM Agreement. In light
of this conclusion, we do not consider it ne cessary to address the European Union's alternative
argument under Article 2.1(c).1726 Finally, we note that the European Union also argues that the
subsidy provided to Boeing through the Boeing CLEEN Agreement is specific pursuant to Article 2.3
of the SCM Agreement. Article 2.3 provides that "{a}ny subsidy falling under the provisions of
Article 3 shall be deemed to be specific". We reject this argument because, in Section 10 of this
Report, we find that the Europ ean Union has failed to establish that any subsidy at issue in this
proceeding is prohibited by Articles 3.1 and 3.2 of the SCM Agreement.

1723 See Section 8.2.3.4.2.3 above.
1724 Because of the need to consider financial contribution and benefit together in determining whether
"access to the subsidy" is explicitly limited, we consider that this is not a situation in which "multiple authorities
are implementing the same measure". (United States' second written submission, para. 246).
1725 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1048.
1726 We note that the FAA entered into R&D agreements (in the form of other transaction agreements)
only with Boeing and four propulsion-focused companies (General Electric, Honeywell, Pratt & Whitney, and
Rolls-Royce North America) under the FAA CLEEN Program.

8.2.4.6 Amount of the subsidy and amount of the financial contribution
8.2.4.6.1 The amount of the subsidy provided to Boeing through t he FAA CLEEN
Agreement
8.554. In the previous Section, we f ind that the transactions pursuant to the post-2006 Boeing
CLEEN Agreement constitute a specific subsidy within the meaning of Articles 1 and 2 of the SCM
Agreement. In this Section, we address the partie s' arguments regarding the amount of the
subsidy provided to Boeing by the Boeing CLEEN Agreement as well as the amount of the financial
contribution. The amount of the subsidy, in our view, refers to the amount or magnitude of the
benefit conferred by the financial contribution; i.e. the quantification of the advantage conferred
on Boeing by the financial contribution, compared to what Boeing would have obtained in a market
transaction.
8.555. The European Union argues that the value of the benefit from the Boein g CLEEN
Agreement should be based on the value of the technology developed under the Boeing CLEEN
Agreement, which can be valued as a "multiple of the financial contribution " and can "last for
many years, given the long life of the technologies created ".1727 The United States does not
address the European Union's argument in the context of the Boeing CLEEN Agreement.
8.556. We address this argument by the European Union in Section 8.2.2.6 when addressing the
NASA aeronautics R&D measures at issue, where we find that the European Union's assessment of
the benefit is based on a conflation of the concept of benefit with the effects of a subsidy. We
therefore conclude that there is insufficient evidence on the record to enable us to estimate t he
amount of the subsidy in the sense of the difference between the terms regarding the allocation of
intellectual property rights and related licence rights on which the financial contributions were
provided to Boeing under the NASA procurement contracts and cooperative agreements and the
terms regarding the allocation of intellectual property rights and related licence rights under which
the financial contributions would have been provided in a market -based collaborative R&D
arrangement. In our view, t hat conclusion also applies to the European Union's argument as to
how to determine the amount of the subsidy provided through the Boeing CLEEN Agreement.
8.557. In light of the foregoing, we are unable to accept the European Union 's argument
regarding the amount of the benefit provided to Boeing through the Boeing CLEEN
Agreement. We therefore find that there is insufficient evidence on the record as to the
amount of the subsidy provided to Boeing through the Boeing CLEEN Agreement.
8.2.4.6.2 The amount of the financial contr ibution provided to Boeing through the
Boeing CLEEN Agreement
8.2.4.6.2.1 Main arguments of the parties
8.558. The European Union argues that the amount of the financial contribution under the Boeing
CLEEN Agreement is "at least " USD 27.99 million between 2010 and 2014, base d on the total
value of the Boeing CLEEN Agreement. In particular, the European Union derives this amount from
the original schedule of annual f unding levels provided in the Boeing CLEEN Agreement, which
indicates FAA funding for Boeing of USD 6,736,692 in 2010, USD 3,969,082 in 2011,
USD 8,103,935 in 2012, USD 6,494,751 in 2013, and USD 283,115 in 2014. These amounts are
then adjusted to account for the actual funding provided by the FAA to Boeing based on
modifications appended to the Boeing CLEEN Agreement.1728
8.559. The United States argues that the European Union overstates any financial contribution
provided by the FAA CLEEN Program, as the Boeing CLEEN Agreement does not provide Boeing
with access to government facilities, equipment, and employees. The United States argues that

1727 European Union's first written submission, para. 225. The European Union submits that Boeing
provides "integrated management" of the overall program, thus "allowing Boeing to benefit from FAA funding
of the other participants, all of whom are Boeing suppliers". (European Union's first written submission,
para. 202).
1728 European Union's first written submission, para. 220 and fn 514. See Boeing CLEEN Agreement,
(Exhibit EU-17), amendment/modification Nos. 0002, p. 1 (providing USD 6,310,150 in 2011), 0003, p. 2
(providing an additional USD 201,298 in 2011), and 0004, p. 1 (providing USD 7,960,050 in 2012).

contractual language in the Boeing CLEEN Agreement referring to "Facilities and Equipment" does
not indicate that Boeing was provided facilities or equipment of any value by FAA. The
United States therefore objects to including any spec ific amounts designated as "Facilities and
Equipment". The United States also objects that any access to NASA test facilities provided to
Boeing should be considered in relation to the Boeing CLEEN Agreement .1729 The United States
also argues that feedback provided to Boeing by FAA, NASA , and AFRL staff, and Boeing's
participation in semi-annual government-led consortium meetings, does not demonstrate that the
Boeing CLEEN Agreement involves a provision of goods and services to Boeing.1730 In addition, the
United States notes that while the FAA CLEEN Program may contribute funding related to flight
testing CLEEN technology under the Boeing CLEEN Agreement, CLEEN funding may not be used for
flight testing other technologies. Thus, there is no basis to assume that a ll work performed by
Boeing in connection with its ecoDemonstrator programme is a result of FAA funding under the
Boeing CLEEN Agreement.1731
8.2.4.6.2.2 Evaluation by the Panel
8.560. The European Union 's estimate of the amount of the financial contribution provided
through th e Boeing CLEEN Agreement is based on actual figures listed in the Boeing CLEEN
Agreement, adjusted to account for the actual funding provided by the FAA to Boeing based on
modifications appended to the Boeing CLEEN Agreement. The original schedule of annua l funding
levels, as modified, is as follows1732:
Table 2: Annual funding levels under the Boeing CLEEN Agreement
Year Annual funding level in USD (as modified)
2010 6,736,692
2011 6,511,448 (as per modifications 2 and 3)
2012 7,960,050 (as per modification 4)
2013 6,494,751
2014 283,115
Total 27,986,056

8.561. Portions of this total include certain amounts designated as "Facilities and Equipment "
funds as opposed to "Research, Engineering, and Development (RED) " funds.1733 Amounts
designated as "Facilities and Equipment " total USD 6,301,498 over the 2011 -2012 period
(including USD 1,811,448 in 20111734 and USD 4,490,050 in 20121735). The United States does not
generally object to using adjusted annual funding amounts as a basis to estimate the total amount
of the financial contribution. However, it argues that amounts designated as "Facilities and
Equipment" should be excluded from the calculation.
8.562. We conclude above in our evaluation of the whether a financial contribution exists that
amounts d esignated as "Facilities and Equipment" should be treated as further payments to
Boeing. Accordingly, we include amounts designated as "Facilities and Equipment" as well as the
amounts designated as "Research, Engineering, and Development (RED)" in our est imate of the
total amount of the financial contribution provided through the Boeing CLEEN Agreement.

1729 United States' first written submission, para. 482; second written submission, para. 434 and fn 603.
1730 United States' second written submission, paras. 432-436.
1731 United States' comments on European Union's response to Panel question No. 11, para. 55.
1732 See Boeing CLEEN Agreement, (Exhibit EU-17), amendment/modification Nos. 0002, p. 1 (providing
USD 6,310,150 in 2011), 0003, p. 2 (providing an additional USD 201,298 in 2011), and 0004, p. 1 (providing
USD 7,960,050 in 2012).
1733 See e.g. Boeing CLEEN Agreement, (Exhibit EU-17), amendment/modification Nos. 0002, p. 1, and
0003, p. 1.
1734 See e.g. Boeing CLEEN Agreement, (Exhibit EU-17), amendment/modification Nos. 0002, p. 2, and
0003, p. 2.
1735 Boeing CLEEN Agreement, (Exhibit EU-17), amendment/modification No. 0004, p. 2.

8.563. We note that the parties disagree as to whether Boeing is provided access to employees
under the Boeing CLEEN Agreement. Based on the United States ' own d escription of Boeing 's
interaction with U.S. Government staff pursuant to the Boeing CLEEN Agreement, we conclude that
the Boeing CLEEN Agreement provides Boeing with access to FAA employees.1736 The
European Union has not provided any estimate of the value of this access.
8.564. In light of the foregoing, we accept the European Union 's estimate of the amount of the
financial contribution to Boeing through the Boeing CLEEN Agreement as the best available
evidence. We find that, to the extent that the amount of the fi nancial contribution is
relevant to the Panel 's assessment of whether the United States has withdrawn the
subsidy or taken appropriate steps to remove the adverse effects, within the meaning of
Article 7.8, the revised estimate of USD 27.99 million is a cr edible estimate of the
amount of the financial contribution provided to Boeing through the Boeing CLEEN
Agreement between 2010 and 2014.
8.2.4.7 Conclusion
8.565. In light of our above findings regarding financial contribution, benefit, and specificity, we
conclude that the European Union has established that transactions pursuant to the Boeing CLEEN
Agreement involve a specific subsid y within the meaning of Articles 1 and 2 of the SCM
Agreement. While we are unable to estimate the amount of the subsidy on the basis of th e
evidence on the record, to the extent that it is relevant to the Panel's assessment of whether the
United States has withdrawn the subsidy or taken appropriate steps to remove the adverse effects
within the meaning of Article 7.8 of the SCM Agreement, we find the European Union's estimate of
the financial contribution at USD 27.99 million between 2010 and 2014 to be credible.
8.2.5 Tax exemptions and exclusions under FSC/ETI legislation and successor
legislation
8.2.5.1 Introduction
8.566. In this Section of the Report, we d etermine whether the United States grants or maintains
specific subsidies to Boeing, in the form of tax exemptions and tax exclusions pursuant to the
FSC/ETI measures and successor legislation, after the expiry of the implementation period , and
has thereby failed to withdraw the subsidy within the meaning of Article 7.8 of the SCM
Agreement.
8.567. In its request for the establishment of a panel in this compliance proceeding, the
European Union challenges the same FSC/ETI measures that were at issue in the origin al
proceeding. The measures constitute the original provisions of the U.S. Internal Revenue Code
which (prior to repeal) established special tax treatment for "Foreign Sales Corporations "
(FSCs)1737: the FSC Repeal and Extraterritorial Income Exclusion Act of 2000 (the ETI Act)1738, the
American Jobs Creation Act of 2004 section 1011739, and the Tax Increase Prevention and
Reconciliation Act of 2005 (the TIPRA). 1740 The European Union alleges that, through these
measures, the United States maintains tax exemptions and tax exclusions that constitute specific
subsidies within the meaning of Articles 1 and 2 of the SCM Agreement. 1741 Moreover, the
European Union alleges that these measures cause present adverse effects and are inconsistent
with Articles 3.1(a), 3.1(b) and 3.2 of the SCM Agreement and Article III:4 of the GATT.1742
8.568. The original panel found that the tax exemptions and tax exclusions provided to Boeing
under the FSC/ETI legislation, including the transitional and grandfather provisions of the ETI Act

1736 See para. 8.520 above.
1737 Internal Revenue Code, United States Code, Title 26, sections 245, 921-927, and 951 (2000),
(Exhibit EU-402), sections 921-927 and 951(d).
1738 Repeal and Extraterritorial Income Exclusion Act of 2000, United States Code of Federal Regulations,
Public Law No. 106-519, (Exhibit EU-403).
1739 American Jobs Creation Act of 2004, Public Law No. 108-357, section 101 (22 October 2004),
(Exhibit EU-404).
1740 Tax Increase Prevention and Reconciliation Act of 2005, Public Law No. 109-222 (17 May 2006),
(Exhibit EU-405), section 513. See European Union's first written submission, para. 390.
1741 European Union's request for the establishment of a panel, paras. 19 and 20.
1742 European Union's request for the establishment of a panel, paras. 29-32.

and the AJCA, c onstituted specific subsidies within the meaning of Articles 1 and 2 of the SCM
Agreement.1743 The panel estimated that the amount of FSC/ETI subsidies provided to Boeing 's
LCA division between 1989 and 2006 was USD 2.199 billion. 1744 The Appellate Body upheld (albeit
with different reasoning) the original panel 's finding that the measures caused serious prejudice ,
within the meaning of Article 5(c) and 6.3(b) of the SCM Agreement, with respect to the 100 -200
seat LCA product market.1745
8.569. The United States notified t he DSB on 26 September 2012 that it has enacted legislation
terminating the FSC/ETI benefits as of 2006, and that it confirms that Boeing did not "use" FSC or
ETI tax benefits after 2006. 1746 The European Union argues that certain grandfather ed provisions
of the FSC/ETI legislation have not been repealed, and continue to grant Boeing tax benefits after
2006.
8.570. The measures at issue are set out in detail in the original panel report. 1747 By way of
background, the original provision of the U.S. Internal Revenue Code granted to a "Foreign Sales
Corporation"1748 a tax exemption on a portion of income generated by the sale or lease of "export
property" – referred to as "exempt foreign income ". The FSC measure s also allowed U.S. parent
companies of FSCs to defer paying taxe s on certain "foreign trade income" that would normally be
subject to immediate taxation, and to avoid paying taxes on dividends received from their FSCs
related to "foreign trade income".1749
8.571. On 15 November 2000, in response to the findings made by the pane l and Appellate Body
in US – FSC1750, the United States passed the ETI Act. 1751 The ETI Act repealed the provisions in
the U.S. Internal Revenue Code relating to taxation of FSCs (subject to section 5(c)(1), an
indefinite grandfathering provision), but also intr oduced a further exclusion from income taxation
for certain qualifying foreign income. 1752 On 22 October 2004, in response to the panel and
Appellate Body findings in US – FSC (Article 21.5 – EC)1753, the United States passed the AJCA.1754
The AJCA repealed those p rovisions in the ETI Act that granted tax exemptions on certain
qualifying income.
8.572. However, the AJCA contained two key grandfather provisions. First, the AJCA indefinitely
grandfathered the ETI scheme in respect of transactions made in the ordinary course of business,
occurring pursuant to a binding contract between the relevant taxpayer and an unrelated person
that was in effect on 17 September 2003. 1755 Second, the AJCA did not repeal section 5(c)(1) of

1743 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1429.
1744 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1429.
1745 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1350(d)(iii).
1746 United States' Compliance Communication, paras. 7 and 8.
1747 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1378-7.1385.
1748 A "Foreign Sales Corporation" was a corporation created, organized and maintained in a qualified
foreign country or U.S. possession outside the customs territory of the United States under the specific
requirements of Sections 921-927 of the U.S. Internal Revenue Code. (See Panel Report, US – Large Civil
1749 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1379; and U.S. Internal Revenue
Code, U.S. Code, Title 26, sections 245, 921-927, and 951 (2000), (Exhibit EU-402).
1750 Panel Report, US – FSC, para. 8.1(a); and Appellate Body Report, US – FSC, paras. 177(a) and 178.
1751 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1380; Repeal and Extraterritorial
Income Exclusion Act of 2000, United States Code of Federal Regulations, Public Law No. 106-519, (Exhibit
EU-403).
1752 As the original panel explained, "the ETI Act allowed for the exclusion from taxation of certain
income of a U.S. 'taxpayer'. Such income – 'extraterritorial income' that was 'qualifying foreign trade income' –
could be earned with respect to goods only in transactions involving qualifying foreign trade property. The ETI
Act defined 'extraterritorial income' as the gross income of a taxpayer attributable to 'foreign trading gross
receipts', i.e. gross receipts generated by certain qualifying transactions involving the sale or lease of
'qualifying foreign trade property' not for use in the United States." (See Panel Report, US – Large Civil Aircraft
(2nd complaint), para. 7.1382; see more generally paras. 7.1380-7.1383).
1753 Panel Report, US – FSC (Article 21.5 – EC), paras. 9.1(a), 9.1(b), and 9.1(e); and Appellate Body
Report, US – FSC (Article 21.5 – EC). paras. 256(b), 256(f), and 257.
1754 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1384; and American Jobs Creation
Act of 2004, Public Law No. 108-357, section 101 (22 October 2004), (Exhibit EU-404).
1755 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1384.

the ETI Act which indefinitely grandfathered the origin al FSC measures in respect of certain
transactions entered into pursuant to binding contracts in effect on 30 September 2000.1756
8.573. On 17 May 2006, in response to the panel and Appellate Body findings in US – FSC
(Article 21.5 – EC II)1757, the United States pass ed the TIPRA, which purported to repeal the two
aforementioned grandfather provisions. Section 513(c) of the TIPRA provides that "{t}he
amendments made by this section shall apply to taxable years beginning after the date of the
enactment of this Act".1758
8.574. It was not disputed in the original proceeding that, up until 2006, the FSC/ETI measures
(including transitional and grandfathered measures enacted in the successor legislation)
constituted specific subsidies.1759 The parties disagreed, however, as to whether the TIPRA in fact
fully repealed the grandfathered provisions; that is, whether Boeing continued to receive tax
benefits with respect to certain foreign income after 2006. The European Communities argued, as
the European Union does now, that the prospectiv e application of the TIPRA meant that the
grandfathered provisions of the FSC/ETI legislation that remained in place following the passage of
the AJCA were still viable after 2006 with respect to income generated from certain eligible back -
dated orders.1760 The United States argued that Boeing had ceased to receive FSC/ETI benefits as
of 31 December 2006.1761
8.575. Throughout this Section, the Panel refers to Boeing's possible receipt of "FSC/ETI benefits".
By way of explanation, this refers to the tax exemptions and exclusions that the European Union
alleges continue to be available to Boeing, despite the purported repeal of the FSC/ETI and
successor act subsidies by the TIPRA. More specifically, it refers to tax exemptions and exclusions
on eligible foreign income gen erated after 2006 on those back -dated orders to which the two
grandfathered provisions of the FSC/ETI measures continue to apply.
8.2.5.2 Main arguments of the parties
8.576. The European Union argues that the same grandfathered provisions from the FSC/ETI
subsidies tha t were at issue in the original proceeding have continued, since 2006, to provide
Boeing's LCA division with tax concessions.
8.577. The European Union emphasi zes that the original panel found that, between 1989 and
2006, Boeing received USD 2.199 billion in spe cific subsidies through the FSC/ETI legislation and
successor acts. 1762 It considers, however, that the original panel report cannot be relied on in
support of the United States' argument that the FSC/ETI benefits terminated in 2006. The original
panel found that it was "not … necessary to reach a conclusion " as to whether there was sufficient
evidence before it to establish that the subsidies continued after 2006. 1763 In this proceeding,
however, where the European Union claims that the United States has not ach ieved compliance
because the FSC/ETI subsidies have not been withdrawn, the question of whether FSC/ETI benefits
have continued to accrue to Boeing after 2006 is highly relevant.1764
8.578. As in the original proceeding, the European Union relies on a December 2006
memorandum from the Internal Revenue Service (2006 IRS memorandum), which states:
The TIPRA repeal date repeals the {FSC and ETI} binding contract rules for taxable
years that begin after May 17, 2006. Because the binding contract rules apply on a
transaction-by-transaction basis, we interpret the TIPRA repeal date as repealing the
binding contract rules prospectively, on a transaction -by-transaction basis, for

1756 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1384.
1757 Panel Report, US – FSC (Article 21.5 – EC II), para. 8.1; and Appellate Body Report, US – FSC
1758 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1385; and Tax Increase Prevention
and Reconciliation Act of 2005, Public Law No. 109-222 (17 May 2006), (Exhibit EU-405), section 513.
1759 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1400.
1760 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1407-7.1411.
1761 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1412-7.1417.
1762 European Union's first written submission, para. 390.
1763 European Union's second written submission, para. 539 (citing Panel Report, US – Large Civil
Aircraft (2nd complaint), para. 7.1428).
1764 European Union's second written submission, para. 539.

transactions entered into during a taxable year that begins after May 17, 2006. In
other words, the binding contract rules {continue to} apply to certain transactions,
but only if such transactions are not entered into in a taxable year that begins after
May 17, 2006.1765
8.579. The European Union argues that, based on this statement, the TIPRA continues to allow for
Boeing to receive FSC/ETI benefits with respect to two types of foreign income recogni zed after
31 December 20061766:
a. income from a sale or lease entered into before 1 January 2005;
b. income from a sale or lease entered into before 1 January 2007, pursu ant to a binding
contract that was in place with an unrelated person on 17 September 2003 and at all
times thereafter.
8.580. The European Union submits that this means, for example, that if Boeing entered into a
binding contract with an unrelated customer before 18 September 2003 , wherein the customer
had an option to buy a certain number of aircraft, the buyer exerci sed the option before
1 January 2007, and the final aircraft were not delivered until 2012 or later, Boeing remains
entitled to tax concessions on income from the sale recogni zed in 2007 and beyond. 1767 The 2006
IRS memorandum has not been superseded by any further guidance from the IRS. 1768 Its
interpretation of the TIPRA continues the flow of FSC/ETI benefits to Boeing which, as the original
panel found with respect to the pre-2006 benefits, constitute a specific subsidy within the meaning
of Articles 1 and 2 of the SCM Agreement. The European Union submits a report prepared by its
experts, International Trade Resources LLC (ITR), which identifies at least 69 orders that allegedly
qualify for the first aspect of the continued grandfathering above; namely, orders that will
generate new income recognized after 2012 from a sale or lease in the ordinary course of trade or
business entered into before 1 January 2005.1769
8.581. The European Union argues that, in light of the evidence it has submitted, the statement s
by Boeing 's James H. Zrust, Boeing 's Vice President of Tax , that Boeing has not received any
FSC/ETI benefits as of 2006, and does not intend to receive any in the future, are
unpersuasive.1770 First, the European Union emphasi zes that while the U.S. Government is in a
unique position to definitively verify any statement s that Boeing makes about its corporate tax
filings, it does not do so. Rather, the United State s simply acts as a messenger for Boeing 's own
view that FSC/ETI benefits were not received after 2006. 1771 The statements are also ambiguous
and imprecise, and never define the term "FSC benefits".1772 Similarly, Boeing itself could, if it had
wished to legally establish that it does not receive FSC/ETI benefits, provide a statement as such
under "penalty of perjury", but has not done so.

1765 European Union's first written submission, para. 394 (citing "Qualification for FSC benefits and ETI
Exclusions", Office of Chief Counsel, Internal Revenue Service Memorandum No. AM 2007-001,
22 December 2006 (2006 IRS memorandum), (Exhibit EU-406), p. 6). (underlining original, italics added by
the European Union)
1766 European Union's first written submission, paras. 394 and 395 and fn 1030; and 2006 IRS
memorandum, (Exhibit EU-406), p. 6.
1767 European Union's first written submission, para. 395.
1768 European Union's first written submission, para. 399; comments on the United States' response to
Panel question No. 34, para. 211 (citing United States' response to the Panel's request for information
pursuant to Article 13 of the DSU, dated 28 February 2013, response to question No. 46, para. 116).
1769 European Union's first written submission, para. 396. International Trade Resources Report, Boeing
FSC/ETI Tax Exemptions Post-2011, (13 December 2012) (ITR FSC/ETI Report), (Exhibit EU-24), at
attachment 1. The European Union explains that it does not have the data necessary to determine the number
of orders eligible for FSC/ETI benefits based on orders for revenue which will be recognized after
31 December 2006 from a sale or lease in the ordinary course of trade or business entered into before
1 January 2007 pursuant to a binding contract that was in place with an unrelated person on
17 September 2003 and at all times thereafter.
1770 European Union's comments on the United States' response to Panel question Nos. 33, para. 208,
and 34, para. 210.
1771 European Union's comments on the United States' response to Panel question No. 33, paras. 202
and 207.
1772 European Union's second written submission, para. 541; comments on the United States' response

8.582. Further, the European Union notes that Mr Zrust's statements provide only that Boeing
"does not intend " to receive FSC/ETI ben efits, not that Boeing "will not " receive the benefits.
Nothing prevents Boeing from changing its view that it will not claim FSC/ETI benefits on eligible
income. The subsidy therefore continues to exist after 2006, since government inaction is
insufficient to demonstrate the withdrawal of the subsidy.1773
8.583. The European Union also argues that the United States' assertion that Boeing did not "use"
the tax benefits confirms that the benefit within the meaning of Article 1 .1(b) of the SCM
Agreement in fact has been conferred on Boeing. If not, the opportunity to "use" the benefit would
never have arisen. 1774 The European Union considers that this is sufficient to demonstrate the
existence of the subsidy.1775 Whether a subsidy has been "used", according to the European Union,
does not go to the question of whether the subsidy exists, but whether the subsidy has caused
adverse effects, as provided for in Article 5 of the SCM Agreement. 1776 Since, however, the
FSC/ETI subsidies are prohibited subsidies contingent on export, they are assumed to have caused
adverse effects. The European Union argues that whether Boeing in fact "used" the subsidy is
therefore irrelevant.1777
8.584. The United States argues that Boeing ceased to receive FSC/ETI tax benefits after
2006.1778 It notes that the evid ence relied upon by the European Union to show otherwise
(namely, the 2006 IRS memorandum) is the same evidence it relied upon in the original
proceeding.1779 According to the United States, the original panel examined this evidence, and
declined to find that Boeing would continue to receive FSC/ETI benefits after 2006. 1780 Rather, the
panel found that the mere availability of the benefits did not indicate that Boeing had actually used
them.1781 Moreover, before the original panel, the European Communities itself su bmitted a
document indicating that the amount of FSC/ETI subsidies after 2006 was zero.1782
8.585. The United States submits the July 2009 statement by James H. Zrust, Boeing's Vice
President of Tax (the Zrust statement), which it also submitted in the original proc eeding, stating
that Boeing did not receive any FSC /ETI benefits after 31 December 2006, that Boeing does not
treat income received after 2006 as eligible for FSC /ETI benefits, that Boeing does not intend to
claim FSC/ETI benefits in the future, and that Boeing's 2006 Annual Report states that 2006 will be
the final year for recogni zing any export tax benefits. 1783 The United States also submits an
updated statement of Mr Zrust, dated 3 December 2013 (the Updated Zrust statement) in which
Mr Zrust confirms tha t his statement of July 2009 remains accurate: Boeing did not receive any
FSC/ETI benefits after 31 December 2006. 1784 In this statement, Mr Zrust adds that it is Boeing's
view that any income recognized after 31 December 2006 is not eligible for FSC /ETI benefits and
that Boeing does not intend to claim any FSC /ETI benefits in the future. 1785 The United States
adds, in response to a question from the Panel, that from Boeing's point of view, there were no

1773 European Union's comments on the United States' response to Panel question No. 33, paras. 205
and 207.
1774 European Union's second written submission, para. 542.
1775 European Union's second written submission, para. 542.
1776 European Union's second written submission, para. 542.
1777 European Union's second written submission, paras. 542 and 798.
1778 United States' first written submission, para. 490; and Statement of J. H. Zrust, Vice President of
Tax of the Boeing Company, 20 July 2009, (Exhibit USA-232).
1779 United States' first written submission, paras. 491 and 492 (citing Panel Report, US – Large Civil
Aircraft (2nd complaint), paras. 7.1421-7.1428).
1780 United States' first written submission, paras. 491 and 492 (citing Panel Report, US – Large Civil
Aircraft (2nd complaint), para. 7.1428).
1781 United States' second written submission, para. 451 (citing Panel Report, US – Large Civil Aircraft
(2nd complaint), para. 7.1425).
1782 United States' second written submission, para. 452 (citing Panel Report, US – Large Civil Aircraft
(2nd complaint), para. 7.1426).
1783 Statement of J. H. Zrust, Vice President of Tax of the Boeing Company, 20 July 2009, (Exhibit
USA-232).
1784 Updated Statement of J. H. Zrust, Vice President of Tax of the Boeing Company, 3 December 2013,
(Exhibit USA-382), para. 3.
1785 Updated Statement of J. H. Zrust, Vice President of Tax of the Boeing Company, 3 December 2013,
(Exhibit USA-382), para. 4.

income-recognition events (which would include the fulfilme nt of orders and the recognition of
options) after 31 December 2006 that were eligible for FSC/ETI benefits.1786
8.586. The United States also states, in response to the Panel 's requests for information pursuant
to Article 13 of the DSU, that it reviewed the annual reports that Boeing submitted to the U.S.
Securities and Exchange Commission (SEC). Those reports do not record Boeing as having
recognized FSC/ETI benefits after 2006.1787
8.587. The United States does not consider that a statement "signed under penalty of perjury", as
requested by the European Union, is necessary to support its argument. 1788 Documents in WTO
proceedings are not required to meet this standard in order to be persuasive.1789
8.2.5.3 Evaluation by the Panel
8.588. The issue before the Panel is whether, after the expiry of the implementation period, the
United States grants or maintains subsidies to Boeing in the form of tax exemptions and tax
exclusions pursuant to the FSC/ETI measures and successor legislation. In this regard, the issue in
dispute between the parties is whether, as a factual matter, the United States has continued to
provide such subsidies to Boeing after 2006 . We consider that there are three distinct, but related
questions raised by the parties ' arguments on this issue. The first is whether the origina l panel
already made a determination as to whether Boeing continues to receive FSC/ETI benefits after
2006. The second is whether it is sufficient for the European Union to establish that, after 2006,
FSC/ETI benefits continued to be available, or whether it must establish that Boeing actually
received FSC/ETI benefits. The third is an evidentiary issue as to whether, based on the evidence
submitted by the parties, Boeing did in fact continue to receive FSC/ETI benefits.
8.589. In the original proceeding, as now, the United States did not contest that , between 1989
and 2006, the FSC/ETI measures constituted specific subsid ies, but argued that Boeing ceased to
receive the subsid ies as of 2006. 1790 The United States now argues that the original panel
examined this ques tion and, on the evidence before it (which is the same evidence before the
current Panel), declined to find that Boeing would continue to receive post-2006 FSC/ETI benefits.
8.590. The original panel confirmed that between 1989 and 2006 , the FSC/ETI measures did
constitute specific subsid ies.1791 In addressing whether the subsid ies continued after 2006, the
panel considered that this was a factual issue that went only to the question of the overall amount
of the subsidy.1792 In the original proceeding, however, the European Communities' estimate of the
amount of the FSC/ETI subsidies did not include the alleged post -2006 benefits; the European
Communities calculated the amount only between 1989 and 2006. 1793 The panel therefore found it
was not necessary to reach a conclus ion as to whether Boeing did in fact continue to receive
FSC/ETI benefits after 2006, since a finding either way would have no impact on the European
Communities' amount estimate.

1786 United States' response to Panel question No. 34, para. 146; and Updated Statement of J. H. Zrust,
Vice President of Tax of the Boeing Company, 3 December 2013, (Exhibit USA-382).
1787 United States' response to the Panel's request for information pursuant to Article 13 of the DSU,
dated 28 February 2013, response to question No. 47, para. 117. The United States notes that Boeing's Chief
Executive Officer and Chief Financial Officer certified to the SEC that the reports did not contain an omission of
a material fact that would make the reports misleading. The United States emphasizes that "severe civil or
criminal penalties may be imposed on any person who knowingly makes a false certification in an annual report
to the SEC". The European Union does not consider this persuasive since, compared to the revenues of
USD 81.7 billion that Boeing reported for 2012, omitting the USD 12 million FSC/ETI tax break that Boeing
received that same year (as estimated by the European Union) would not be significant enough to constitute
an "omission of a material fact". (See European Union's first written submission, para. 399 (citing Boeing,
Annual Form 10-K Report to the U.S. Securities and Exchange Commission for the Fiscal Year Ending
31 December 2011, (Exhibit EU-488), p. 19)).
1788 United States' second written submission, para. 453.
1789 United States' second written submission, para. 453.
1790 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1377.
1791 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1400.
1792 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1420.
1793 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1408 and 7.1427.

8.591. While the original panel declined to find that Boeing would continue to rec eive post-2006
FSC/ETI benefits, we do not consider that this amounts to a positive finding that Boeing would not
continue to receive them. Rather, the panel made no definitive finding either way.
8.592. In this proceeding, however, whether the FSC/ETI subsidies continue after 2006
determines the European Union 's claim that the United States has not withdrawn the subsidy. 1794
Now, the question of whether the FSC/ETI benefits continued after 2006, rather than going
exclusively to the amount of the subsidies, goes to the continued existence of the subsid ies.
Further, again unlike the original proceeding, the European Union now does present an estimate of
the amount of post -2006 FSC/ETI benefits allegedly received by Boeing. We therefore agree with
the European Union that there is no existing determination by the original panel on this issue, and
that it is now necessary for this compliance Panel to determine whether the FSC/ETI subsidies
have continued after 2006.
8.593. This in turn raises the second issue, which is what the European Union is required to
establish in order to demonstrate the existence of the subsidies after 2006. More precisely, the
issue is whether the European Union is required to establish that Boeing in fact "received" or
"used" the FSC/ETI benefits after 2006, or whether it is sufficient for the European Union to
establish that the FSC/ETI benefits were available to Boeing , or that Boeing was eligible to use the
FSC/ETI benefit after 2006.
8.594. In its second written submission, the European Union argues that on ce the opportunity to
"use" a tax break has arisen, a benefit within the meaning of Article 1.1(b) has already arisen, and
this is sufficient to confirm the existence of a subsidy.1795 Just because a recipient does not elect to
"use" that benefit does not, ac cording to the European Union, negate the existence of the
subsidy.1796 The European Union also emphasizes that, even if Boeing has not claimed tax benefits
after 2006, nothing in U.S. law prevents it from claiming those benefits in the future. The
European U nion seems to suggest that this alone means that the subsid ies continue, since
government inaction alone is insufficient to terminate them.
8.595. We interpret this line of argumentation to imply that the European Union need not show
that Boeing in fact continues to receive FSC/ETI benefits. Rather, the fact that the FSC/ETI
benefits were available to Boeing and, if it wished, Boeing could claim the benefits in the future, is
sufficient to demonstrate that the subsidy has not been withdrawn.
8.596. We do not consider th at demonstrating that the FSC/ETI benefits were available to Boeing
is equivalent to demonstrating that Boeing receives a subsidy within the meaning of
Article 1.1(a)(1)(ii) of the SCM Agreement. Rather, the European Union must establish that Boeing
actually received FSC/ETI benefits after 2006 in order to demonstrate that the subsidies continue
to exist.
8.597. First, the European Union appears to argue that the opportunity to use a tax concession
indicates that a benefit has been conferred under Article 1 .1(b) and therefore that eligibility for a
tax concession of itself indicates that a subsidy exists. This argument frames the issue as one
relating to the conferral of a benefit under Article 1.1(b) of the SCM Agreement . We consider,
however, that the factual question of whether a recipient has "used" or taken advantage of a
possible tax concession raises instead the threshold issue of whether there has been a financial
contribution under Article 1 .1(a)(1) of the SCM Agreement. Specifically, the issue is whether, in
the absence of the eligible recipient actually "using" a tax break, there is still a foregoing of
revenue otherwise due within the meaning of Article 1.1(a)(1)(ii). Should the Panel find that,
absent Boeing having actually received post -2006 FSC/ETI be nefits, there is no finan cial
contribution, the European Union's benefit argument has no purchase.
8.598. Second, the original panel did examine the question of whether a financial contribution
exists when the parties disagree as to whether a subsidy has been "used", albeit in the context of
the Washington State tax measures. There, the panel found that, although a tax exemption was

1794 European Union's request for the establishment of a panel, paras. 19 and 20; first written
submission, para. 398.
1795 European Union's second written submission, para. 542 and fn 887.
1796 European Union's second written submission, para. 542 and fn 887.

available to Boeing, Boeing had not "used" the exemption. 1797 The panel noted that the
European Communities' position was that the meas ure constituted, not a financial contribution in
the abstract, but "a financial contribution to a specific entity, namely to Boeing".1798 In light of this,
in circumstances where the tax exemption was never claimed by Boeing, and where Boeing had
taken steps to suggest that it would not claim the exemption, the panel found there was no
financial contribution to Boeing in relation to the measure. 1799 The implication of this finding is
that, with respect to that measure, the existence of the financial contribution turned on whether a
tax concession was "used", not on whether the tax concession was "available".
8.599. In our view, the same reasoning is applicable with respect to the present measures. The
European Union 's claim is that the United States maintains tax exempt ions and tax exclusions
under FSC/ETI and successor legislation that benefit Boeing specifically. 1800 The European Union's
evidence and arguments are directed at demonstrating that Boeing has received eligible foreign
income for which it continues to receive FSC/ETI tax benefits. Similarly, as the original panel found
with respect to the Washington tax measure, the European Union 's case under Article 3 is that
there are export-contingent subsidies to Boeing.1801
8.600. We consider that the European Union must therefore demonstrate that Boeing used a tax
concession in order for a financial contribution under Article 1.1(a)(1)(ii) of the SCM Agreement to
be deemed to exist. If, however, Boeing does not continue to actually receive FSC/ETI benefits on
the eligible portions of its foreign income, it receives no financial contribution within the meaning
of Article 1.1(a)(1)(ii) of the SCM Agreement, which provides that:
1.1 For the purpose of this Agreement, a subsidy shall be deemed to exist if:
(a) (1) there is a financial contribution by a government or any public body within the
territory of a Member (referred to in this Agreement as "government"), i.e. where:
…
(ii) government revenue that is otherwise due is foregone or not collected (e.g. fiscal
incentives such as tax credits).
8.601. If a tax concession is made available, but the recipient identified in the complaining party's
claim never uses or takes advantage of the concession, the recipient necessarily continues to pay
the government revenue that is otherwise due. There is no act of "foregoing" or "failure to collect"
that revenue on the part of the government. Nor is it possible for a potential foregoing of revenue
that is otherwise due to constitute a financial contribution. While Article 1.1(a)(1)(i) provides for a
financial contribution to exist where there is a "potential direct transfer of funds ", there is no
equivalent in subparagraph (ii).1802
8.602. This conclusion necessarily leads to the third question before the Panel, which is whether,
weighing the evidence presented by t he European Union again st that presented by the
United States, Boeing actually has received tax exemptions and exclusions on the income
generated from certain back -dated orders pursuant to the two grandfathered FSC/ETI provisions
after 2006.
8.603. The European Union submits the 2006 IRS memorandum as evidence that Boeing remains
eligible to receive FSC/ETI benefits through a prospective interpretation of the TIPRA repeal

1797 See Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.140-7.151. This finding was
with respect to the Washington State sales and use tax exemptions for construction services and equipment.
As the panel explained, "after reviewing all of the evidence, we accept the United States' position that Boeing
has not claimed the sales and use tax exemption for construction services and equipment". (See Panel Report,
US – Large Civil Aircraft (2nd complaint), para. 7.144).
1798 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.150 and 7.151. (emphasis original)
1799 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.151.
1800 European Union's request for the establishment of a panel, paras. 19 and 20.
1801 European Union's first written submission, paras. 743-746. See Panel Report, US – Large Civil
Aircraft (2nd complaint), para. 7.150.
1802 Whether taxpayers actually use various tax concessions for which they are legally eligible will
depend on the particular situation of the taxpayer; including, among other things, the existence of other tax
concessions which they may also potentially use.

provision.1803 In response to the Panel's request for information pursuant to Article 13 of the DSU,
the United States confirm s that the U.S. Internal Revenue Service has not issued any guidance
superseding the guidance in that memorandum.1804 The European Union considers that, so long as
the 2006 IRS memorandum has not been superseded or contradicted by any later regulations or
guidelines, there is no basis on which to find that the United States has withdrawn the
subsidies.1805
8.604. Further, the European Union submits the ITR FSC/ETI Report, which identifies a list of
orders that the European Union and ITR consider to qualify for continued FSC/ETI benefits.1806 The
list was generated by identifying Boeing aircraft that were ordered before 1 January 2005, but not
delivered until after 2011. 1807 The European Union then identifies certain aircraft, the sales of
which would generate foreign income eligible for the FSC/ETI tax benefits.1808
8.605. The European Union also makes arguments addressing the likelihood of Boeing continuing
to receive FSC/ETI benefits after 2006. The European Union points out that Boeing 's management
has a fiduciary duty to its stockholders which compels it to take advantage of the tax concessions
to which it is legally entitled, which include the FSC/ETI benefits. 1809 The European Union also
points out that, while the U.S. Government is in a "unique position" to verify Boeing's statements
as to its corporate tax filings, it refuses to make a definitive verification, relying instead on
Boeing's statements as to its own practices and future intentions. 1810 The European Union
considers that the Panel should, having reviewed the evidence it has presented, and in light of the
above circumstances, draw an inference that Boeing takes advantage of the FSC/ETI tax benefits,
and will continue to do so going forward.
8.606. The question before us is not whether FSC/ETI benefits ar e available to Boeing after 2006,
but whether Boeing in fact received FSC/ETI benefits. We do not consider that the European Union
establishes that Boeing does receive those benefits. The 2006 IRS memorandum is directed
towards whether FSC/ETI benefits are available to Boeing after 2006. The ITR FSC/ETI Report
similarly is directed towards demonstrating only that Boeing received income after 2006 that was
eligible for FSC/ETI benefits. Both fall short of showing that Boeing in fact receives tax concessions
which constitute a foregoing by the U.S. Government of revenue that is otherwise due, within the
meaning of Article 1.1(a)(1)(ii). Neither the 2006 IRS memorandum nor the ITR FSC/ETI Report is
directed at this precise question.
8.607. The European Union's argumen ts concerning the likelihood that Boeing continued to
receive FSC/ETI benefits after 2006, considered in conjunction with the European Union's 2006
IRS memorandum and the ITR FSC/ETI Report, which go to the availability of the FSC/ETI benefit,
are in our v iew insufficient to rebut the United States evidence, which does directly go to the
question of whether Boeing continued to receive FSC/ETI benefits after 2006, and, in our opinion,
constitutes a prima facie case that Boeing does not receive FSC/ETI benefits after 2006.
8.608. The United States ' evidence consists of statement s by James H. Zrust, Boeing 's Vice
President of Tax , in July 2009 and December 2013, that Boeing did not receive any FSC benefits
after 31 December 2006 and that Boeing does not intend to cla im any FSC benefits in the future,

1803 2006 IRS memorandum, (Exhibit EU-406), p. 6.
1804 United States' response to the Panel's request for information pursuant to Article 13 of the DSU,
dated 28 February 2013, response to question No. 46, para. 116.
1805 European Union's second written submission, para. 534.
1806 ITR FSC/ETI Report, (Exhibit EU-24). The list only includes orders that qualify for one aspect of the
continued grandfather provisions. (See para. 8.580 above, and European Union's first written submission,
para. 396).
1807 The order and delivery information was obtained from Ascend Worldwide Limited, a "respected
aggregator of public information on aircraft orders and deliveries". The Ascend data was tested against, and
corresponded exactly with, aircraft data on actual deliveries that Boeing provides on its website. (See ITR
FSC/ETI Report, (Exhibit EU-24), pp. 2 and 3).
1808 The Boeing 777 and 787 are long-haul aircraft, which are used predominantly outside the United
States so, according to the European Union, qualify as "export property", the sale or lease of which generates
foreign income eligible for the FSC/ETI tax exemptions and exclusions. (See ITR FSC/ETI Report, (Exhibit
EU-24), attachment 1: Table of Pre-2005 Orders of Boeing LCA with Anticipated Delivery in 2012 and beyond,
pp. 2 and 3).
1809 European Union's first written submission, para. 400; second written submission, para. 543.
1810 European Union's comments on the United States' response to Panel question No. 33, para. 202.

noting that Boeing's 2006 Annual Report states that 2006 will be the final year for recognizing any
export tax benefits.1811
8.609. The United States also states that it reviewed the annual reports that Boeing submitted to
the SEC and that those reports do not record Boeing as having recogni zed FSC/ETI tax benefits
after 2006.
8.610. The United States has consistently maintained that the Zrust statement s and Boeing 's
reports to the SEC are accurate1812, and it is unclear what further steps it could take to verify its
arguments.
8.611. In the absence of evidence submitted by the European Union that goes directly to
the question before the Panel (whether FSC/ETI benefits were actually received by
Boeing after 2006), and in light of the evidence prov ided by the United States that no
such benefits were received, the Panel is not persuaded that the European Union has
established that Boeing has continued to receive FSC/ETI subsidies in the post -2006
period.
8.2.5.4 Conclusion
8.612. The Panel concludes that the Europ ean Union has not established that, after the expiry of
the implementation period, the United States grants or maintains subsidies to Boeing in the form
of tax exemptions and tax exclusions pursuant to the FSC/ETI measures and successor legislation.
8.2.6 Property and sales t ax abatements provided through IRBs issued by the City of
Wichita
8.2.6.1 Introduction
8.613. In this Section of the Report, we determine whether the United States grants or maintains
specific subsidies to Boeing after the expiry of the implementation perio d through property and
sales tax abatements provided through IRBs issued on Boeing's behalf by the City of Wichita , and
has thereby failed to withdraw the subsidy within the meaning of Article 7.8 of the SCM
Agreement.1813
8.614. In the original proceeding, these m easures were subject to DSB recommendations and
rulings as specific subsidies that caused adverse effects. 1814 In its Compliance Communication, the
United States advise s that the "City of Wichita is applying its Industrial Revenue Bond ( "IRB")
program in a ma nner consistent with Article 5(c) of the SCM Agreement. It has not provided any
IRBs to Boeing since 2007."1815 The last IRB issuance to Boeing by the City of Wichita was in 2007.

1811 Statement of J. H. Zrust, Vice President of Tax of the Boeing Company, 20 July 2009, (Exhibit
USA-232); and Updated Statement of J. H. Zrust, Vice President of Tax of the Boeing Company,
3 December 2013, (Exhibit USA-382).
1812 United States' response to Panel question No. 33, paras. 144 and 145; response to the Panel's
request for information pursuant to Article 13 of the DSU, dated 28 February 2013, response to question
No. 47, para. 117.
1813 For an explanation of the operation of IRB programmes and the IRBs issued on behalf of Boeing by
the City of Wichita, see Section 7.5 above.
1814 The original panel explained that IRBs are issued by cities and counties in Kansas, on behalf of
private entities, in order to assist private entities in raising revenue to fund the purchase, construction or
improvement of various types of commercial and industrial property (referred to as "Project Property"). (Panel
Report, US – Large Civil Aircraft (2nd complaint), para. 7.651). As the original panel explained: "{i}n general,
the relevant city, which in the case of Boeing and Spirit is the City of Wichita, acts as the 'issuer' of the IRBs.
The IRBs are sold to the general public for proceeds that the private entity, on whose behalf the IRBs are
issued, uses to acquire or enhance Project Property. During the term of the IRB, legal title to the Project
Property remains with the issuer (i.e. the City). The private entity leases the property, making rent payments
to the holders of the IRBs that are sufficient to pay the principal and interest on the IRBs. At the end of the
term of the IRB, title to the Project Property transfers to the private entity involved." (See Panel Report, US –
Large Civil Aircraft (2nd complaint), para. 7.653 (fn omitted)).

8.615. The European Union, in its panel request in this proceeding, challenges the tax abatements
provided to Boeing through these IRB issuances as one of the spe cific subsidies that the
United States maintains and which cause adverse effects:
The State of Kansas and the City of Wichita maintain state and local property and
sales tax abatements, pursuant to K.S.A. §§ 79 -201a, 79-3606(d), and 79-3640, that
presently benefit Boeing in relation to the issuanc e of IRBs, pursuant to K.S.A.
§ 12-1741, by the City of Wichita.1816
8.616. The primary point of difference between the parties is whether the IRB p rogramme
continues to be de facto specific within the meaning of Article 2.1(c) of the SCM Agreement. In
particular, the parties disagree as to the period of time over which the Panel should determine
whether the subsidy programme is specific. The European Union considers that the Panel should
determine whether the measure is specific over the entire period of time that the IRB programme
has been available. The United States argues that, when assessed over a shorter, more recent
period of time, the IRB prog ramme is no longer specific, and that the United States has therefore
complied with Article 7.8 of the SCM Agreement because it no longer maintains a specific subsidy
within the meaning of Articles 1 and 2.
8.617. The original panel found that the property tax ab atements for up to ten years on Project
Property and sales tax exemptions on Project Property and services acquired with the proceeds of
IRBs, constituted the foregoing of revenue otherwise due within the meaning of
Article 1.1(a)(1)(ii) of the SCM Agreeme nt.1817 The panel noted that Boeing had sold its Wichita
facilities to Spirit Aerosystems (Spirit), on 16 June 2005. 1818 However, for IRBs issued to Boeing
prior to the sale of its Wichita facilities to Spirit, where the ten -year tax exemption period
continued beyond 2005, Boeing continued directly to receive the tax benefits deriving from the
IRBs because Boeing maintained its leasehold interest in the Project Property and subleased the
Project Property to Spirit. 1819 The City of Wichita continued to issue IRBs to Boeing following the
sale of the Wichita facilities to Spirit in 2005. 1820 In January 2012, Boeing announced that it would
close all of its Wichita operations by the end of 2013.1821
8.618. The original panel also found that the tax abatements granted pursuant to the I RB
programme were de facto specific within the meaning of Article 2.1(c) of the SCM Agreement. 1822
Specifically, the panel considered that evidence submitted by the European Communities showing
that Boeing and Spirit had received approximately 69 % of all IRBs granted by the City of Wichita
between 1979 and 2005, while accounting for between 16 and 32 % of manufacturing employment
in Wichita over that period, suggested that the IRB tax abatements granted to Boeing and Spirit
were disproportionately large and the refore specific to certain enterprises within the meaning of
Article 2.1(c) of the SCM Agreement.1823 The Appellate Body upheld the panel's finding, but on the

1816 European Union's request for the establishment of a panel, para. 21.
1817 We recall the original panel's acknowledgement that Kansas taxation legislation was amended such
that, as of 1 July 2006, Kansas no longer assessed property tax on commercial and industrial machinery and
equipment, where such machinery and equipment was purchased after 30 June 2006. Such machinery and
equipment had not been subject to sales tax since 2000. Notwithstanding the foregoing, the panel found that
the tax abatements in connection with the IRBs were still available in relation to a range of property: (a)
commercial and industrial machinery and equipment acquired before 30 June 2006; (b) property that was not
commercial or industrial machinery or equipment; (c) improvements, repairs or remodelling of commercial and
industrial machinery and equipment; (d) real property; and (e) a variety of machinery and equipment excluded
from the sales tax exemption. Owing to this conclusion, the panel found that tax abatements granted in
connection with the purchase of the foregoing categories of property with the proceeds of the IRBs involved the
foregoing of revenue otherwise due, and conferred a benefit on Boeing. (Panel Report, US – Large Civil Aircraft
(2nd complaint), paras. 7.707-7.712). The categories of machinery and equipment excluded from the sales tax
exemption are listed by the original panel at fn 2053 of its report.
1818 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.649.
1819 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.662. While the European
Communities had also challenged the IRBs issued directly to Spirit as providing a specific subsidy to Boeing,
the panel found that the European Communities had failed to demonstrate that the benefit of such subsidies
was passed-through to Boeing at the time of the sale of Boeing Wichita to Spirit. (See Panel Report, US – Large
Civil Aircraft (2nd complaint), paras. 7.818 and 7.889).
1820 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.663.
1821 A.G. Sulzberger, "Boeing Departure Shakes Wichita's Identity as Airplane Capital", New York Times,
18 January 2012, (Exhibit USA-338).
1822 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.779.
1823 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.769 and 7.770.

basis of different reasoning as to the relevance of the share of employment of Boeing and Spirit
within the Wichita economy from the question of whether the grant of subsidies to those entities
was "disproportionately" large.1824
8.2.6.2 Main arguments of the parties
8.619. The European Union considers that the subsidy to Boeing continues to be specific within
the meani ng of Article 2.1(c) of the SCM Agreement. The European Union submits evidence
showing that , during the 1979 to 2012 period, the City of Wich ita issued a total of
USD 6.737 billion in tax -exempt IRBs, of which USD 3.576 billion (or 53% of the total amount)
was granted to Boeing, and approximately USD 3.963 billion (or approximately 59% of the total
amount) was granted to Boeing and Spirit combined.1825
8.620. The European Union notes that in evaluating whether the subsidy at issue was specific
within the meaning of A rticle 2.1(c), the original panel took account of the distribution of the
subsidy during the entire life of the IRB program me, and the Appellate Body performed its own
review of specificity in view of the allocation of tax benefits over the 25 year period between 1979
and 2005.1826 As there has been no significant change in the structure of the Wichita economy and
the importance of the subsidized activities in that economy since 2007, there is nothing to justify a
change of focus in assessing specificity to a period shorter than the entire life of the Wichita IRB
programme.1827
8.621. The United States argues that it is applying the IRB programme in a manner consistent
with the SCM Agreement because the subsidy is no longer specifi c within the meaning of
Article 2.1(c) o f the SCM Agreement .1828 The United States considers that, because the IRB
programme is no longer specific, it has withdrawn the subsidy within the meaning of Article 7.8 of
the SCM Agreement.1829
8.622. The United States notes that, according to the European Union's own evidence, of the total
amount of IRBs issued since 2007, Boeing has received 0% (since no new IRBs have been issued
to Boeing since that year) and Spirit has only received 12.6%. There is no basis to consider such
an amount to be disproportionately large.1830
8.623. The United States considers that, according to the original panel, where there has been a
significant change in the structure of the economy, including the importance of the subsidi zed
activities in the economy, it may not be appropriate to assess spe cificity over the entire period of
time that the subsidy has been available. Instead, it would be more probative to assess specificity
over a more limited period, corresponding to when such a change in the structure of the economy
occurred.1831 The United Sta tes submits evidence that, due to changes in the structure of the
Wichita economy, the importance of aircraft manufacturing has reduced considerably. Because of
this, the Panel should assess specificity over a more recent period, rather than over the whole
period that the subsidy has been available.

1824 The Appellate Body examined the United States' arguments that the 69% figure was proportionate
because of the lack of diversification in the Wichita economy, but concluded that the United States had not
provided sufficient reasons supported by evidence to undermine the assessment that the granting to Boeing
and Spirit of 69% of the amounts of IRB subsidy represented "an allocation at variance from what would have
been expected from the allocation of IRBs in accordance with their conditions for eligibility". (Appellate Body
Report, US – Large Civil Aircraft (2nd complaint), paras. 888 and 889).
1825 European Union's first written submission, para. 424 (referring to Sorted List of Wichita IRBs,
1979-2012, (Exhibit EU-426)); second written submission, para. 554. The European Union's submissions
consistently refer to the period 1979-2012, however the evidence it submits in fact only contains data up until
2011.
1826 European Union's second written submission, paras. 558 and 559.
1827 European Union's second written submission, para. 559.
1829 As the United States explains in its second written submission, it "does not assert that the measure
has been withdrawn simply because Boeing has not been granted IRBs since 2007. The measure has been
withdrawn because IRBs no longer constitute a specific subsidy." (See United States' second written
submission, para. 484. See also United States' opening statement at the meeting with the Panel, para. 97).
1830 United States' first written submission, para. 525.
1831 United States' second written submission, paras. 485 and 486 (citing Panel Report, US – Large Civil
Aircraft (2nd complaint), para. 7.757).

8.2.6.3 Evaluation by the Panel
8.624. We note that the parties do not dispute that the property and sales tax abatements
provided to Boeing in connection with the City of Wichita IRBs constitute subsidies within the
meaning of Article 1 of the SCM Agreement. The European Union has submitted evidence setting
out the yearly amounts of such tax abatements, which is not contested by the United States.1832
According to this evidence, Boeing has received USD 7,348,500 in property and sales tax
abatements between 2012 and 2014.1833
8.625. The contentious issue between the parties is whether the subsidy provided to Boeing is
specific. The European Union, as in the original proceeding, does not attempt to argue that the
subsidy is de jure specific under Article 2.1(a) of the SCM Agreement. As the original panel found,
it is clear that the IRB programme is not expressly limited to certain enterprises. 1834 Rather, the
European Union argues that the subsidy is de facto specific under Article 2.1(c), on t he basis that
certain enterprises, in this case Boeing and Spirit, have received a disproportionately large amount
of the subsidy.1835
8.626. Article 2.1(c) requires a panel to determine whether a subsidy which, although on the face
of the measure appears to be widely available, is nonetheless allocated in a manner that belies the
apparent neutrality of the measure. 1836 Article 2.1(c) sets out a series of factors that indicate
whether "there are reasons to believe that the subsidy may in fact be specific ". These includ e,
inter alia, the granting of "disproportionately large amounts" of the subsidy to certain enterprises.
Article 2.1(c) also provides that, in applying the provision, account shall be taken of the extent of
diversification of the economic activities within the jurisdiction of the granting authority, as well as
the length of time during which the subsidy programme has been in operation.
8.627. The key point of disagreement between the parties is the period of time over which the
Panel should assess specificity. The European Union argues that the Panel should assess specificity
over the entire period the subsidy has been available, during which Boeing received 53 %, and
Boeing and Spirit together 59%, of the subsidy.1837 The United States argues that there has been a
change in the structure of Wichita 's economy, and the Panel should only assess specificity in the
period since that change. Because there have not been any IRBs issued to Boeing since 2007,
assessing specificity over a shorter, more recent period of time cau ses the percentage of the
subsidy received by Boeing and Spirit to fall considerably.1838
8.628. Both parties' approaches to specificity involve a determination of whether Boeing and Spirit
received a disproportionate percentage of the total amount of IRBs issued. W e recall, however,
that the IRBs themselves do not constitute the subsidy; the tax abatements granted on property
purchased using the IRBs constitute the subsidy. Therefore, strictly speaking, assessing whether
Boeing and Spirit have received a disprop ortionate amount of the subsidy should be based on the
amount of the tax abatements Boeing and Spirit have received, relative to the amount of tax
abatements that all other IRB recipients have received.
8.629. The original panel reconciled using the IRB amounts to d etermine specificity on the basis
that:
To the extent that other IRB recipients received tax abatements of the same
percentage value under the terms of their IRB issuances as Boeing and Spirit, namely
100 per cent tax abatements, the value of the IRBs issu ed is a good proxy for the

1832 Mayor Brewer's Statement on Boeing Announcement, City of Wichita Web Document,
4 January 2012 (Brewer Statement), (Exhibit EU-418).
1833 Brewer Statement, (Exhibit EU-418).
1834 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.743.
1835 The Panel includes the amounts granted to Spirit in its assessment of specificity even though it has
not found that subsidies provided to Spirit "passed through" to Boeing. This is because a subsidy may be de
facto specific under Article 2.1(c) by virtue of being granted in disproportionate amounts to "certain
enterprises". The Panel has taken Boeing and Spirit together to constitute "certain enterprises". The
United States acknowledges that the amounts of the subsidy granted to Spirit are relevant to the Panel's
specificity finding. (See United States' first written submission, para. 525).
1836 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 877.
1837 European Union's first written submission, para. 424; second written submission, para. 554.
1838 List of All City of Wichita IRBs, 1994-2012, provided by the City of Wichita, (Exhibit EU-420).

amount of the subsidy. This is because the value of the IRBs represents the value of
the property that may be purchased and consequently subject to the tax abatement.
To the extent that all tax abatements under the IRBs are of th e same percentage
value, the value of the property purchased will be in proportion to the value of the tax
abatement.1839
8.630. In other words, where Boeing uses the amount of an IRB to purchase Project Property it
then receives a tax abatement, the value of which is based on the value of the property. There is
therefore a directly proportionate relationship between the value of the tax abatement and the
value of the IRB such that the IRB figures presented by the European Union can be used as a
"proxy" to calculate the percentage of the tax abatements (that is, the percentage of the subsidy)
received by Boeing and Spirit, for the purposes of determining whether these enterprises have
received a disproportionate amount of the subsidy.
8.631. We consider that this reasoning is applicable in the current proceeding, and that it has
necessary implications for the time-period over which the Panel assesses specificity.
8.632. Boeing has received IRB s every year from 1979 to 2007. Each year that Boeing received
IRBs it purchased Project Property, in respect of which it received a tax abatement for the
following ten years. So, for Project Property purchased with IRB s granted in 2007, Boeing receives
ten, annual tax abatements, from 2008 until 2017. Up until 2008, therefore, Boeing receive d ten
separate tax abatements each year, pursuant to the ten preceding years that it had purchased
Project Property with IRB funds. Because 2007 was the last year in which Boeing received IRB s,
however, each subsequent year Boeing receives one less tax abatement. In 2017, Boeing is due to
receive a single tax abatement on Project Property purchased with IRB issuance in 2007.1840
8.633. To recall, the value of each yearly tax abatement bears a proportionate relationship to the
amount of the IRB s used to purchase the P roject Property for which the tax abatement s are
received. Therefore, the tax abatement that Boeing receives in 2017 bears a proportionate
relationship to the IRBs it received in 2007. The sum of the two tax abatements Boeing receives in
2016 bears a proportionate relationship to the sum of the IRBs it received in 2007 and 2006, the
three it receives in 2015 to the IRBs received in 2005, 2006, and 2007, and so on.
8.634. The original panel justified using the actual IRB figures as a proxy for the amount of the
tax abatements when assessing the percentage of the subsidy received by Boeing and Spirit for
the purposes of a specificity analysis , on the basis that the two sets of figures bore a directly
proportionate relationship to each other. In the original proceedi ng, the European Communities
challenged the entirety of the subsidy received by Boeing since the inception of the IRB
programme in 1979, so it was consistent with the scope of that challenge for the panel to use the
entirety of the IRBs granted to Boeing b etween 1979 and 2005 as an approximation for the value
of the subsidy in its specificity analysis. In this proceeding, however, the relevant financial
contribution is that which was granted after the end of the implementation period. In other words,
we are concerned only with those tax abatements granted to Boeing from 2013 onwards.
8.635. Therefore, it is not consistent with the above reasoning to assess specificity using the IRB
figures from the entire period that the IRB program me has been in existence, becaus e these
figures do not bear a proportionate relationship to the amount of the tax abatements provided to
Boeing after the end of the implementation period. Rather, the amount of the tax abatements
Boeing receives after 2012 was determined by the value of t he IRBs that were granted from 2002
onwards. We therefore will assess whether the subsidy is de facto specific by determining what
percentage of the total amount of IRBs provided from 2002 onwards was granted to Boeing and
Spirit.
8.636. Based on the evidence su bmitted by the European Union, from 2002 onwards , Boeing and
Spirit received 32 % of the total amount of IRBs issued. 1841 We note that this is considerably

1839 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.756.
1840 This pattern of tax abatements is set out in table form in the Brewer Statement, (Exhibit EU-418).
1841 The figure of 32% was obtained by comparing the total amount of IRBs issued from 2002 onwards
to Boeing and Spirit (USD 681 million) with the total amount of IRBs issued from 2002 onwards
(USD 2.15 billion). The figures of USD 681 million and USD 2.15 billion were obtained by adding the amounts

reduced from the original proceeding, where the panel found that Boeing and Spirit had received
69% of the total amount.
8.637. The IRB programme remains open to any enterprises that seek to purchase, construct, or
improve various types of commercial or industrial property. 1842 The availability of the IRB
programme is therefore somewhat restricted to entities with th e capacity and inclination to make
such investments. With this in mind, we do not consider that Boeing and Spirit 's receipt of 32% of
the total amount of IRBs issued indicates a distribution of the subsidy that is at odds with what
one would expect were th e IRB program me to be administered in accordance with the SCM
Agreement.1843
8.638. In light of the foregoing considerations, we find that, after the expiry of the
implementation period the subsidies provided to Boeing in the form of property and sales tax
abatements related to IRBs issued by the City of Wichita have not been specific within the
meaning of Article 2.1(c) of the SCM Agreement.
8.639. A measure which satisfies the definition of a subsidy but is not specific is not inconsistent
with the provisions of Part III of the SCM Agreement. As discussed in Section 6 of this Report, we
consider that "withdrawal" for the purposes of Article 7.8 should be interpreted in accordance with
whether a Member State has brought a measure into conformity with the SCM Agreement. By
reducing considerably the proportion of the subsidy programme received by Boeing after the end
of the implementation period, the United States has brought the measure into conformity with the
SCM Agreement because, as a non -specific-subsidy, the measure is no longer subject to the
provisions of Part III of the SCM Agreement.1844
8.2.6.4 Conclusion
8.640. In light of our above findings with respect to IRBs issued by the City of Wichita, we
conclude that the European Union has not established that, after the expiry of the impl ementation
period, the property and sales tax abatements provided through these IRBs are subsidies that are
specific within the meaning of Article 2 of the SCM Agreement . We therefore conclude that these
subsidies therefore are no longer subject to the provisions of Part III of the SCM Agreement.
8.2.7 Washington state and local measures
8.2.7.1 Whether the Washington state and local measures constitute specific subsidies
within the meaning of Articles 1 and 2 of the SCM Agreement
8.2.7.1.1 Introduction
8.641. In this Section of the Repo rt, we evaluate whether the Washington state and local
measures that are within the scope of this proceeding1845 (hereafter the Washington tax measures)
constitute specific subsidies within the meaning of Articles 1 and 2 of the SCM Agreement , and
whether by granting or maintaining any such subsidies, the United States has failed to withdraw
the subsidies within the meaning of Article 7.8 of the SCM Agreement. Specifically, we address the
following:
a. Washington State B&O tax rate reduction for the aerospace industry;

appearing in the column "AMT ISSUED" for the years 2002 to 2012. (See List of all City of Wichita IRBs,
1994-2012, provided by the City of Wichita, (Exhibit EU-420)).
1842 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.651-7.656.
1843 We note in this regard that the European Union bears the burden of demonstrating that the subsidy
is specific, within the meaning of Article 2.1(c).
1844 We note that the European Union also argues that the subsidies provided to Boeing through the tax
abatements associated with the City of Wichita IRBs are specific pursuant to Article 2.3 of the SCM Agreement.
We recall that we have found in Section 7.6.2 of this Report that the European Union's claims under
Articles 3.1 and 3.2 of the SCM Agreement are not within the scope of this proceeding with respect to the tax
abatements related to the City of Wichita IRBs. We therefore reject the European Union's argument that these
subsidies are specific pursuant to Article 2.3 of the SCM Agreement.
1845 See Section 7.2.1 above for our rulings regarding the Washington state and local measures that are
within the scope of this proceeding.

b. Washington State B&O tax credit s for preproduction/aerospace product development, as
amended by section 7 of SSB 6828;
c. Washington State B&O tax credit for property taxes, as amended by HB 2466 to include
leasehold excise taxes;
d. Washington State sale s and use tax exemptions for computer hardware, software, and
peripherals; and
e. City of Everett B&O tax rate reduction.
8.642. The four Washington State tax measures above were first enacted in Washington State
under HB 2294 in 2003.1846 The City of Everett B&O tax r ate reduction is a local measure that was
enacted in 2004 under Ordinance 2759. 1847 All five measures were at issue in the original
proceeding, and were found to constitute specific subsidies within the meaning of Article 1 and 2 of
the SCM Agreement. 1848 Of the se subsidies, however, only the Washington State B&O tax rate
reduction was affirmatively found to cause ser ious prejudice at the end of the original
proceeding.1849 For the remaining subsidies, the Appellate Body overturned the panel's finding that
the subsi dies did not cause serious prejudice , but then was unable, or was not requested, to
complete the analysis.1850
8.643. The European Union claims that the United States has failed to withdraw the subsidy within
the meaning of Article 7.8 of the SCM Agreement because, through the Washington state and local
measures, the United States maintains specific subsidies within the meaning of Articles 1 and 2 of
the SCM Agreement. 1851 In its Compliance Communication, the United States asserts that the
State of Washington is applyi ng B&O tax rates for aerospace manufacturing and retailing
consistently with Article 5(c) of the SCM Agreement.1852
8.2.7.1.2 Main arguments of the parties
8.644. The European Union argues that the Washington State B&O tax rate reduction , B&O tax
credits for preproduction/aerospace product development, B&O tax credits for property taxes and
leasehold excise taxes, sales and use tax exemptions for computer hardware, software, and
peripherals, and the City of Everett B&O tax rate reduction , continue to provide specific subsidie s
to Boeing within the meaning of Articles 1.1 and 2.1(a) of the SCM Agreement, consistent with the
findings in the original proceeding and thus have not been withdrawn.1853
8.645. As to whether the Washington State B&O tax credit for leasehold excise taxes involve s a
financial contribution to Boeing, the European Union argues that this measure is an "expansion" of,
and operates in precisely the same manner as, the B&O tax credit for property taxes, which the
original panel found was a specific subsidy. 1854 In response to the United States ' argument that
Boeing has never claimed the B&O tax credit in respect of leasehold excise taxes , the
European Union argues that it has met its burden by : (a) identifying property being leased by
Boeing that is subject to the Washingto n State leasehold excise tax es; and ( b) identifying the

1846 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.41-7.43.
1847 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.306-7.308.
1848 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.302 and 7.354. These findings were
not disturbed on appeal. The B&O tax credit for property taxes was before the original panel prior to the
amendment under HB 2466 to extend the availability of the credit to leasehold excise taxes.
1849 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1801-7.1824 (with respect to the
Washington State B&O tax rate reduction and the City of Everett B&O tax rate reduction); and 7.1825-7.1828
(with respect to the preproduction tax credit, the property tax credit and the sales and use tax exemption).
1850 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 1245-1273 (with respect to
the Washington State B&O tax rate reduction and the City of Everett B&O tax rate reduction); and 1331-1346
(with respect to the preproduction tax credit, the property tax credit and the sales and use tax exemption). For
a more detailed explanation of the Appellate Body's findings with respect to the Washington tax measures, see
paras. 7.46-7.51 above.
1851 European Union's request for the establishment of a panel, para. 17.
1853 European Union's first written submission, paras. 430-474.
1854 European Union's first written submission, paras. 475-491.

value to Boeing of the B&O tax credit for leasehold excise taxes.1855 Further, the European Union
submits a Washington State document indicating the value of the se tax credits.1856 The
European Union consid ers that the b urden has shifted to the United States to demonstrate that
Boeing is not receiving this subsidy.
8.646. The United States does not dispute that the Washington State B&O tax rate reduction, B&O
tax credits for preproduction/aerospace product develop ment, B&O tax credits for property taxes,
sales and use tax exemptions for computer hardware, software, and peripherals , and the City of
Everett B&O tax rate reduction continue to provide specifi c subsidies. Rather, the United States
argues that they are b eing applied consistently with Article 5(c) of the SCM Agreement because
the subsidies are too small to cause adverse effects. 1857 The United States also argues that the
Washington State B&O tax credit for leasehold excise taxes does not constitute a financia l
contribution within the meaning of 1.1(a)(1)(ii) of the SCM Agreement as Boeing does not claim
the B&O tax credit for leasehold excise taxes. 1858 According to the United States, the
European Union cannot fulfil its burden of proof by establishing that Boein g is eligible to claim the
credit. The European Union must show that Boeing claimed the credit, which it did not.1859
8.2.7.1.3 Evaluation by the Panel
8.647. In Section 7.2 of this Report, we explain that the Washington State B&O tax credit for
property taxes, as modified by HB 2466 to additionally be available for leasehold excise taxes, is in
our view a single measure, the availability of which has simply been modified by HB 2466. 1860 This
being so, we do not consider it necessary for the European Union to demonstrate that the B&O tax
credit for leasehold excise taxes exists as a self-standing financial contribution, distinct from and
additional to the financial contribution that the original panel found existed in respect of the
original Washington State B&O tax credit for property taxes prior to its amendment by HB 246 6.
This being so, the United States' argument that Boeing has never claimed the B&O tax credit with
respect to leasehold excise taxes does not go to the "existence" of the B&O tax credit for leasehold
excise taxes as a financial contribution, distinct from the B&O tax credit for property taxes. Rather,
the issue of whether Boeing has claimed the B&O tax credit in respect of leasehold excise taxes
concerns the overall amount of revenue otherwise due which has been foregone in relation to the
B&O tax credit, available for both property taxes and leasehold excise taxes.
8.648. Each of the Washington state and local measures that this Panel has found to be within the
scope of this proceeding has previously been found by the original panel to constitute a specific
subsidy within the meaning of Articles 1 and 2 of the SCM Agreement; namely:
a. Washington State B&O tax rate reduction for the aerospace industry;
b. Washington State B&O tax credits for pre production/aerospace product development, as
amended by section 7 of SSB 6828;

1855 European Union's second written submission, para. 582 (citing European Union's first written
submission, paras. 485-487); and Snohomish County Council Lease Approval, Dreamlifter Land and Building
Lease (25 July 2012), (Exhibit EU-447), exhibit C.
1856 European Union's second written submission, para. 582; Washington State Department of Revenue,
2012 Tax Exemption Study: A Study of Tax Exemptions, Exclusions, Deductions, Deferrals, Differential Rates
and Credits for Major Washington State and Local Taxes, (January 2012), (Exhibit EU-435); and Washington
State Subsidies to Boeing's LCA division, (Exhibit EU-38). The European Union notes that the United States did
not respond to the Panel's request for "information and documents demonstrating whether Boeing leases
buildings or land meeting the criteria for this tax credit", nor did it assert that Boeing did not lease any
buildings or land meeting the criteria for this tax credit. (See European Union's second written submission,
para. 583 (citing United States' response to the Panel's request for information pursuant to Article 13 of the
DSU, dated 28 February 2013, response to question No. 53, para. 123; and United States' communication in
response to the Panel's request for information pursuant to Article 13 of the DSU, dated 22 March 2013
(Exhibit USA-176) (responding to question No. 53))).
1857 United States first written submission, paras. 494-509; and second written submission,
paras. 465-474.
1858 United States' first written submission, para. 510 (citing United States' communication in response
to the Panel's request for information pursuant to Article 13 of the DSU, 22 March 2013, (Exhibit USA-176),
p. 2).
1859 United States' second written submission, para. 477.
1860 See para. 7.10 above.

c. Washington State B&O tax credit for property taxes, as amended by HB 2466 to include
leasehold excise taxes;
d. Washington State sales and use tax exemptions for computer hardware, software, and
peripherals; and
e. City of Everett B&O tax rate reduction.
8.649. We see no basis for revisiting the origina l panel's conclusions that the Washington state
and local measures identified in paragraph 8.641 above are specific subsidies.1861
8.2.7.2 Amount of the subsidy
8.650. The parties disagree in several respects as to the amounts of the various Washington state
and local subsidies. Each party provides estimates of the alleged amounts in question from 2007 to
2011-2012, as well as projec tions of the amounts of subsidies from 2012 -2013 through 2023 or
2024, whenever the tax subsidy was originally set to expire.1862
8.2.7.2.1 Main arguments of the parties
8.651. The European Union presents separate estimates for the amount s provided, or forecast to
be provided, by each of the five Washington tax subsidies, between 2007 and 2024. It relies on a
number of different sources to support its estimates, depending not only on the particular subsidy,
but also on the time-period over which it is estimating the amount.
8.652. For the Washington State B&O tax rate reduction , the European Union estimates the
amounts as being approximately USD 350.1 million between 2007 and 2011, USD 94.4 million in
2012 and a further USD 2.53 billion between 2013 to 20241863 (or USD 210.8 million annually).1864
This amounts to an estimated tax reduction of USD 2.62 billion from 2012 to 2024 . For the figures
from 2007 to 2011, the European Union relies on the same evidence that the original panel used
to calculate the amount of th is subsidy, which is a s preadsheet provided by the Washington State
Department of Revenue dated from 2005 and a Washington St ate presentation from
September 2003.1865 For the estimates for the annual amounts for 2012 until 2024, however, the
European Union relies on a report prepared by International Trade Resources (ITR Report).1866

1861 We note that the European Union also argues that these Washington state and local measures are
specific pursuant to Article 2.3 of the SCM Agreement. We recall that we have found in Section 7 of the Report
that the European Union's claims under Articles 3.1 and 3.2 are not within the scope of this proceeding with
respect to these Washington state and local measures. We therefore do not further address the
European Union's argument that these subsidies are specific pursuant to Article 2.3 of the SCM Agreement.
1862 The City of Everett B&O tax rate reduction is available until 2023. All the remaining Washington
state and local subsidies were originally available until 2024. We note that on 11 November 2013, the
Washington State Legislature passed SSB 5952, which extends the tax measures in HB 2294 from 1 July 2024
until 1 July 2040, contingent upon Boeing siting the production of the 777X in Washington State. In our
preliminary ruling of 18 September 2014, we declined to include this extension within the scope of this
proceeding. (See Reasons for Declining the European Union's Request for Leave to File an Additional
Submission Regarding SSB 5952 at Section 7.7). Our findings on amount therefore cover only the period over
which the Washington state and local subsidies were originally planned to be available, and only address the
Washington state and local subsidies granted with respect to aircraft for which Boeing currently receives
revenue; i.e. that are currently being delivered. The 777X is yet to enter fully into production, and first
deliveries of the 777X are not scheduled to begin until 2020. (See Ascend data base, Deliveries made, data
request as of 22 September 2015, (Exhibit EU-1660)).
1863 European Union's first written submission, para. 430.
1864 Washington State Subsidies to Boeing's LCA Division, (Exhibit EU-38).
1865 European Union's first written submission, paras. 430 and 439 and fn 1094; Panel Report, US –
Large Civil Aircraft (2nd complaint), paras. 7.216-7.220 and 7.252-7.258; "Washington State and the Boeing
Company: Working Together for the Boeing 7E7 Dreamliner", Continuing Support and Collaborative Actions,
Presentation at Greenville, SC, September 2003 (Washington State presentation), (Exhibit EU-427);
Washington State Department of Revenue Final HB 2294 Fiscal Note – 20-Year Spreadsheet, Commercial
Airplane/Component Industry Tax Incentives (Washington State spreadsheet), (Exhibit EU-428); and
Washington State Subsidies to Boeing's LCA Division, (Exhibit EU-38).
1866 European Union's first written submission, para. 440; International Trade Resources Report,
Estimated Value of Washington State's B&O Tax Rate Reduction for Boeing's Civil Aircraft Division

8.653. With respect to the Washington State B&O tax credits for both preproduction/aerospace
product development and property taxes, the European Union originally submitted its own amount
estimates.1867 These estimates were also based on both the evidence used by the original panel,
and a 2012 study by Washington State Department of Rev enue which purports to estimate the
taxpayer savings that would accrue from eliminating certain tax exemptions (the 2012 Study).1868
The European Union subsequently adopted the United States ' estimates of the amounts of these
subsidies, noting that the United States ' estimates were in fact higher than its own .1869 The
European Union also uses the 2012 Study as evidence for its estimate of the amount, between
2012 and 201 5, of the portion of the Washington State B&O tax credits in respect of leasehold
excise taxes (which only became available in 2012).1870 From 2016 until 2024, the European Union
notes that Boeing leases the Dreamlifter Operations Center in Washington State. It estimates what
Boeing is eligible to receive from the subsidy by calculating Boeing's yearly rent for those facilities,
and then calculating what Boeing should receive based on the rate reduction provi ded by the B&O
tax credit.1871
8.654. For the Washington State sales and use tax exemption s, the European Union relies on the
same evidence used by the panel for the amount findings in the original proceeding, but for the
periods 2007 to 2011 and 2016 to 2024. 1872 For the intervening years ; i.e. 2012-2015 inclusive,
the European Union relies on the 2012 Study.1873 The European Union justifies this departure from
the estimates on which the original panel relied for the 2012 -2015 period on the basis that the
2012 Study shows that the other materia l available to the European Union significantly
undervalues the benefit to Boeing from these tax exemptions. The European Union accordingly
estimates on the basis of the 2012 Study (based on the assumption that Boeing receives 80% of
the total value of these tax exemptions to the aerospace industry) that the amount of this subsidy
to Boeing was USD 9.83 million, 11.52 million, 13.02 million and 13.69 million in 2012, 2013,
2014, and 2015, respectively.1874
8.655. Finally, with respect to the City of Everett B&O tax rate reduction, the European Union also
uses the evidence relied on by the original panel for its estimate of the amount of the subsidy from
2007 to 2011. 1875 For the period from 2012 to 2023, the European Union bases its estimate on
figures received from the City of Everett representing the total amount of tax revenue received
(and forecast to be received) by the City of Everett from Boeing. 1876 The European Union works
backwards from this figure to calculate the value of this tax rate reduction to Boeing. 1877 The

(2012-2024), (1 March 2013) (ITR Report), (Exhibit EU-25); and Washington State Subsidies to Boeing's LCA
Division, (Exhibit EU-38).
1867 European Union's first written submission, para. 453 and fns 1139-1144.
1868 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.217, 7.257 and fn 1416;
Washington State presentation, (Exhibit EU-427); Washington State spreadsheet, (Exhibit EU-428);
Washington State Department of Revenue, 2012 Tax Exemption Study: A Study of Tax Exemptions, Exclusions,
Deductions, Deferrals, Differential Rates and Credits for Major Washington State and Local Taxes,
(January 2012), (Exhibit EU-435); and Washington State Subsidies to Boeing's LCA Division, (Exhibit EU-38).
1869 European Union's second written submission, paras. 575-577.
1870 European Union's first written submission, para. 487; Washington State Department of Revenue,
2012 Tax Exemption Study: A Study of Tax Exemptions, Exclusions, Deductions, Deferrals, Differential Rates
and Credits for Major Washington State and Local Taxes, (January 2012), (Exhibit EU-435).
1871 European Union's first written submission, para. 485; Snohomish County Council Lease Approval,
Dreamlifter Land and Building Lease (25 July 2012), (Exhibit EU-447), exhibit C.
1872 European Union's first written submission, paras. 496 and 497; Panel Report, US – Large Civil
Aircraft (2nd complaint), para. 7.258; Washington State presentation, (Exhibit EU-427); Washington State
Subsidies to Boeing's LCA Division, (Exhibit EU-38); and Washington State Department of Revenue, 2012 Tax
Exemption Study: A Study of Tax Exemptions, Exclusions, Deductions, Deferrals, Differential Rates and Credits
for Major Washington State and Local Taxes (January 2012), (Exhibit EU-435).
1873 European Union's first written submission, para. 497; and Washington State Department of
Revenue, 2012 Tax Exemption Study: A Study of Tax Exemptions, Exclusions, Deductions, Deferrals,
Differential Rates and Credits for Major Washington State and Local Taxes, (January 2012), (Exhibit EU-435).
1874 European Union's first written submission, para. 497.
1875 European Union's first written submission, paras. 512 and 513 (referring to Panel Report, US –
Large Civil Aircraft (2nd complaint), para. 7.353; and State and Local Subsidies to Boeing LCA Division (Original
Exhibit EC-27), (Exhibit EU-451), "City of Everett Local B&O Tax Rate Reduction" row and fn 14 (explaining
methodology)).
1876 European Union's first written submission, paras. 514-516; Forecast of Boeing's Gross Revenue and
Taxation in the City of Everett, and accompanying note from City of Everett August 2012 FOIA Response,
(Exhibit EU-450).
1877 City of Everett's B&O Tax Rate Reduction Estimates for 2012-2023, (Exhibit EU-452).

European Union notes that the United States only provides figures for the total amount of tax
revenue to be paid by Boeing, and does not actually present a calculation, based on these figures,
of the amount of the subsidy to Boeing. 1878 The European Union also considers that the
United States' estimates cannot be authenticated and should not be relied upon.1879
8.656. The United States bases its estimates of the amount of the Washington State B&O tax rate
reduction, B&O tax credits for preproduction/aerospace product de velopment, B&O tax credits for
property taxes and leasehold excise taxes, and sales and use tax exemptions for computer
hardware, software, and peripherals on figures contained in Exhibit USA-264 (BCI), which it states
are the calculations and estimates of the Washington State Department of Revenue of the value to
Boeing of these subsidies.1880 The United States explains that the Washington State Department of
Revenue's calculations indicate the value of each tax measure for the years 2006 to 2012 based on
actual amounts, and forecast the value for years 2013 through 2024. 1881 The United States argues
that Boeing does not claim the B&O tax credit for leasehold excise taxes, and that it is insufficient
for the European Union to establish that Boeing is eligible to claim the tax credit; it must show that
Boeing actually received it.1882
8.657. With respect to the evidence provided by the European Union in support of its estimates ,
the United States considers that the evidence used by the original panel ( on which the
European Union partly relies to estimate the amounts of the Washington State subsidies other than
the B&O tax credit for leasehold excise taxes) is now outdated and should not be relied upon.1883
The United States also considers that the ITR Report, which estimates the total amount of the B&O
tax rate reduction from 2012 to 2024, then divides that total evenly over each year of that period,
over-allocates revenue to the earlier years of that period.1884
8.658. For the City of Everett B&O tax rate reduction , the United States submits evidence only as
to Boeing 's actual and forecast tax revenue to the City of Everett. 1885 It does not submit a n
estimate of the resulting amount of the City of Everett B&O tax rate reduction.
8.2.7.2.2 Evaluation by the Panel
8.2.7.2.2.1 The Washington State B&O tax rate reduction
8.659. The parties' estimates of the annual amounts of this subsidy (both historic from 2007 to
2012 and projected from 2013 to 2024) diverge significantly. The United States ' estimate of the
amount of this subsidy between 2007 -2012 (approximately USD [***]) is based on actual
amounts reported by the Washington State D epartment of Revenue .1886 The United States
submitted the Washington State D epartment of Revenue information originally in response to
certain requests of the Panel for information pursuant to Arti cle 13 of the DSU. 1887 The
European Union bases its estimate for the 2007 -2011 period on the same evidence used by the

1878 European Union's second written submission, para. 593.
1879 European Union's second written submission, para. 592.
1880 United States' first written submission, para. 496; second written submission, paras. 457 and 458.
Washington State Tax Information 2006-2024, Boeing Only (formerly Exhibit US-13-656), (Exhibit USA-264)
(BCI).
1881 United States' second written submission, para. 457. This information was originally provided by the
United States in response to the Panel's request for information pursuant to Article 13 of the DSU, dated
28 February 2013, response to questions 48, 49, 51, 52, and 54. (See United States' communication in
response to the Panel's request for information pursuant to Article 13 of the DSU, dated 22 March 2013,
(Exhibit USA-176); and Washington State Tax Information 2006-2024, Boeing Only (formerly Exhibit
US-13-656), (Exhibit USA-264) (BCI)).
1882 United States' second written submission, para. 477.
1883 United States' first written submission, para. 496.
1884 United States' second written submission, para. 463.
1885 United States' first written submission, para. 507; second written submission, para. 473; and City of
Everett B&O Tax Revenue, Boeing (formerly Exhibit US-13-327), (Exhibit USA-175) (BCI).
1886 The Washington State Department of Revenue exhibit states that the figures for 2006 through 2012
are "actual amounts based on activity reported on the combined excise tax return". (Washington State Tax
Information 2006-2024, Boeing Only (formerly Exhibit US-13-656), (Exhibit USA-264) (BCI), note 1).
1887 See United States' communication in response to the Panel's request for information pursuant to
Article 13 of the DSU, 22 March 2013, (Exhibit USA-176) (providing additional information with respect to
questions 48, 49, 51, 52, and 54 of the Panel's Article 13 request); and Washington State Tax Information
2006-2024, Boeing Only (formerly Exhibit US-13-656), (Exhibit USA-264) (BCI).

original panel to estimate the amounts of this subsidy for 2004 -2006; namely, a Washington State
presentation from September 2003 1888 and a spr eadsheet prepared by the Washington State
Department of Revenue at the time that HB 2294 was being finalized, showing the projected value
of the B&O tax rate reduction to the commercial airplane/component industry as a whole (of which
Boeing's share is 65%).1889 The European Union argues that the United States ' 2006-2012 figures
appear to indicate [***] revenue for Boeing Commercial Airplanes than is reported in Boeing 's
annual financial statements. 1890 The United States says that estimates based on actual tax da ta
are inherently more reliable than calculations that rely on estimates of that same data.
8.660. We consider the United States ' estimates of the amount of the Washington State B&O tax
rate reduction to Boeing for the 2007 -2012 period, based as they are on the actual receipts of the
revenue authority from the taxpayer, to be the best evidence of the amount of the subsidy to
Boeing for the 2007 -2012 period. This information was provided by the United States in response
to a request for information by the Panel un der Article 13 of the DSU. The United States has
confirmed, in response to concerns raised by the European Union regarding the authenticity of
Exhibit USA -264 (BCI), that the figures in question were provided to the United States by the
Washington State Department of Revenue.1891 We have no reason to suspect that this information
was not provided in good faith.
8.661. As to the estimates of the annual amount of the Washington State B&O tax rate reduction
for the years 2013 through 2024, the United States relies on th e Washington State Department of
Revenue projections contained in the same Exhibit USA-264 (BCI), while the European Union relies
on estimates prepared by ITR for 2012 -2024. The Washington State D epartment of Revenue
2013-2024 forecasts are described in Ex hibit USA -264 (BCI) as being [***].1892 The European
Union notes that the United States has not provided or otherwise made available a copy of this
forecast, and submits that the European Union 's estimate, prepared by ITR, is based on projected
LCA deliveries in Boeing 's own Current Market Outlook , and therefore is likely to be a more
accurate estimate of Boeing 's future deliveries (and thus revenues). 1893 The United States argues
that the Washington State Department of Revenue's forecasts are more reliable than ITR's as the
Washington State D epartment of Revenue is well positioned to provide a reliable estimate of the
State of Washington 's own tax revenue, and the estimate is based on the most recent revenue
forecast for the state, combined with the most up -to-date information about the industry as a
whole, and Boeing in particular. 1894 The United States offers that the [***].1895 According to the
United States, the Washington State D epartment of Revenue 's projections are based on a more
sophisticated analysis than the simplistic and flawed assumptions underlying the European Union 's
estimates.1896
8.662. As already mentioned, the European Union 's estimates of the annual amount of the
Washington State B&O tax rate reduction from 2012 -2024 are based on the ITR Report. ITR's
estimates are derived by estimating Boeing's total LCA revenue s in Washington State from 2012
until 2024 (the year until which the subsidy is available) based on an assumption in Boeing's 2012
Current Market Outlook that global demand for LCA in 2021 -2031 will be 31,980 aircraft with a
market value of USD 4,390 billion . ITR assumes that Boeing will supply half of this demand, and
subtracts Boeing Commercial Airplanes ' 2012 reported revenues (USD 49.1 billion) from half of
USD 4,390 billion (USD 2,1 95 billion) to a rrive at Boeing 's estim ated total LCA revenue for
2013-2031 (USD 2,145.9 billion) . In order to arrive at an estimat ed total LCA revenue for the
12 years 2013-2024 from the 19 -year 2013-2031 estimate, it multiplies USD 2,145.9 billion by
12/19. It makes adj ustments to reflect that Boeing 's commercial airplane revenues also include
revenues attributable to 787s produced in South Carolina (which are not revenues subject to
Washington State B&O tax ). After arriving at a total revenue figure for 2013 -2024 that d oes not
include South Carolina revenues, ITR multiplies this number (USD 1,306.6 billion) by the B&O tax

1888 Washington State presentation, (Exhibit EU-427).
1889 Washington State spreadsheet, (Exhibit EU-428). See also Panel Report, US – Large Civil Aircraft
(2nd complaint), para. 7.254.
1890 European Union's second written submission, para. 571.
1891 United States' second written submission, para. 458.
1892 Washington State Tax Information 2006-2024, Boeing Only (formerly Exhibit US-13-656), (Exhibit
USA-264) (BCI), note 3.
1893 European Union's second written submission, para. 572.
1894 United States' second written submission, para. 460.
1895 United States' second written submission, para. 460 and fn 652.
1896 United States' second written submission, para. 460, fn 652.

rate reduction of 0.1936%, to arrive at an estimated tax reduction of USD 2,529.7 million for the
period 2013-2024.1897 When divided equally over the years 2013-2024, this amounts to a subsidy
to Boeing of USD 210.81 million per year for every year from 2013 -2024.1898 The European Union
considers that this evidence is the best available evidence as to the amount of the B&O tax rate
reduction, because the United States' figures cannot be relied on.1899
8.663. The United States takes issue with the European Union's suggestion that the ITR estimates
are based on Boeing 's own commercial projections. It also questions the credibility of the ITR
estimates because of an absence of continuity between the pre -2012 and post -2012 estimates,
noting that the 2012 estimate is USD 94.4 million, which then jumps to more than twice that at
USD 210.8 million in 2013 and every year thereafter until 2024. The United States alleges that the
"fundamental problem" with the ITR methodology is that it is based on an estimate of Boeing 's
total revenue for 2012-2031 that assumes the world market for aircraft will double in 20 years. 1900
It then allocates that total revenue evenly over each year of that 20-year period, ignoring that
Boeing's revenue would be expected to increase gradually each year. This leads to an
over-allocation of revenue to Boeing in the early years of the 20 -year period that in reality would
not be realized until over a decade late r in the latter years of the 20 -year period, thereby inflating
the amount of the B&O tax rate reduction over the early years.1901
8.664. The accuracy of estimates of the post-2012 amount of the Washington State B&O tax rate
reduction to Boeing depends to a large ex tent on the accuracy of the estimates of Boeing 's
expected revenues from future deliveries of LCA manufactured in the State of Washington. The
United States refers to [***] as the basis for the Washington State D epartment of Revenue 's
projections of the va lue of the Washington State B&O tax rate reduction to Boeing in the
post-2012 period. The ITR Report, by contrast, bases its estimates on Boeing 's 2012 Current
Market Outlook and in particular, Boeing's prediction that global demand for LCA in 2012 -2031 will
be 31,980 aircraft with a market value of USD 4,390 billion, of which Boeing could expect to
supply approximately 50%.1902 The United States does not provide any further detail regarding the
Global Insight forecast and in the absence of any further informa tion, we cannot evaluate the
assumptions underlying [***] against the 2012 Current Market Outlook LCA demand and revenue
forecasts. However, the United States does not specifically criticize the demand and revenue
forecasts in the 2012 Current Market Outlook. Rather, it criticizes what ITR does with the notional
revenues represented by Boeing's assumed share of those LCA sales between 2013-2031, which is
to apportion the amount equally over every year to arrive at a uniform annual value of the B&O
tax rate reduction for the years 2013 to 2024, without accounting for the fact that in reality,
Boeing's revenues (and the corresponding value to Boeing of the B&O tax rate reduction) would be
expected to increase gradually over the period.
8.665. We consider this latter criticism is valid because the effect of ITR's apportionment
methodology is to enlarge Boeing's estimated LCA revenues for the period immediately after 2012,
which is the period relevant to the Panel 's estimate of the amount of the Washington State B&O
tax rate reduction.1903 It is this methodological flaw that explains why the ITR estimate for 2012 is
USD 94.4 million , based on Boeing commercial airplanes ' actual reported revenues of
USD 49.1 billion, and a B&O tax rate reduction of 0.1936%, while for 2013, the estimated amount
is dramatically higher at USD 210.8 million, based on an apportionment of Boeing 's assumed LCA
revenues from 2013-2031.

1897 ITR Report, (Exhibit EU-25), paras. 5-15.
1898 Washington State Subsidies to Boeing's LCA Division, (Exhibit EU-38).
1899 Specifically, the European Union notes that the United States' estimates are provided on "a single
piece of paper", with no signs of authenticity. (See European Union's second written submission, para. 569).
However, in its second written submission, the United States confirms that the figures were provided by the
Washington State Department of Revenue and explains that they are not provided on Department of Revenue
letterhead because the Washington State Department of Revenue does not print internal documents on its own
letterhead. (See United States' second written submission, para. 458 and fn 647).
1900 United States' second written submission, para. 463.
1901 United States' second written submission, para. 463.
1902 ITR Report, (Exhibit EU-25), paras. 5 and 6.
1903 By way of comparison, the estimates on which the original panel relied contemplated that the
projected amount of these subsidies in 2023 would be almost double the amount of the subsidies in 2012. See
Washington State spreadsheet, (Exhibit EU-428).

8.666. For purposes of evaluating the credibility of both the United States ' and the
European Union's estimates, we have made our own calculations of the estimated amount of the
B&O tax rate reduction to Boeing for 2013 and 2014, based on the Boeing commercial airplanes
segment's reported LCA revenues for those years, and adjusting for revenues associated with 787
production in South Carolina in the same manner as in the ITR Report. We present those estimates
below, along with the corresponding United States and European Union estimates, as well as the
Washington State D epartment of Revenue estimates from the 2005 worksheet t hat formed the
basis for the original panel's amount estimates for 2004-2006.
Table 3: Estimates of amount of Washington State B&O Tax Rate Reduction 2012-2015

United States
(Washington
State Department
of Revenue)1904
European Union
(ITR)1905
Washington State
Department of
Revenue 2005
worksheet1906
Panel1907
2012 [***] 94.4 92.6 94.4
2013 [***] 210.8 98.8 97.2
2014 [***] 210.8 105.2 108.1
2015 [***] 210.8 111.9
No reported Boeing
commercial
airplanes revenue
figure for 2015
All figures above in USD (million)
8.667. Although the Panel's calculations are very approximate, they are generally [***] than the
United States' estimates, and lower than the European Union 's. They are interestingly quite close
to the projections based on the Washington S tate Department of Revenue 2005 spreadsheet an d
September 2003 Presentation which formed the basis for the original panel 's estimates of the
amount of these subsidies for 2004 -2006, even though those estimates were based on Boeing
delivering the 787 beginn ing in 2008 rather than late 2011, as occurred in reality. We elsewhere
explain the methodological flaw in the European Union 's estimates that renders them, in our view,
not credible as estimates of the amount of the B&O tax rate reduction received by Boeing in the
years from 2012 -2015. We f ind it more difficult to understand why the United States ' estimates
also vary from our calculations. The United States has not provided any explanation of how the
Washington State Department of Revenue projections for 2013 and subsequently were arrived at,
other than to suggest that the 2013 -2024 forecasts are "based on" [***].1908 Given that B&O tax
is levied on revenues, it is reasonable to expect that the higher Boeing 's reported revenues from
sales of airplanes, the gre ater the reduction in B&O tax.1909 It appears to us from the table above

1904 Washington State Tax Information 2006-2024, Boeing Only (formerly Exhibit US-13-656), (Exhibit
USA-264) (BCI). The 2012 figure is based on actual reported revenue data for the relevant fiscal year (i.e.
1 July-30 June) while the other numbers are based on projected revenues.
1905 ITR Report, (Exhibit EU-25); and Washington State Subsidies to Boeing's LCA Division, (Exhibit
EU-38).
1906 Washington State spreadsheet, (Exhibit EU-428), based on the assumption from the
September 2003 Presentation that 65% of the totals reported in the spreadsheet will accrue to Boeing. (See
Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.254; and Washington State presentation,
(Exhibit EU-427)).
1907 The Panel has taken the reported revenues for Boeing's commercial airplanes segment for 2012,
2013 and 2014 (USD 49.1 billion, 53 billion, and 60 billion, respectively), as reported in Subsidies to Boeing's
LCA Division (2013-2014 Update), (Exhibit EU-1451), annex A: Boeing's Annual Report on Form 10-K for the
fiscal year ended 31 December, 2014, p. 20. To adjust for 787 revenues from Boeing's South Carolina
operations in the same manner as ITR, it has subtracted from these revenue figures USD 347.4 million for
2012, USD 2.78 billion for 2013 and USD 4.17 billion for 2014. (see ITR Report, (Exhibit EU-25), paras. 12 and
13). It then multiplies the remaining Washington LCA revenue numbers by the value of the B&O tax rate
(0.1936%).
1908 United States' second written submission, fn 652.
1909 Both the 2005 estimates and the new estimates provided by the Washington State Department of
Revenue for the years 2012 compared to 2013-2015 are generally consistent in terms of the pattern of

that there is a correlation between the United States' estimates for 2014 and 2015 and the Panel's
estimates for 2013 and 2014. In particular, the United States' estimates appear to lag those of the
Panel. This may re flect the fact that the Washington State D epartment of Revenue figures appear
to be based on the fiscal year in Washington State, while the revenue figures on which the Panel
based its estimates are as reported by Boeing in i ts annual reports, which uses a 31 December
year-end.
8.668. Although the European Union 's estimates are problematic, we are also uncertain how the
Washington State Department of Revenue estimates, based as they appear to be on a fiscal year
ending on 30 June, t ranslate to the calendar year. Boeing 's reported revenues from LCA have
increased since 2012 and our concern is that the United States ' figures may not actually represent
the value of the B&O tax rate reduction for the 2013 -2015 calendar years because they appear to
cover a different annual reporting period.
8.669. The Panel does not have before it Boeing 's revenue figures for the year end ing 31
December 2015. We therefore cannot estimate the amount of the B&O tax rate reduction received
by Boeing for 2015 in the same way that we have estimated the 2013 and 2014 amounts. We are
confident, however, that the amount of the Washington State B&O tax rate reduction for 2015
would be higher than the United States ' fiscal year 2015 estimate. We consider that the 2015
figure is more likely closer to , but also higher than, the estimate that the Washington State
Department of Revenue provides for fiscal year 2016, owing to the discrepancies arising from
different reporting periods described above, and based on other evidence before the Panel that
would seem to indicate that Boeing 's commercial airplanes revenues for 2015 would be higher
than for 2014 owing to record deliveries in that year. 1910 We have decided that it is reasonable to
estimate the 2015 figure to be USD 120 million.
8.670. Accordingly, the Panel estimates that the amount of the Washington State B&O
tax rate reduction for 2013, 2014 and 2015 is approximately USD 97 million, 108 million
and 120 million, respectively, for a total of USD 325 million over those three years.
8.2.7.2.2.2 The amount s of the Washington State B&O tax credits for
preproduction/aerospace product development and for property taxes and the
Washington State sales and use tax exemptions for computer hardware, software, and
peripherals
8.671. The European Union accepts th e United States ' estimates of the amounts of the
Washington State B&O tax credits for preproduction/aerospace product development and for
property taxes.1911 It does so despite its complaints generally that the information contained in
Exhibit USA-264 (BCI) i s not adequately authenticated and does not explain how the projections
were derived, and by whom. 1912 It notes, however, that the United States ' estimates of the
amounts of the B&O tax credits for preproduction/aerospace product development and for property
taxes are in fact significantly higher than the European Union 's estimates based on the original
panel's methodology.1913 It then advances other reasons why the European Union could accept the
United States ' estimates, if the Panel were prepared to accept the m despite their lack of
"authentication".1914 We consider that the United States has adequately addressed the origin of the
Washington State D epartment of Revenue estimates. Given that there is no other disagreement
between the parties regarding the amounts, we accept the United States ' estimates of the
amounts of these subsidies.1915

gradually increasing annual values of the B&O tax rate reductions to Boeing, with the 2003 annual projections
being somewhat higher than the more recent annual projections.
1910 Earnings Call Transcript of D.A. Muilenburg on Boeing (BA) Q3 2015 Results, 21 October 2015,
(Exhibit EU-1706), p. 4/20.
1911 European Union's second written submission, paras. 575-577 and 579.
1912 European Union's second written submission, para. 569.
1913 European Union's second written submission, paras. 576 and 579.
1914 European Union's second written submission, paras. 576 and 579. In the case of the B&O tax credits
for preproduction/aerospace product development, the European Union explains that the United States' figures
do [***]. In the case of the B&O tax credits for property taxes, it is because the European Union is prepared
to give greater weight to the United States' [***].
1915 Accordingly, the value of the B&O tax credits for preproduction/aerospace product development for
2007-2012 is USD [***], and for the 2013-2015 period, the amount is USD [***]. The value of the B&O tax

8.672. With respect to the sales and use tax exemption s, however, the European Union rejects
the United States ' estimates, which in this case are [***] the corresponding European Union
estimates. The European Union relies instead on the evidence used by the original panel for the
periods 2007-2011 and 2016-2024. For the period 2012-2015, the European Union relies on the
2012 Study. The European Union argues that the United States ' estimates do not comport with
publicly available information, such as information derived from the 2012 Study. 1916 The United
States argues that in truth the European Union 's objection to these estimates appears to be that
they are lower than the European Union's estimates.1917
8.673. The 2012 Study is a 250 page document that purports to list 640 different exemptions
found principally in Titles 82 and 84 of the Revised Code of Washington. It says that in some
cases, similar statutes are considered together as a single estimate, e.g. retail sales and use tax
exemptions for the same product or activity. 1918 The 2012 Study contains a half -page listing of
taxpayer savings for state and local sales and use tax exemptions for air plane computer
expenditures for the years FY 2012-FY 2015. The European Union adds the state and local savings
estimates together and multiplies that sum by 80% , which was estimated to be Boeing 's share of
this tax measure in the September 2003 Presentation. 1919 The European Union does not explain
how the figures in the 2012 Study were calculated, or why these figures are more reliable than the
United States' estimates provided by the Washington State D epartment of Revenue, and whether
it is still appropriate to assume that Boeing benefits from approximately 80% of this tax exemption
to the aerospace industry. The 2012 Study contains a caution in the introduction that the revenue
impacts presented in the study reflect estimated savings to taxpayers and do not necessarily
indicate the potential revenue which might accru e to governmental jurisdictions in the absence of
the exemptions.1920 Given the more generalized nature of the information provided in the 2012
Study, we are not persuaded that it is a more reliable estimate of the amount of the sales and use
tax exemptions t han the Washington State D epartment of Revenue information provided by the
United States. We therefore accept the United States ' estimates of the amount of the
sales and use tax exemptions.1921
8.674. With respect to the portion of the B&O tax credits in respect of leasehold excise taxes, the
United States argues that, although the European Union has presented evidence that Boeing is
eligible to receive the subsidy, Boeing does not actually claim, or receive, credits for the leasehold
excise tax es.1922 The European Unio n argues that it has met its burden by identifying property
leased by Boeing that is subject to leasehold excise tax and identifying the value of the leasehold
excise tax credit accruing from the lease. 1923 In particular, it notes that the 2012 Study indicate s
the value of the B&O tax credits for property and leasehold excise taxes on aeroplane facilities.1924
The 2012 Study, however, provides a single figure of USD 4 million per year from 2012 to 2015 for
both property and leasehold excise tax credits, which the European Union halves to generate an
estimate of the amount of the leasehold excise tax credit.1925 We do not consider that this
constitutes evidence that Boeing actually received the leasehold excise tax credit; the full USD 4
million per year could have be en attributable to tax credit s in respect of property taxes alone.

credits for property taxes for 2007-2012 is USD [***], and for the 2013-2015, the amount is USD [***].
(See Washington State Tax Information 2006-2024, Boeing Only (formerly Exhibit US-13-656) (BCI), (Exhibit
USA-264 (BCI)).
1916 European Union's second written submission, para. 588.
1917 United States' second written submission, para. 471.
1918 Washington State Department of Revenue, 2012 Tax Exemption Study: A Study of Tax Exemptions,
Exclusions, Deductions, Deferrals, Differential Rates and Credits for Major Washington State and Local Taxes,
(January 2012), (Exhibit EU-435), p. 1.
1919 European Union's first written submission, paras. 496 and 497.
1920 Washington State Department of Revenue, 2012 Tax Exemption Study: A Study of Tax Exemptions,
Exclusions, Deductions, Deferrals, Differential Rates and Credits for Major Washington State and Local Taxes,
(January 2012), (Exhibit EU-435), p. 1.
1921 Accordingly, the amount of the sales and use tax exemptions for 2007-2012 is USD [***], and for
the 2013-2015 period, the amount is USD [***]. (See Washington State Tax Information 2006-2024, Boeing
Only (formerly Exhibit US-13-656), (Exhibit USA-264) (BCI)).
1923 European Union's first written submission, paras. 485-487.
1924 European Union's first written submission, para. 487; and Washington State Department of
Revenue, 2012 Tax Exemption Study: A Study of Tax Exemptions, Exclusions, Deductions, Deferrals,
Differential Rates and Credits for Major Washington State and Local Taxes, (January 2012), (Exhibit EU-435),
p. 118.
1925 See European Union's first written submission, para. 487.

Moreover, the United States' estimate of the B&O tax credit for property taxes for 2012 and 2015,
which the European Union accepts, exceeds the 2012 Study's reported estimate for the tax cr edit
applied to both the property tax es and leasehold excise tax es. The European Union 's remaining
evidence only demonstrates Boeing's eligibility for the B&O tax credit in respect of leasehold excise
taxes, not Boeing's actual receipt of the subsidy.1926
8.2.7.2.2.3 The amount of the City of Everett B&O tax rate reduction
8.675. The European Union calculates the amount of the City of Everett B&O tax r ate reduction
between 2007 and 2011 based on evidence relied upon by the original panel, and between 2012
and 2023, based on revenue forecasts received from the City of Everett. 1927 The United States
provides evidence of the actual tax revenues received by the City of Everett between 2007 and
2012, and forecasts of tax revenue s between 2013 and 2023 [***].1928 The United States does
not, however, submit its own estimates of the City of Everett B&O tax rate reduction. The
European Union submits that the United States ' figures lack signs of authenticity, and should be
rejected because they fail to value the precise tax benefit, and otherwis e do not correspond to the
information the European Union received directly from the City of Everett. 1929 The United States
notes that certain of the European Union 's figures for total reported revenue are greater than
those submitted by the United States, an d considers that, as a result, the European Union
overvalues the amount of the tax rate reduction.1930
8.676. Given that the United States submits actual receipts of the revenue from the taxpayer
during the 2007-2012 period, we consider it appropriate to base our a ssessment of the amount of
the City of Everett B&O tax rate reduction on these figures as the best evidence of the amount of
the subsidy to Boeing .1931 This information was provided by the United States in response to a
request for information by the Panel pursuant to Article 13 of the DSU. Based on the information
concerning actual revenue provided in Exhibit USA -175, the Panel calculates that the amount of
the City of Everett B&O tax rate reduction between 2007 and 2012 is approximately [***].1932 For
the 2013-2015 period, the United States has submitted forecasted tax revenue accruing to the
City of Everett purportedly based on [***], but has not otherwise explained its methodology for
determining the projected revenue figures . Absent any explanation from the U nited States,
consistent with our approach in respect of the other Washington tax measures1933, we consider it
appropriate to base the calculation of the amount of the subsidy on projections from the relevant
tax authority, in this case, figures from the City of Everett. Based on projected gross revenues and
the B&O tax basis provided by the City of Everett, the amount of the City of Everett B&O tax r ate
reduction totals approximately USD 16.41 million, 17.47 million and 20.22 million in 2013, 2014 ,
and 2015, respectively, as confirmed by the European Union's own calculations.1934

1926 See Snohomish County Council Lease Approval, Dreamlifter Land and Building Lease (25 July 2012),
(Exhibit EU-447), exhibit C.
1927 State and Local Subsidies to Boeing's LCA Division (Original Exhibit EC-27), (Exhibit EU-451);
Forecast of Boeing's Gross Revenue and Taxation in the City of Everett, and accompanying note from City of
Everett August 2012 FOIA Response, (Exhibit EU-450); and City of Everett's B&O Tax Rate Reduction
Estimates for 2012-2023, (Exhibit EU-452).
1928 City of Everett B&O Tax Revenue, Boeing (formerly Exhibit US-13-327), (Exhibit USA-175) (BCI).
1929 See European Union's first written submission, para. 514; European Union's second written
submission, paras. 591-593; State and Local Subsidies to Boeing LCA Division (Original Exhibit EC-27), (Exhibit
EU-451); Forecast of Boeing's Gross Revenue and Taxation in the City of Everett, and accompanying note from
City of Everett August 2012 FOIA Response, (Exhibit EU-450); and City of Everett's B&O Tax Rate Reduction
Estimates for 2012-2023, (Exhibit EU-452).
1930 United States' first written submission, para. 508; and City of Everett B&O Tax Revenue, Boeing
(formerly Exhibit US-13-327), (Exhibit USA-175) (BCI).
1931 City of Everett B&O Tax Revenue, Boeing (formerly Exhibit US-13-327), (Exhibit USA-175) (BCI).
1932 See City of Everett B&O Tax Revenue, Boeing (formerly Exhibit US-13-327), (Exhibit USA-175)
(BCI). Knowing that taxes on revenue of up to USD 7 billion are assessed on the basis of a rate of 0.1%
between 2007-2012 and therefore amount to USD 7 million, the Panel calculates the value of the City of
Everett B&O tax rate reduction by determining Boeing's gross revenues per annum in the City of Everett, the
tax on the portion of gross revenues taxed at the regular rate of 0.1%, the tax on the portion of gross
revenues taxed at the special rate of 0.025%, and thereafter determining Boeing's resulting tax savings.
1933 See Sections 8.2.7.2.2.1 and 8.2.7.2.2.2.
1934 See Forecast of Boeing's Gross Revenue and Taxation in the City of Everett, and accompanying note
from City of Everett August 2012 FOIA Response, (Exhibit EU-450); and City of Everett's B&O Tax Rate
Reduction Estimates for 2012-2023, (Exhibit EU-452).

8.677. We therefore find that the amount of the City of Everett B&O tax rate reduction
was approximately USD 54.1 million during the 2013-2015 period.1935
8.2.7.3 Conclusion
8.678. In light of our findings above with respect to the Washington state and local subsidies, we
conclude that the European Union has established that the following measures involve specific
subsidies within the meaning of Articles 1 and 2 of the SCM Agreement:
a. Washington State B&O tax rate reduction for the aerospace industry, in the amount of
USD 325 million between 2013 and 2015;
b. Washington State B&O tax credits for preproduction/aerospace product development, as
amended by section 7 of SSB 6828, in the amount of [***] between 2013 and 2015;
c. Washington State B&O tax credit for property taxes, as amended by HB 2466 to include
leasehold excise taxes, in the amount of [***] between 2013 and 2015;
d. Washington State sales and use tax exemptions for computer hardware, software, and
peripherals, in the amount of [***] between 2013 and 2015; and
e. City of Everett B&O tax rate reduction, in the amount of USD 54.1 million between 2013
and 2015.
8.2.8 The South Carolina measures
8.2.8.1 Introduction
8.679. In this Section of the Report, we evaluate whether the state and loca l measures provided
by the State of South Carolina in connection with the production and assembly of the 787 in North
Charleston1936 are specific subsidies to Boeing, and whether, by granting or maintaining any such
subsidies, the United States has failed to withdraw the subsidy within the meaning of Article 7.8 of
the SCM Agreement.
8.680. The South Carolina measures properly before us concern different aspects of Boeing 's
operations in North Charleston and are alleged to involve two incentive packages provided at
different times1937:
a. Project Gemini: A 2009 incentive package concerning Boeing 's second 787 final
assembly and delivery facility in North Charleston, South Carolina (the first 787 final
assembly and delivery facility located outside the State of Washington).
b. Project Emerald: A 2006 package concerning the 787 fuselage fabrication and
integration operations originally operated by Vought Aircraft Industries, Inc. (Vought)
and a joint venture between Vought and Alenia Aeronautica (Global Aeronautica). These
operations were acquired by Boeing in 2009.
8.2.8.2 The measures at issue
8.681. The European Union claims that the State of South Carolina and its political subdivisions
maintain various subsidies for Boeing, related to the production of LCA and LCA components at

1935 See City of Everett's B&O Tax Rate Reduction Estimates for 2012-2023, (Exhibit EU-452).
1936 See Section 7.5.1 above for our rulings that these measures are within the scope of this compliance
proceeding as "undeclared" measures taken to comply on account of their sufficiently close nexus with the
measures the subject of the DSB recommendations and rulings in the original proceeding.
1937 We recall that the European Union, in its second written submission, also challenged a third package
of South Carolina measures, the "Phase II measures", which were announced in 2013 and thus, came into
existence only after the European Union's first written submission. In Section 7.5.2 above, we rule that the
Phase II measures are outside the Panel's terms of reference.

facilities in North Charleston, South Carolina, through two packages of investment incentives: (a)
Project Gemini measures; and (b) Project Emerald measures.1938
8.682. The Project Gemini measures are the package of financial incentives offered by the State
of South Carolina in 2009, allegedly in order to induce Boeing to locate its second 787 final
assembly and delivery facility adjacent to the Vought -Global Aeronautica 787 fuselage fabrication
and integration complex at Charleston International Airport. The European Union 's panel request
describes the following eight measures that it challenges as part of the Project Gemini package1939:
a. Provision of a long-term lease of government-owned land at preferential rates, pursuant
to a Ground Lease Agreement between the Charleston Cou nty Aviation Authority and
South Carolina Public Railways, as amended, and a Ground Sublease between S outh
Carolina Public Railways and Boeing, as amended.
b. Provision of facilities and infrastructure at the Charleston International Airport site, as
provided for in the Project Gemini Agreement between Boeing and the State of South
Carolina, dated 1 January 2010, funded through state general obligation bonds issued
pursuant to Title 11, chapter 41 of the South Carolina Code, as amended by section 5 of
H3130, Act No. 124, 2009 S.C. Acts 1092 (H3130), and S.C. Code section 55-11-520, at
no cost to Boeing.
c. Property tax reductions under a fee-in-lieu-of taxes Agreement between Charleston
County and Boeing dated 1 December 2009, as authorized by Title 12, chapter 44 of the
South Carolina Code, including the provision of special source credits as provided for in
such agreement, and authorized by S.C. Code section 4-1-175.1940
d. Property tax exemptions for Boeing 's Large Cargo Freighters (LCFs) pursuant to South
Carolina Code section 12-37-220(B)(33), as amended by section 1 of H3482, Act No. 45,
2009 S.C. Acts 763.
e. Reductions of state corporate income taxes through an income allocation and
apportionment agreement, entered into pursuant to S.C. Code section 12-6-2320(b), as
amended by section 1 of H3130.
f. Provision of corporate income tax credits, as provided for in South Carolina Code
section 12-6-3360(E)(1), by virtue of designating the Boeing site in North Charleston as
part of a business/industrial park jointly established and developed by Charleston County
and Colleton County, South Carolina.
g. Exemption from state sales and use taxes for aircraft fuel, computer equipment, and
construction materials, established by sections 2, 3 , and 4 of H3130, respectively, and
codified at S.C. Code section 12-36-2120(9)(e) and (f), (65)(b), and (67).
h. Establishment of workforce recruitment, training and development program mes for
Boeing.
8.683. The Project Emerald measures comprise the package of financial incentives offered by
the State of South Carolina to Vought in 2006 in connection with the 787 fuselage fabrication and
integration complex at a site at Charleston International Airport. The European Union 's panel
request identifies the following four measures as part of the Project Emerald package1941:
a. Provision of a long -term lease of government -owned land at below -market rates,
pursuant to a Ground Lease Agreement between C harleston County Aviation Authority

1938 European Union's request for the establishment of a panel, para. 23.
1939 European Union's request for the establishment of a panel, para. 24.
1940 The European Union has subsequently advised that the above-referenced fee-in-lieu-of taxes
agreement was a draft, which had been provided by Charleston County. The final agreement (the Boeing
FILOT Agreement) is dated 1 December 2010. It is this final agreement to which the European Union refers in
its arguments. (European Union's first written submission, fn 1309).
1941 European Union's request for the establishment of a panel, para. 25.

and South Carolina Public Railways, as amended, and a Ground Sublease between S outh
Carolina Public Railways and Boeing, as amended.
b. Provision of facilities and infrastructure at the Charleston International Airport site, as
provided for in the Project Emerald Confidential Site Development Agreement, funded
through state general obligatio n bonds issued pursuant to Title 11, chapter 41 of the
S.C. Code, at no cost to Boeing.
c. Property tax reductions under a fee-in-lieu-of taxes agreement between Charleston
County and Vought, Global Aeronautica, and Boeing, dated 19 December 2006, and
assigned to Boeing on or about 10 February 2010, as authorized by Title 12, chapter 44
of the S.C. Code, and provided for in the Project Emerald Confidential Site Development
Agreement, including the provision of infrastructure credits as provided for in such
agreement, and authorized by S.C. Code section 12-44-70.
d. Provision of corporate income tax credits, as provided for in S.C. Code
section 12-6-3360(E)(1), by virtue of designating the Project Emerald site at Charleston
International Airport as part of a busin ess/industrial park jointly established and
developed by Charleston County and Colleton County, South Carolina.
8.2.8.3 Relevant factual background regarding the Project Gemini and Project Emerald
incentive packages
8.2.8.3.1 Project Gemini incentive package
8.684. The Project Ge mini measures challenged by the European Union consist of the eight
measures related to Boeing 's South Carolina 787 final assembly and delivery facility (the Project
Gemini facilities and infrastructure) listed in Section 8.2.8.2 above.1942 The obligations of the South
Carolina state and local authorities and Boeing as regards Project Gemini, including the challenged
Project Gemini measures listed above, are implemented through three main instruments which we
describe briefly below.
8.685. The first is H3130, an Act of the South Carolina General Assembly that was signed into law
on 30 October 2009. H3130 amends several S outh Carolina laws in order to provide for the
following:
a. Authorization to issue additional general obligation economic development bonds1943 in
an aggregate principal amount that does not exceed USD 170 million. 1944 The section of
H3130 authorizing the additional issuance sets forth legislative findings that the
construction of infrastructure as defined under the relevant legisl ation enhances the
recruitment of businesses to the State of South Carolina, facilitates the operation and
growth of businesses in the State, and thereby provides significant and substantial direct
and indirect benefits to the State and its residents, incl uding employment and other
opportunities; that such benefits outweigh the costs of such infrastructure; that for such
reasons it is in the best interest of the State to authorize the issuance of economic
development bonds subject to the terms and condition s of the relevant legislation ; and
that such economic development bonds, issued for such purpose, serve a public purpose
in fostering economic development and increasing employment in the State. The General

1942 The first 787 final assembly and delivery facility was established in the State of Washington in 2004.
1943 S.C. Code section 11-41-40 provides that economic development bonds can be used to fund
"financing for infrastructure", which includes the following: land acquisition, site preparation, road and highway
improvements, water service, wastewater treatment, employee training, environmental mitigation, training and
research facilities, and building associated with an air hub facility or located on government land. In order for
economic development bonds to be issued, the South Carolina Department of Commerce must first notify the
Joint Bond Review Committee and the State Budget and Control Board that the related infrastructure project
meets certain requirements, including a minimum investment and contribution to employment. After approval
by the Joint Bond Review Committee, the State Budget and Control Board adopts a resolution issuing the
bonds. Economic development bonds are backed by the full faith, credit, and taxing power of the State of
South Carolina. The monetary value of economic development bonds that the State may issue depends on the
provision under which the State issues the bonds.
1944 South Carolina Act No. 124, S.C. Code, Acts 1092, H3130 (30 October 2009), (Exhibit EU-466),
section 5.

Assembly makes a further finding that the primary beneficiaries of the issuance of such
economic development bonds and the construction of such infrastructure are the State of
South Carolina and its residents.1945
b. South Carolina 's entering into an agreement establishing the allocation and
apportionment of t he taxpayer's income, provided certain conditions are met, including
that the taxpayer is planning a new facility in the State, or expanding an existing facility,
the new facility or expansion is certified by the Advisory Coordinating Council for
Economic Development in South Carolina as having a significant beneficial economic
effect on the region for which it is planned and that it s benefits to the public exceed its
costs to the public , and the taxpayer requests, prior to 31 October 2015, that South
Carolina enter into such an income allocation and apportionment agreement.1946 The
maximum duration of such agreements may be increased from five years to ten years
where a number of other conditions are met, one of which is that the taxpayer is
planning a new fac ility in the State and invests at least USD 750 million in real or
personal property or both in a single county in the State and creates at least 3,800
full-time new jobs within the county.1947
c. Exemptions from sales and use tax es for aircraft fuel, computer equipment, and
construction materials. 1948 More specifically, section 2 of H3130 creates an exemption
for, respectively, the sales of fuel for the generation of motive power for test flights of
aircraft by the manufacturer of the aircraft, and the transportat ion of an aircraft prior to
its completion from one facility of the manufacturer of the aircraft to another facility of
the manufacturer of the aircraft. Section 3 of H3130 creates an exemption for sales of
computer equipment used in connection with a manu facturing facility. Finally, section 4
of H3130 creates an exemption for sales of construction materials used in the
construction of a new or expanded single manufacturing facility. In each case, eligibility
for the exemptions is expressly restricted to taxpayers investing at least USD 750 million
in real or personal property in a single manufacturing facility over a seven -year period
and creating 3,800 full-time new jobs at the manufacturing facility over that period.1949
8.686. The second principal Project Gemini -related instrument is the Project Gemini Agreement ,
dated 1 January 2010, between Boeing and the South Carolina Department of Commerce (on
behalf of the State of South Carolina). 1950 The Project Gemini Agreement records generally the
state-level commitments ma de by South Carolina to Boeing, and the commitments made by
Boeing to South Carolina, in connection with Boeing 's establishment of the second 787 final
assembly and delivery line.
8.687. In return for Boeing meeting certain minimum employment and investment requ irements,
South Carolina agrees to seek approval for: (a) the issuance of economic development bonds in
the amount of USD 220 million to offset the costs of certain infrastructure associated with Project
Gemini; and (b) the issuance of air hub bonds 1951 in the amount of USD 50 million to offset the

1945 South Carolina Act No. 124, S.C. Code, Acts 1092, H3130 (30 October 2009), (Exhibit EU-466),
section 5.A.
1946 South Carolina Act No. 124, S.C. Code, Acts 1092, H3130 (30 October 2009), (Exhibit EU-466),
section 1.
1947 South Carolina Act No. 124, S.C. Code, Acts 1092, H3130 (30 October 2009), (Exhibit EU-466),
section 1. The taxpayer has seven years from the date on which it requests South Carolina to enter into an
income allocation and apportionment agreement to make the required investment and create the required
number of jobs.
1948 South Carolina Act No. 124, S.C. Code, Acts 1092, H3130 (30 October 2009), (Exhibit EU-466),
sections 2-4.
1949 South Carolina Act No. 124, S.C. Code, Acts 1092, H3130 (30 October 2009), (Exhibit EU-466),
section 2 (amending S.C. Code, section 12-36-2120(9)(e) and (f), section 12-36-2120(65)(b), and section 12-
-36-2120(67)). In addition, the taxpayer is required to notify the South Carolina Department of Revenue, prior
to 15 October 2015, of its intention to use any of the exemptions. (South Carolina Act No. 124, S.C. Code,
Acts 1092, H3130 (30 October 2009), (Exhibit EU-466), sections 2(B), 3(B), and 4(B)).
1950 Project Gemini Agreement between The Boeing company and South Carolina Department of
Commerce, on behalf of the State of South Carolina (1 January 2010), (Project Gemini Agreement), (Exhibit
EU-467).
1951 S.C. Code, section 55-11-520 provides that air hub bonds can be used to acquire land, construct,
enlarge, improve, extend, renovate, and equip suitable air carrier hub terminal facilities, and purchase
equipment, ground support equipment, machinery, special tools, maintenance, boarding facilities, and any real

costs associated with air carrier hub terminal facilities which Boeing agrees to operate in support of
Project Gemini. 1952 In addition, South Carolina agrees to recommend that Project Gemini be
certified in such a way as to make it eligible for negotiated apportionment of state corporate
income taxes as set forth in S.C. Code section 12-6-2320.1953
8.688. Boeing, for its part agrees to make new investment s in re al and personal property of
USD 750 million (the Minimum Investment Requirement) and to employ 6,000 employees in the
State (Minimum Job Requirement) within a specified period. 1954 Should Boeing fail to comply with
the foregoing investment and employment commitments, it will be required to reimburse the State
in accordance with a formula and procedure set forth in an annex to the Project Gemini Agreement
(the Performance Provision).1955
8.689. The preamble to the Project Gemini Agreement expressly refers to the findings of
legislative fact made by the South Carolina General Assembly as part of H3130.1956
8.690. Finally, the Fee Agreement , dated 1 December 2010, between Charleston County and
Boeing (the Boeing FILOT Agreement) provides for certain property tax and corporate income tax
concessions to Boeing. Section 5.4 of the Boeing F ILOT Agreement states that its intent in part is
to afford Boeing the benefits of payment of a fee -in-lieu-of property taxes as well as
reimbursement of a portion of those payments in respect of Boeing 's investment in Special Source
Improvements in consideration of Boe ing's decision to locate Project Gemini within the County.
Under the Boeing F ILOT Agreement, Boeing is authorized to pay a negotiated fee -in-lieu-of
property taxes in respect of Project Gemini, including large cargo freighters owned, operated or
leased by Boeing and used primarily for the transport of items to and from the Project Gemini site.
Boeing is also authorized to claim reimbursement of an agreed portion of such payments in lieu of
property taxes in return for its investment in certain infrastructur e and facilities serving the
economic development of the County (Special Source Improvements).1957
8.691. Project Gemini is designated as part of a "multi-county park" pursuant to the Multi-County
Act in order to provide additional jobs tax credits afforded by the laws of South Carolina for
projects located within multi-county industrial or business parks for all jobs created by Boeing.1958

or personal property for operation of air carrier hub terminal facilities. In order for air hub bonds to be issued,
there must first be a binding contract with an air carrier or the principal user of the facility committing the
entity to use the facility for the lesser of five years or the time needed to retire the indebtedness. The
Executive Director of the Aeronautics Commission then must certify, among other information, the amount to
be authorized, a description of the infrastructure for which the bonds are to be issued, and that the facility is
an air carrier hub terminal facility. After approval by the Joint Bond Review Committee, the State Budget and
Control Board then adopts a resolution issuing the bonds. Air hub bonds are backed by the full faith, credit,
and taxing power of the South Carolina. The amount of air hub bonds that the state may issue is limited to
USD 50 million outstanding at any time.
1952 Project Gemini Agreement, (Exhibit EU-467), section II. The parties agree to the description of the
eligible items of infrastructure for which the economic development bonds may be allocated and the eligible
costs associated with air carrier hub facilities to be offset by the air hub bonds in exhibit B.
1953 Project Gemini Agreement, (Exhibit EU-467), section III.
1954 Project Gemini Agreement, (Exhibit EU-467), section IV.A. The period for performance of the
Minimum Investment Requirement and Minimum Job Requirement is the earlier of 31 December 2016 or the
date that Boeing certifies that the two targets have been met.
1955 The Performance Provision is expressed to supersede the "Emerald Additional Rent Provisions"
attached as exhibit B to the Amended and Restated Ground Sublease between South Carolina Public Railways,
and Boeing Commercial Airplanes Charleston South Carolina, Inc., and attached as exhibit E to the Project
Emerald Confidential Site Development and Incentive Agreement between the South Carolina Department of
Commerce and certain additional parties, and Boeing Commercial Airplanes Charleston South Carolina, Inc., as
successor in interest to Vought. See para. 8.711 below.
1956 Project Gemini Agreement, (Exhibit EU-467), recitals 3 and 4.
1957 Fee Agreement by and between Charleston County, South Carolina and the Boeing Company
(1 December 2010) (Boeing FILOT Agreement), (Exhibit EU-470), sections 1.3, 5.1, and 5.2.
1958 Boeing FILOT Agreement, (Exhibit EU-470), section 5.3. South Carolina Income Tax Act, S.C. Code,
Title 12, chapter 6, (Exhibit EU-509), section 3360 (C)(1), provides for a state corporate income tax credit for
certain qualifying businesses that create a specified number of jobs at the time a new facility or expansion is
initially staffed. In addition, under paragraph (E)(1) of § 12-6-3360, taxpayers that are located in a "Multi-
County Industrial Park" and qualify for the tax credit under (C)(1) are allowed an additional USD 1,000 credit
for each new full-time job created for five years beginning in the taxable year following the creation of the job.

8.692. As explained further in Section 8.2.8.5.1 below, the Project Gemini facilities and
infrastructure are located on the same Project Site as the 787 fuselage fabrication and integration
operations, which had originally been operated by Vought and Global Aeronautica, and were
acquired by Boeing in 2009 (the Project Emerald facilities and infrastructure). In this respect, the
legal instruments embodying the Ground Sublease of the Project Site on which both the Project
Gemini and Project Emerald facilities and infrastructure are located are common to both Project
Gemini and Project Emerald.
8.2.8.3.2 Project Emerald incentive package
8.693. The Project Emerald measures consist of the four measures identified in Section 8.2.8.2
above that were provided to Vought in 2006 in connection with its 787 fuselage fabrication and
integration complex at a site at Charleston International Airport. As will be explained further
below, Boeing acquired Vought's South Carolina operations in July 2009.
8.694. The obligations of the South Carolina state and local authorities as regards Project Emerald
were initially set forth in a 2004 Confidential Initial Site Development and Incentive Agreement
between certain South Carolina public agencies and Vought on behalf of itself and two other
entities that comprise Project Emerald. 1959 Under this Initial Site Development and Incentive
Agreement, the relevant South Carolina public agencies set forth their commitments to provide
funds and incentives as an inducement for Vought to locate Project Emerald at the Project Site,
and to induce Vought to commence work on the Project Site pending f inal negotiation of a Site
Development and Incentive Agreement.1960 Such funds and incentives included the issuance of tax
exempt and/or taxable bonds, the proceeds of which may be allocated to "infrastructure" as
defined in section 11-41-30 of the South Carolina Code, or to "air carrier hub facilities", as defined
in section 55-11-500 of the South Carolina Code, a fee-in-lieu-of taxes agreement setting forth a
particular property tax treatment as well as special source credits to reduce property taxes or
fee-in-lieu-of property taxes for Project Emerald, and the incorporation of the Project Site into a
multi-county industrial park to enable Project Emerald to receive additional job tax credits. 1961
Under the Initial Site Development and Incentive Agreement, the C harleston County Airport
District also agreed to enter into a ground lease of the Project Site with South Carolina Public
Railways, which in turn would enter into a Ground Sublease of the Project Site with Vought.1962
8.695. Subsequently, in 2006, the same parties entered into the Project Emerald Confidential Site
Development and Incentive Agreement (the Project Emerald Agreement) to finalize the incentives
and commitments of the South Carolina public agencies and of Project Emerald to induce Vought
to initiate and/or continue work on the Project Site. 1963 Accordingly, Project Emerald was required
to hire 745 employees and invest USD 450 million, in return for which South Carolina undertook to
authorize the issuance of economic development bonds, and to make available to Project Emerald
USD 123 million from the bond proceeds. 1964 The commitments regarding the fee -in-lieu-of taxes
agreement and special source credits in respect of property taxes or fee -in-lieu-of property taxes
for Project Emerald, and the incorporation of th e Project Site into a multi -county industrial park,
remained the same as those previously made as part of the 2004 Initial Site Development and
Incentive Agreement. 1965 The commitment regarding the grant of a ground lease of the Project
Site by the Charleston Airport District to South Carolina Public Railways, and of a Ground Sublease
of the Project Site by South Carolina Public Railways to Vought, also remained consistent with that
undertaken in the 2004 Initial Site Development and Incentive Agreement, except that Vought was
further authorized to enter into building pad leases with the Project Emerald entities or other

1959 Initial Project Emerald Site Development and Incentive Agreement, (Exhibit EU-560).
1960 Initial Project Emerald Site Development and Incentive Agreement, (Exhibit EU-560), recitals 9 and
10, part VII, sections 7.1 and 7.2.
1961 See Initial Project Emerald Site Development and Incentive Agreement, (Exhibit EU-560), parts II
(regarding the tax exempt and/or taxable bonds), and IV (regarding the FILOT, special source credits and
additional job tax credits through designation of Project Emerald as part of a multi-county industrial park).
1962 Initial Project Emerald Site Development and Incentive Agreement, (Exhibit EU-560), part V, section
5.3.
1963 Final Project Emerald Incentive Agreement, (Exhibit EU-550), recital 10. The version of this
instrument provided to the Panel as Exhibit EU-550 is dated as of a blank date in 2006 and is executed only by
South Carolina Department of Commerce and South Carolina Public Railways.
1964 Final Project Emerald Incentive Agreement, (Exhibit EU-550), section 2.3.
1965 See Final Project Emerald Incentive Agreement, (Exhibit EU-550), sections 4.1, 4.2, and 4.3.

designated parties and to sublease parts of the Project Site not immediately used by Project
Emerald.1966
8.696. Accordingly, on 25 August 2006, C harleston County Aviation Authority, which is the owner
and operator of Charleston International Airport, granted a ground lease of the Project Site to
South Carolina Public Railways on the understanding that South Carolina Public Railways would
immediately sublet the Project Site to Vought in order for Vought to construct and operate the 787
fuselage fabrication and integration complex. 1967 The initial term o f the Ground Lease was until
31 December 2021 with provision for extensions for four additional five -year terms.1968 The annual
rent was USD 1.00. 1969 The Project Site was delivered in "as is " condition, with South Carolina
Public Railways being responsible for the cost of any improvements made to or at the Project Site
land.1970 Also on 25 August 2006, Vought and South Carolina Public Railways entered into a
Ground Sublease (the Vought Sublease) under which Vought subleased from South Carolina Public
Railways the Project Site (referred to in the Vought Sublease as the "Premises").1971 The initial
term of the Vought Sublease was also until 31 December 2021 with provision for extensions for
four additional five -year terms. 1972 The annual rent was USD 1.00 with provision for Vought to
make "Additional Rent" payments under circumstances generally involving failure to meet required
investment and employment thresholds set forth in the Vought Sublease. 1973 The Vought Sublease
contemplated that Vought was subletting the Project Site for the purpose of constructing facilities
related to the manufacture of products for the aeronautics indus try, defined therein as
"Improvements".1974 The "Improvements" in question refer to the construction by Vought of its
787 fuselage fabrication and integration complex.1975
8.2.8.4 The Panel's order of analysis
8.697. The European Union has organized its submissions by first presenting arguments as to why
each of the Project Gemini measures involves a subsidy to Boeing that is specific, followed by
arguments as to why each of the Project Emerald measures involves a subsidy to Boeing that is
specific. The United States responds i n its submissions by addressing the Project Emerald
measures first (including the sublease of the Project Site), followed by the Project Gemini
measures. We have decided to adopt a different order of analysis from that of either party.
8.698. We note that certain of the challenged measures involve the following:
a. Project Site on which both the Project Gemini facilities and infrastructure and Project
Emerald facilities and infrastructure are located;
b. construction, and certain funding for the construction, of both the Project Gemini and
Project Emerald facilities and infrastructure;
c. agreements as to how property taxes would be assessed in relation to both the Project
Gemini and Project Emerald facilities and infrastructure; and

1966 Final Project Emerald Incentive Agreement, (Exhibit EU-550), section 5.3.
1967 Ground Lease Agreement by and between Charleston County Aviation Authority and South Carolina
Public Railways (25 August 2006) (Ground Lease Agreement), (Exhibit EU-473), recitals and section 12.01.
1968 Ground Lease Agreement, (Exhibit EU-473), sections 3 and 4.
1969 Ground Lease Agreement, (Exhibit EU-473), section 7.01.
1970 Ground Lease Agreement, (Exhibit EU-473), sections 6.01 and 6.02.
1971 Ground Sublease between Vought Aircraft Industries, Inc. and South Carolina Public Railways
(25 August 2006) (Vought Sublease Agreement), (Exhibit EU-474).
1972 Vought Sublease Agreement, (Exhibit EU-474), sections 3 and 4.
1973 Vought Sublease Agreement, (Exhibit EU-474), section 6.
1974 Vought Sublease Agreement, (Exhibit EU-474), section 7.
1975 The Project Emerald Confidential Site Development and Incentive Agreement, between Vought
Aircraft Industries, Inc., on behalf of itself and the two entities that comprise Project Emerald (collectively
Project Emerald), and the South Carolina Department of Commerce, the South Carolina Public Railways,
Charleston County and the Charleston County Airport District (collectively, the Public Agencies), dated 2006
(see fn 1963 above) (Final Project Emerald Incentive Agreement, (Exhibit EU-550)) more specifically explains
that Project Emerald contemplated the establishment of industrial facilities for the purpose of manufacturing,
assembling, integrating and testing composite components and related shipping facilities for the 787 (the
Project) and that the Public Agencies wish to have Project Emerald establish the Project on the property the
subject of the Vought Sublease.

d. corporate income tax credits in res pect of both the Project Gemini and Project Emerald
facilities and infrastructure through their respective designation as part of the same
multi-county industrial park.
8.699. In these circumstances, and given the similarity in the legal arguments made by the
parties with respect to both the Project Gemini and Project Emerald measures in each of the above
categories (a) through (d), we will address these particular Project Gemini and Project Emerald
measures together. Accordingly, in Section 8.2.8.5, we first consider whether the sublease of the
Project Site involves a specific subsidy to Boeing. 1976 In Section 8.2.8.6, we consider whether
specific subsidies exist by virtue of South Carolina 's alleged provisio n of Gemini facilities and
infrastructure and Emerald facilities and infrastructure to Boeing. In Section 8.2.8.6.5, we evaluate
whether the property tax reductions provided under fee -in-lieu-of taxes agreements concluded in
connection with both Project Gemini and Project Emerald involve specific subsidies to Boeing. In
Section 8.2.8.8, we address whether corporate income tax credits in connection with the
designation of both the Project Gemini facil ities and infrastructure and the Project Emerald
facilities and infrastructure as part of the same multi -county industrial park, involve specific
subsidies to Boeing.
8.700. We then address the remaining Project Gemini measures challenged by the
European Union for which there is no challenged Project Emerald counterpart: (a) state corporate
income tax reductions allegedly provided through an income allocation and apportionment
agreement with Boeing ( Section 8.2.8.9); (b) state property tax exemption for Boeing 's large
cargo freighters ( Section 8.2.8.10); (c) state sales and use tax exemptions for aircraft fuel,
computer equipment, and construction materials established by H3130 (Section 8.2.8.11); and (d)
workforce recruitment, training and development program mes allegedly established for Boeing
(Section 8.2.8.12).
8.2.8.5 Whether the sublease of the Project Site is a specific subsidy to Boeing
8.2.8.5.1 Introduction
8.701. In paragraph 24 of its panel request, the European Union identifies the following measure
as a subsidy related to Project Gemini presently benefiting Boeing:
Provision of a long -term lease of government -owned land at preferential rates,
pursuant to a ground lease agreement between the Charleston County Aviation
Authority and South Carolina Public Railways, as amended, and a ground sublease
agreement between South Carolina Public Railways and Boeing, as amended, thereby
providing a financial contribution with in the meaning of Article 1.1(a)(1)(ii)-(iii) of the
SCM Agreement.1977
8.702. In paragraph 25 of its panel request, the European Union identifies the following measure
as a subsidy related to Project Emerald presently benefiting Boeing:
Provision of a long -term l ease of government -owned land at below-market rates,
pursuant to a ground lease agreement between the Charleston County Aviation
Authority and South Carolina Public Railways, as amended, and a ground sublease
agreement between South Carolina Public Railway s and Boeing, as amended, thereby
providing a financial contribution within the meaning of Article 1.1(a)(1)(ii)-(iii) of the
SCM Agreement.1978
8.703. The government-owned land referred to in paragraphs 24 and 25 of the European Union's
panel request is the same 240 acre portion of land at Charleston International Airport, (the Project
Site). The Project Site is currently subleased to Boeing by South Carolina Public Railways pursuant

1976 The Project Gemini facilities and infrastructure and Project Emerald facilities and infrastructure are
both located on the same Project Site, a 240 acre portion of land at Charleston International Airport. As we
explain further in Section 8.2.8.5.1 below, the rights to occupy the Project Site in relation to both the Project
Gemini facilities and infrastructure and the Project Emerald facilities and infrastructure are granted under the
same sublease instrument.
1977 European Union's request for the establishment of a panel, para. 24, first dot point.
1978 European Union's request for the establishment of a panel, para. 25, first dot point.

to a ground sublease which we describe in greater detail in the remainder of this Section of the
Report. South Carolina Public Railways in turn holds the ground lease of the Project Site pursuant
to a Ground Lease Agreement with C harleston County Aviation Authority . As explained in
paragraphs 8.694-8.696 above, the Ground Lease and Ground Sublease were initially entered into
in 2006 in order to provide Vought a sublease of the Project Site for purposes of constructing the
Project Emerald facilities and infrastructure thereon and operating the 787 fuselage fabrication and
integration operations that Boeing subsequently acquired from Vought and Global Aeronautica in
2008 and 2009.
8.704. The European Union argues that the sublease of the Project Site to Boeing involves a
financial contribution to Boeing in the form of a provision of goods or services other than general
infrastructure within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement, which
furthermore confers a benefit and is specific. The United States does not dispute that there is a
financial contribution, but argues that any financial contribution was made to Vought rather than
Boeing and that the European Union has failed to demonstrate that any benefit arising from that
financial contribution passed through to Boeing whe n it purchased Vought 's South Carolina
operations in an arm's-length transaction for fair market value in July 2009.
8.705. The facts surrounding Boeing 's acquisition of Project Emerald facilities and infrastructure
from Vought and its assumption of the Ground Sublease originally held by Vought as sublessee are
important to the Panel 's evaluation of the parties ' arguments as to whether the sublease of the
Project Site involves a subsidy to Boeing. We set forth below in greater detail the precise sequence
of events leading to Boeing, in 2009, being the sublessee of the Project Site (then consisting of the
Project Emerald facilities and infrastructure ), and to South Carolina offering the Project Gemini
package of incentives in connection with Boeing's subsequent decision to locate the Project Gemini
facilities and infrastructure on the same Project Site.
8.706. Owing to production delays and manufacturing difficulties with the 787 programme, Boeing
announced on 7 July 2009 that it would purchase Vought 's 787 business in So uth Carolina.1979
Boeing had previously, in June 2008, purchased Vought 's 50% interest in the Global Aeronautica
joint venture. 1980 On 30 July 2009, Boeing acquired the business, assets and operations of
Vought's 787 business in North Charleston ; namely, the Vought facility that produces the 787 aft
fuselage sections, including fabrication, assembly and systems installation. 1981 Boeing reported
that, in connection with the Vought acquisition, it paid cash consideration of USD 590 million and
released Vought from its obligation to pay USD 416 million previously advanced by Boeing.1982
8.707. Also in connection with Vought 's sale of its 787 business in South Carolina, on
30 July 2009, Vought assigned its interest in the Vought Sublease to Boeing. 1983 Thus, as of
30 July 2009, Boein g became sublessee of the Project Site, as successor -in-interest to Vought.
Also on 30 July 2009, Vought transferred to Boeing its interest in all buildings, structures and
other improvements owned by Vought related to, located on or used in connection wit h the
operation of the facilities on the Project Site.1984
8.708. Shortly after Boeing 's acquisition of Vought 's South Carolina operations, Boeing began to
consider whether it would locate its second 787 final assembly and delivery line outside

1979 J. Weber, "Boeing Buys a Vought Aircraft Plant", Bloomberg Newsweek, 7 July 2009, (Exhibit
USA-195).
1980 Boeing, Backgrounder, Boeing South Carolina, (August 2011), (Exhibit EU-463). In December 2009,
Boeing purchased Alenia's portion of the Global Aeronautica joint venture, dissolving the joint venture and
creating Boeing South Carolina. (Boeing, Backgrounder, Boeing South Carolina, (August 2011), (Exhibit EU-
463)).
1981 Boeing, 2009 Annual Report, (Exhibit USA-265), p. 26.
1982 Boeing, 2009 Annual Report, (Exhibit USA-265), p. 66.
1983 Assignment and Assumption of Vought Sublease between Vought Aircraft Industries, Inc. and
Boeing Commercial Airplanes South Carolina, Inc. (30 July 2009) (Assignment of Vought Sublease), (Exhibits
EU-475/USA-449 (exhibited twice)).
1984 Assignment and Bill of Sale from Vought Aircraft Industries, Inc. to Boeing Commercial Airplanes
Charleston South Carolina, Inc. (30 July 2009), (Exhibit EU-552). According to the United States, this
instrument is the execution copy of the "Facilities Bill of Sale, Assignment and Assumption Agreement" referred
to in section 9.1(e)(ix) of the Asset Purchase Agreement by and between Vought Aircraft Industries, Inc. and
BCACSC, Inc., dated 6 July 2009, (the Vought Asset Purchase Agreement), (Exhibit USA-325). See United
States' response to Panel question No. 117, para. 243; and response to Panel question No. 120, para. 248.

Washington State. 1985 According to press reports, Boeing executives met with South Carolina
government officials in mid -August 2009 to discuss the possibility of Boeing locating its second
787 final assembly and delivery line in South Carolina. 1986 In response to South Carolina 's
perceived "competitive disadvantage" to other States that Boeing was considering, South Carolina
legislators proposed an incentive package that included USD 170 million in government bonds,
elimination of Boeing's state corporate income taxes and sales tax e xemptions for computers, fuel
for test flights and construction materials and equipment.1987 On the weekend of 24 October 2009,
Boeing requested South Carolina to add a further USD 37 million in government bonds to the
offer.1988 On 26 October 2009, Boeing 's Board of Directors met to decide on the location of the
second 787 assembly facility. 1989 On 28 October 2009, Boeing announced that it had decided to
locate the second 787 assembly line (i.e. the Project Gemini facilities and infrastructure) at the
same site as its recently acquired North Charleston 787 fuselage fabrication and integration
complex (i.e. the Project Emerald facilities and infrastructure).
8.709. Also on 28 October 2009, the South Carolina General Assembly passed H3130 (described
in section 8.2.8.3.1) which amended several S outh Carolina laws in order to: (a) authorize the
issuance of additional general economic development bonds up to USD 170 million aggregate
principal amount; (b) authorize an agreement to apportion the income of taxpayers either planning
a new facility in the State, or expanding an existing facility, conditional on the taxpayer investing
at least USD 750 million in a single county and creating at least 3,800 full -time new jobs in the
county; and (c) exempt f rom sales and use tax aircraft fuel, computer equipment , and
construction materials where the taxpayer invests at least USD 750 million in a single county and
creates at least 3,800 full -time new jobs in the county. H3130 wa s signed into law on
30 October 2009.1990
8.710. Boeing broke ground on its new 787 final assembly and delivery line in
November 2009.1991 On 19 November 2009, C harleston County Aviation Authority and South
Carolina Public Railways amended the Ground Lease for the Project Site, inter alia, to acknowledge
the changes in the structure of the subleases over the Project Site as a result of Vought 's
assignment of the Vought Sublease to Boeing on 30 July 2009.1992 Also on 19 November 2009,
Boeing and South Carolina Public Railways entered into an "amended and restated" sublease of the
Project Site.1993 Under the Amended and Restated Sublease: (a) the parties acknowledge that the
Vought Sublease was assigned to Boeing on 30 July 2009 ; (b) South Carolina Public Railways as
sublessor expressly consents to that assig nment; and (c) the parties agree that the Amended and
Restated Sublease "amends, restates in its entirety, and takes the place of " the Vought
Sublease.1994 The operative terms of the Amended and Restated Sublease as regards term, annual
rent (including liabil ity for, and the calculation of, Additional Rent) and representations of
sublessor and sublessee for all practical purposes remain the same as those of the Vought
Sublease. The principal relevant difference between the two instruments is that section 7 of the
Amended and Restated Sublease, unlike its counterpart in the Vought Sublease, provides that the

1985 Press reports indicate that Boeing executives had been frustrated about interruptions to 787
production due to strikes by Boeing workers in Washington State in 2008 and remained dissatisfied over
negotiations with the labour union representing Boeing machinists in Washington State. (Andy Shain, "S.C.
travelled a long road to land Boeing", Charlotte Observer, 1 November 2009, (Exhibit EU-9)).
1986 Andy Shain, "S.C. travelled a long road to land Boeing", Charlotte Observer, 1 November 2009,
(Exhibit EU-9).
1987 Andy Shain, "S.C. travelled a long road to land Boeing", Charlotte Observer, 1 November 2009,
(Exhibit EU-9).
1988 Andy Shain, "S.C. travelled a long road to land Boeing", Charlotte Observer, 1 November 2009,
(Exhibit EU-9).
1989 Andy Shain, "S.C. travelled a long road to land Boeing", Charlotte Observer, 1 November 2009,
(Exhibit EU-9).
1990 South Carolina Act No. 124, S.C. Code, Acts 1092, H3130 (30 October 2009), (Exhibit EU-466)
1991 Boeing, Backgrounder, Boeing South Carolina, (August 2011), (Exhibit EU-463).
1992 First Amendment to Ground Lease Agreement by and between Charleston County Aviation Authority
and South Carolina Public Railways (19 November 2009), (Exhibit EU-476), recitals 3 and 4.
1993 Amended and Restated Ground Sublease by and between Boeing Commercial Airplanes Charleston
South Carolina, Inc. and South Carolina Public Railways (19 November 2009) (Amended and Restated
Sublease), (Exhibit EU-471).
1994 Section 1 of the Amended and Restated Sublease relevantly provides: "{t}his Sublease amends,
restates in its entirety, and takes the place of the Vought Sublease, such that the Sublessor shall hereafter
sublease the Premises to Sublessee in accordance with the terms and conditions set forth herein." (Amended
and Restated Sublease, (Exhibit EU-471), clause 1).

sublessee (Boeing) is subleasing the Premises for the purpose of, not just constructing thereon
facilities supporting the manufacture of products for the ae ronautics industry, but also using
previously constructed facilities.
8.711. Subsequently, on 1 January 2010, Boeing and the South Carolina Department of
Commerce entered into the Project Gemini Agreement. 1995 Under the Project Gemini Agreement,
the South Carolina D epartment of Commerce agreed to request the South Carolina Joint Bond
Review Committee to approve, and the State Budget and Control Board to issue, economic
development bonds in the amount of USD 220 million to offset the costs of infrastructure
associated with Project Gemini and air hub bonds in the amount of USD 50 million to offset the
costs associated with air carrier hub terminal facilities.1996 For its part, Boeing agreed to make new
investments in real and personal property of USD 750 million in the Sta te of South Carolina and to
employ 6,000 employees in the State of South Carolina by 31 December 2016 or earlier. 1997 The
parties further agreed to amend the Project Emerald Additional Rent provisions contained in the
Amended and Restated Sublease and replace those provisions with a Performance Provision set
forth as an exhibit to the Project Gemini Agreement, in light of the significant employment and
investment already made by Boeing and other entities at the Project Site and given that the
Performance Provision includes existing employment along with anticipated new employment and
investment associated with Project Gemini.1998
8.2.8.5.2 Main arguments of the parties
8.712. The European Union argues that the "lease of the project site to Boeing " is a financial
contribution.1999 By allowing Boeing exclusive use of government -owned land at Charleston
International Airport for its 787 manufacturing facilities in exchange for a nominal fee, South
Carolina provides goods other than general infrastructure within the meaning of
Article 1.1(a)(1)(iii) of the SCM Agreement.2000
8.713. The European Union acknowledges that the sublease of the Project Site covers both
Boeing's 787 final assembly and delivery facility (the Project Gemini facilities and infrastructure) as
well as the 787 fuselage fabricati on and integration complex which Boeing took over from Vought
and Global Aeronautica in 2009 (the Project Emerald facilities and infrastructure ).2001 The
European Union clarifies that "while the lease also subsidises Boeing 's Project Emerald facilities
and infrastructure, the European Union chooses not to treat this as a separate subsidy " from the
subsidy it describes in connection with Project Gemini.2002
8.714. The European Union argues that the "Project Site lease" is the "instrument through which
South Carolina provides Boeing with use of the project site ".2003 The European Union considers the
financial contribution to have been first provided "directly" to Boeing on 30 July 2009, the date on

1995 Project Gemini Agreement, (Exhibit EU-467).
1996 Project Gemini Agreement, (Exhibit EU-467), part II.A and B Boeing agrees also to operate the air
carrier hub facilities financed with the issuance of the air hub bonds to support Project Gemini.
1997 Project Gemini Agreement, (Exhibit EU-467), part IV.A.
1998 Project Gemini Agreement, (Exhibit EU-467), part IV.B. The Project Gemini Agreement provides
that, promptly following execution of the Project Gemini Agreement, the parties will cause the relevant parties
to amend the Amended and Restated Sublease so that the provisions regarding the Performance Provision
supersede the Emerald Additional Rent provisions as well as in certain other respects. No such amendment has
been submitted into evidence by either of the parties.
1999 European Union's first written submission, para. 557. In its panel request, the European Union
identifies the measure at issue as the "long-term lease of government-owned land … pursuant to a ground
lease agreement between the Charleston County Aviation Authority and South Carolina Public Railways, as
amended, and a ground sublease between South Carolina Public Railways and Boeing, as amended."
(European Union's request for the establishment of a panel, paras. 24 and 25). Although the European Union
refers in its submissions to the measure at issue as the "Project Site Lease", as we explain in Section 8.2.8.5.1
above, the instrument to which Vought and Boeing were parties is in fact a ground sublease, and not a lease.
Thus, to the extent that the European Union in its submissions refers variously to the "lease of the project
site", or the "Project Site Lease", we understand it to be referring to the instrument pursuant to which South
Carolina Public Railways, as lessee of the Project Site from Charleston County Aviation Authority subleases the
Project Site to Vought (and Boeing).
2000 European Union's first written submission, para. 557.
2001 European Union's first written submission, para. 696 and fn 1552.
2002 European Union's first written submission, para. 696.
2003 European Union's response to Panel question No. 107, para. 170.

which Boeing assumed Vought 's rights as sublessee under the Vought Sublease. 2004 While the
European Union considers that a financial contribution existed with respect to the sublease of the
Project Site before 30 July 2009 (presumably to Vought and not to Boeing), it does not claim that
there was a benefit or subsidy to Boeing prior to that date.2005
8.715. The European Union argues that the sublease of the Project Site to Boeing confers a
benefit on Boeing's LCA division because it is provided on non -market terms.2006 The provision of
the sublease is made for less than adequate remuneration in re lation to prevailing market
conditions. Boeing pays USD 1 per year to sublease the Project Site, while a market participant
would pay significantly more. The European Union acknowledges that one method of valuing the
sublease of the Project Site would be t o consider comparable lease transactions. However, as
neither party has provided the information that would be required to determine the benefit on this
basis, the sublease of the Project Site itself provides the best information available as to the value
of the sublease of the Project Site. 2007 In this regard, the European Union notes that the "base
lease value" of USD 4.7 million per annum from the first full year of the sublease (1 January 2010)
through the end of the final five -year extension at the end of 2041 totals USD 150.03 million. The
European Union argues that the "base lease value", being the amount the sublessee was liable to
pay under the Vought Sublease if the sublessee failed to meet the investment and employment
thresholds, was likely negotiat ed between South Carolina and Vought to represent less than the
actual fair market value of the sublease.2008 The amount of USD 150.03 million (less the USD 31 in
rent payments due from Boeing) also likely underestimates the benefit to Boeing because it was
negotiated prior to Boeing 's purchase of the Project Emerald facilities and infrastructure and its
decision to establish the Project Gemini facilities and infrastructure. Once account is taken of the
particular value to Boeing of having its second 787 final assembly and delivery line located
adjacent to the 787 fuselage fabrication and integration complex, and connected to an airport
runway of sufficient length from which to operate 787s and 747 LCFs, the benefit conferred on
Boeing would include an additional market premium.2009
8.716. The European Union rejects the United States ' arguments that the Project Site had [***]
value to Boeing because [***]. The Project Site's value is a function of supply and demand in the
market. Moreover, if the Project Site really [***] as the United States contends, it is
inconceivable that Boeing or any other sublessee would have agreed to the sublease. 2010 The
European Union also rejects the United States ' suggestion that the site improvements effected by
Boeing that will revert to South Carolina at the conclusion of the sublease entail "adequate
remuneration" on a number of grounds, including the absence of evidence provided by the United
States comparing the value of Boeing 's improvements to prevailing market lease rates, the fact
that a significant portion of the site improvements were paid for by South Carolina rather than
Boeing, the improvements will have limited or no value at the time of reversion, and in any case, a
standard commercial ground lease would have required Boeing to pa y more than nominal rent for
the term of the lease.2011
8.717. The European Union argues that the sublease of the Project Site is specific , within the
meaning of Article 2.1(a) of the SCM Agreement , as a subsidy that is explicitly limited to certain
enterprises.2012 The European Union bases this argument on a number of factors. First, it notes
that South Carolina Public Railways entered into the sublease with Boeing (or at different times,

2004 European Union's response to Panel question No. 107, fn 303. It likewise regards the starting point
for the "benefit" (and hence, the "subsidy" to Boeing) to be 30 July 2009.
2005 European Union's response to Panel question No. 107, para. 169. In response to the United States'
argument that none of the Project Emerald measures provided to Vought (including the sublease of the Project
Site) confer a benefit on Boeing because the European Union has failed to demonstrate that any benefits
passed through to Boeing, the European Union argues that the question of how such benefits conferred
originally on Vought or Global Aeronautica passed through to Boeing is "irrelevant" because the
European Union does not claim that Boeing received any benefits prior to completing the acquisition of
Vought's South Carolina operations, or that any benefits conferred originally on Vought or Global Aeronautica
passed through to Boeing. (European Union's second written submission, para. 722). See also
European Union's response to Panel question No. 39, paras. 219 and 220 and fn 247.
2006 European Union's first written submission, para. 560.
2007 European Union's second written submission, para. 616.
2008 European Union's first written submission, paras. 558 and 559.
2009 European Union's first written submission, paras. 561 and 562.
2010 European Union's second written submission, paras. 619 and 620.
2011 European Union's second written submission, paras. 621-627.
2012 European Union's first written submission, para. 563.

Boeing and Vought) alone and that Charleston County Aviation Authority similarly consented to the
sublease of the Project Site solely to Boeing (or at different times, to Boeing and Vought). 2013
Second, the sublease is an element of both the Project Gemini and Project Emerald incentive
packages, intended to benefit Boeing and its supplier s.2014 Third, both the Ground Lease and
Vought Sublease provide that their purposes concern the construction and use of manufacturing
facilities for the aviation or aeronautics industries. 2015 The European Union additionally argues that
the sublease of the Project Site is de facto specific within the meaning of Article 2.1(c) because the
subsidy is used by a limited number of entities and Boeing is the predominant user of the subsidy
programme. Boeing and its suppliers have been the sole beneficiaries of the subl ease of the
Project Site, and the United States has identified only one other multi -acre property that the State
of South Carolina has leased or subleased to a private company for USD 1,000 per year or less
since around the year 2000.2016 Thus, even if there were a larger subsidy programme, beyond the
sublease of the Project Site (which the European Union says the United States has failed to
demonstrate), such a programme would in any case only have been used by a limited number of
certain enterprises.2017
8.718. The United States denies that the Project Site sublease provides a financial contribution to
Boeing.2018 It argues that South Carolina provided the land use rights to the Project Site to Vought,
through the Project Emerald Agreement and the Vought Sublease. Vought "autonomously
assigned" those rights to Boeing in an arm's-length, fair market value purchase of Vought 's South
Carolina operations in July 2009. Accordingly, Boeing obtained the right to use the Project Site,
and the improvements on it, from Vought, not South Carolina. There was no financial contribution
by a government to Boeing under the SCM Agreement. 2019 The United States adds that, as the
European Union does not attempt to argue or provide evidence to demonstrate that any benefit
conferred by a financia l contribution made by South Carolina to Vought passed through from
Vought to Boeing, the European Union has failed to demonstrate that any relevant financial
contribution by a government occurred with respect to the Project Site sublease.2020
8.719. The United Stat es considers that the European Union, in acknowledging that there was a
financial contribution with respect to the sublease of the Project Site prior to 30 July 2009, and
then asserting that the "starting point " of the financial contribution "to Boeing dir ectly" was
30 July 2009, incorrectly suggests that there was more than one financial contribution with respect
to the Project Site land. 2021 The European Union thus "seems to conceive of the sublease as a
recurring subsidy, wherein each ye ar, South Carolina ( through the Charleston County Aviation
Authority) provides the sublessee with land for less than adequate remuneration ".2022 The United
States argues that such a conception is entirely at odds with the design, operation and principal
characteristics of the sublease at issue. For the United States, the sublease for the Project Site is a
"unified asset " provided at the time of execution of the Vought Sublease (in 2006) when the
parties became contractually obligated by its terms.2023
8.720. The United States argues that there is nothing about Boeing 's purchase of Vought's South
Carolina assets, including its assumption of Vought 's subleasehold interest in the Project Site, that
supports finding a "second financial contribution" in 2009, or any additional financial contrib utions
after the initial one in 2006. Given that the only financial contribution in connection with the right

2013 European Union's first written submission, para. 563. The European Union asserts that both the
original decision to sublease the Project Site to Vought and the approval of Boeing's assumption of the Vought
Sublease necessarily took the form of resolutions passed by the Charleston County Aviation Authority.
Therefore, Charleston County Aviation Authority and South Carolina Public Railways explicitly limited access to
the subsidy to certain enterprises. (European Union's second written submission, para. 630).
2014 European Union's first written submission, para. 563.
2015 European Union's first written submission, para. 564.
2016 European Union's first written submission, para. 565. The European Union also argues that the
sublease of the Project Site is specific because it falls under the provisions of Article 3 of the SCM Agreement
and is therefore "deemed" to be specific pursuant to Article 2.3 of the SCM Agreement. (European Union's first
written submission, para. 566).
2017 European Union's second written submission, paras. 631 and 632.
2019 United States' second written submission, paras. 487 and 501.
2020 United States' second written submission, fn 703 (referring to European Union's second written
submission, para. 722) and para. 503.
2021 United States' comments on the European Union's response to Panel question No. 107, para. 172.
2022 United States' comments on the European Union's response to Panel question No. 107, para. 173.
2023 United States' comments on the European Union's response to Panel question No. 107, para. 174.

to use the Project Site occurred when South Carolina executed the Vought Sublease in 2006, the
European Union must demonstrate that any benefit co nferred by that 2006 financial contribution
"passed through" to Boeing.2024
8.721. The United States argues that, even assuming arguendo that the sublease of the Project
Site constituted a financial contribution to Boeing, it did not confer a benefit because it had a
[***] to Boeing if examined in isolation. 2025 Boeing [***].2026 Boeing's actual remuneration to
South Carolina of USD 1 per year is therefore more than adequate. 2027 The United States argues
that, contrary to the European Union 's assertion that it is inconceivabl e that a commercial actor
like Boeing would have agreed to a ground sublease of land that had a [***], it is quite
conceivable that a party would take a loss on one aspect of an arrangement if overall, the
arrangement was advantageous to it. It gives the e xample of private parties agreeing to lease or
purchase so-called brownfield (i.e. environmental clean -up) sites due to government enticements
to develop land and/or defray environmental costs and liabilities. 2028 The United States regards as
"fanciful" (and unsupported by the United States ' expert appraisals) the European Union 's
valuation of the Project Site at USD 150.03 million. 2029 According to the United States, the
European Union's valuation of the Project Site would make it the most expensive piece of the land
in North Charleston.2030
8.722. The United States rejects the European Union 's arguments that the sublease of the Project
Site is specific within the meaning of Article 2.1(a) of the SCM Agreement. The United States
considers that the European Union confuses t he identification of an alleged subsidy recipient, with
a limitation on access to that recipient, or the class of enterprises to which it belongs. 2031 The fact
that Boeing was the sole sublessee of the Project Site, or that the Charleston County Aviation
Authority consented to the sublease, does not mean that the Charleston County Aviation Authority
explicitly limited access to the subsidy to certain enterprises, nor does it demonstrate that the
Charleston County Aviation Authority or any other South Carolina entity restricted access to the
sublease of the Project Site, or to other similar measures, from parties other than Boeing. The
United States also rejects the European Union 's argument that the sublease of the Project Site is
de facto specific within the m eaning of Article 2.1(c). The United States argues that the sublease
of the Project Site is part of a broader programme to provide site leases to industrial lessees in
exchange for nominal lease payments, and asserts that political subdivisions of South Ca rolina,
including Charleston County (through the Charleston County Aviation Authority ) routinely provide
nominal leases of publicly-owned property.2032
8.2.8.5.3 Evaluation by the Panel
8.2.8.5.3.1 Whether the sublease of the Project Site involves a financial contribution to
Boeing within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement
8.723. The first issue before us is whether the sublease of the Project Site, on which Boeing 's 787
manufacturing facilities are located (both the Project Gemini facilities and infrastructure and the
Project Emerald facilities and infrastructure), involves a financial contribution by South Carolina to
Boeing within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.
8.724. The European Union and United States agree that there was a financial cont ribution in the
form of a provision of goods or services other than general infrastructure from the time that South
Carolina entered into the Vought Sublease with Vought on 25 August 2006. 2033 However, the
European Union considers that a "financial contribution is provided throughout the period that the

2024 United States' comments on the European Union's response to Panel question No. 107, para. 182.
2025 United States' first written submission, paras. 554-557; second written submission, para. 504.
2026 United States' second written submission, para. 504. The United States further argues that the
[***] of the Project Site "should offset any putative benefit conferred to Boeing by the provision of facilities
and infrastructure". (United States' second written submission, para. 507 and fn 752).
2027 United States' second written submission, para. 507.
2028 United States' second written submission, para. 505.
2030 United States' second written submission, para. 506.
2031 United States' second written submission, para. 508.
2032 United States' second written submission, para. 509.
2033 European Union's response to Panel question No. 172, para. 575.

government continues to provide such goods or services ".2034 As Boeing is "presently leasing the
project site directly from a South Carolina government agency " this is conclusive evidence of a
financial contribution to Boeing.2035
8.725. The United States argues that the relevant financial contribution by South Carolina was to
grant Vought a ground sublease of the Project Site when it executed the Vought Su blease on
25 August 2006. Boeing obtained its interest as sublessee under the Vought Sublease directly from
Vought on 30 July 2009, as part of what the United States asserts was an arm's-length transaction
for fair market value between Vought and Boeing. In these circumstances, the European Union
bears the burden of demonst rating (and has failed to demonstrate) that the benefit conferred by
any such financial contribution provided to Vought has "passed through" to Boeing.
8.726. In response, the European Union says that the United States has misunderstood its claims,
that its actual claims involve the provision of goods directly to Boeing by South Carolina, and that
such a financial contribution has been conferred on Boeing directly by South Carolina since
2009.2036 The European Union maintains that it does not allege that the benefit from any financial
contribution provided directly to Vought "passed through" to Boeing.2037 Thus, the European Union
argues that a subsidy to Boeing exists, not as a result of the pass -through to Boeing of a benefit
conferred by a financial contribution prov ided to Vought, but as a result of a benefit from a
financial contribution provided directly to Boeing.
8.727. The Panel asked the European Union to identify the temporal starting point for the alleged
financial contribution to Boeing, and to indicate whether th e alleged financial contribution is the
Vought Sublease, the Amended and Restated Sublease or other instruments or events. The
European Union responded as follows:
a. A financial contribution existed with respect to the sublease of the Project Site well
before 30 July 2009 (the date on which Boeing assumed the sublease from Vought).
However, it "does not claim that there was a 'benefit' or 'subsidy' to Boeing prior to that
date".2038
b. The sublease of the Project Site is the instrument through which South Carolina provides
Boeing with use of the Project Site, and consequently, the starting point for the benefit
and hence subsidy to Boeing is 30 July 2009, the date on which Boeing assumed the
sublease of the Project Site from Vought. In a footnote to this part of its response the
European Union then stated: "{a}ccordingly, the Europe an Union also considers
30 July {2009} the starting point of the financial contribution to Boeing directly".2039
8.728. In the part of the European Union's response recounted in (a) and the first se ntence of (b)
above, the European Union acknowledges that South Carolina provided a financial contribution to
Vought when it executed the Vought Sublease in 2006.
8.729. However, the European Union then states, in footnote 303 of its response to Panel
question No. 107, that "accordingly" it "also" considers the starting point of the direct financial
contribution to Boeing to be 30 July 2009. The European Union adds, in a final paragraph of its
response to Panel question No. 107, that if the Panel considers the ex ecution of the Amended and
Restated Sublease to be "relevant" to its determination of financial contribution or benefit, it could
"alternatively" consider the date of that instrument (i.e. 19 November 2009) as the starting point
of the "subsidy".2040 Notably, the European Union does not argue that it considers the Amended
and Restated Sublease to be relevant to the financial contribution determination, nor does it offer
any legal explanation as to why the Panel could potentially consider the Amended and Restat ed
Sublease to be so relevant.

2034 European Union's response to Panel question No. 172, para. 575.
2035 European Union's response to Panel question No. 172, para. 577. (emphasis original)
2036 European Union's response to Panel question No. 39, paras. 218 and 219.
2037 See e.g. European Union's response to Panel question No. 39, para. 220.
2038 European Union's response to Panel question No. 107, para. 169.
2039 European Union's response to Panel question No. 107, para. 170 and fn 303. The European Union
appears to have inadvertently written 1999 when it meant 2009. (emphasis original)
2040 European Union's response to Panel question No. 107, para. 171.

8.730. We recall that paragraphs 24 and 25 of the European Union 's panel request describe the
alleged subsidy as the provision of a "long-term lease" pursuant to a Ground Lease Agreement
between the Charleston County Aviation Author ity and South Carolina Public Railways and "a
ground sublease agreement between South Carolina Public Railways and Boeing, as amended ". It
would appear from the language used in the European Union 's panel request, and also in its first
written submission, that it means to identify the Amended and Restated Sublease, dated 19
November 2009, which on its face would appear to be the "ground sublease between South
Carolina Public Railways and Boeing, as amended".2041 Yet the European Union's response to Panel
question No. 107, that the temporal starting point of the "direct" financial contribution to Boeing is
30 July 2009 suggests, to the contrary, that the European Union is in fact referring to the Vought
Sublease as of the date on which Boeing became the assignee of Vought 's subleasehold rights
thereunder (i.e. 30 July 2009) as the relevant direct financial contribution to Boeing.
8.731. The correct identification of the legal instrument that the European Union alleges is the
direct financial contribution to Boeing is of key importance to the Panel 's analysis. This is because
the European Union challenges the legal instrument of the sublease itself as the financial
contribution that is said to constitute a provision of "goods … other than general infrastructure "
within the meaning of Article 1.1(a)(1)(iii). 2042 When we compare our understanding of the legal
instrument that is the measure described in the European Union 's panel request and first written
submission in particular (the Amended and Restated Sublease executed on 19 November 2009),
with the legal instrument that logically must be the challenge d measure based on the
European Union's response to Panel question No. 107 (the Vought Sublease, as of the date on
which Boeing became Vought's assignee), we are left in no smal l measure of doubt as to whether
the European Union has been sufficiently clear or consistent as to which legal instrument or event
is the direct financial contribution to Boeing.2043
8.732. As we explain below, we have concluded in any case that neither the assump tion by
Boeing of Vought 's interests under the Vought Sublease on 30 July 2009, nor the Amended and
Restated Sublease entered into by S outh Carolina Public Railways and Boeing on
19 November 2009, can be considered to constitute a direct financial contribution to Boeing.
8.2.8.5.3.2 Whether Boeing 's assumption of Vought 's interests under the Vought
Sublease on 30 July 2009 is a direct financial contribution to Boeing
8.733. As previously noted, the European Union and United States agree that there was a
financial contribution to Vought, in the form of a provision of goods or services other than general
infrastructure, at the time that South Carolina entered into the Vo ught Sublease with Vought on
25 August 2006.

2041 Additionally, after explaining that Boeing assumed the sublease of the Project Site from Vought on
30 July 2009, the European Union argues that, on 19 November 2009, "Boeing and SCPR (with the consent of
the Charleston County Aviation Authority) entered into the Amended and Restated Ground Sublease …
providing Boeing with that direct sublease." (European Union's first written submission, para. 553). The
references to the terms of the "Ground Sublease" in paragraphs 554 and 555 which the European Union then
argues (in paragraphs 556 and 557) is a specific subsidy to Boeing, are to Exhibit EU-471 which is the
Amended and Restated Sublease between South Carolina Public Railways and Boeing, dated 19 November
2009, not the Vought Sublease.
2042 This much is clear not only from paragraphs 24 and 25 of the European Union's panel request, but
also from its submissions: "{a}s demonstrated below, the provision of this lease constitutes a specific
subsidy". (European Union's first written submission, para. 556). "{t}he lease of the project site to Boeing
provides a financial contribution by a government under the SCM Agreement". (European Union's first written
submission, para. 557). "{t}he European Union explained in its First Written Submission that South Carolina's
lease of land at Charleston International Airport to Boeing (i.e., the 'project site lease') … provides to Boeing a
financial contribution within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement". (European Union's
second written submission, para. 614). "{t}he United States … misunderstands what is the subject of {the
European Union's valuation of the financial contribution}. Contrary to the US' characterization, the
European Union here valued the project site lease, not the project site itself." (European Union's second written
submission, para. 615 (emphasis original)).
2043 To the extent that the European Union intends to challenge a direct financial contribution allegedly
provided to Boeing by South Carolina as of 30 July 2009, when Boeing became the assignee of Vought's
interests under the Vought Sublease, there is a real issue in our view, whether the Vought Sublease has been
sufficiently clearly identified in the European Union's panel request.

8.734. To be clear, a government 's undertaking legal obligations embod ied in a legal instrument
such as a ground sublease is not of itself a provision of "goods". The characterization of a legal
instrument such as a government ground sublease as a "provision" of "goods" for purposes of
Article 1.1(a)(1)(iii) is based on the notion that the legal instrument creates a government
obligation to provide the recipient with certain rights in respect of a "good". In the present case,
the Vought Sublease provided the sublessee, Vought, with the rights of exclusive use and
possession o f the Project Site for an agreed period of time. There is accordingly a reasonably
proximate relationship between the action of the government in granting legal rights in the legal
instrument (i.e. Vought Sublease) and the use and enjoyment of the "good" (i.e. the Project
Site).2044
8.735. The United States considers that, while a ground sublease involves a government
obligation to provide rights to land for the duration of the ground sublease, the financial
contribution is the government's legal commitment to provide the land for a period into the future,
which occurs when the commitment becomes legally effective. The United States thus regards the
question of whether the Vought Sublease involves a subsidy to Boeing to concern the question of
the transmission of subsidy benefits between unrelated parties.
8.736. We recall that the disputes in US – Lead and Bismuth II and US – Countervailing Measures
on Certain EC Products addressed the question of whether the benefit conferred from past,
non-recurring subsidies continued t o exist and had been fully transferred to the recipient
firms' new owners in spite of the fact that the new owners had paid fair market value for the
recipient firms. The United States ' arguments are similarly based on an analytical framework in
which the financial contribution (South Carolina 's obligation to provide a Ground Sublease of the
Project Site) was made directly to Vought in 2006 when it entered into the Vought Sublease, while
any benefit conferred by that financial contribution (annual rental pa yments allegedly at below-fair
market value) would necessarily be enjoyed by the recipient over the period of the ground
sublease. Under this framework, when Boeing became the assignee of Vought's interests under the
Vought Sublease in July 2009, the relev ant question is whether the benefit conferred by the
allegedly below -market value rental payments, from the period of time from which Boeing had
assumed Vought 's rights and obligations, can be said to have "passed through " to Boeing, or
whether it was "extinguished" at that point because Boeing effectively paid for it when it acquired
the Project Emerald facilities and infrastructure from Vought in an arm 's-length, fair market value
transaction. For the United States, there is no question that the relevant financial contribution
occurred only once in 2006 when the South Carolina authorities granted the Vought Sublease to
Vought. The relevant issue is whether the benefit conferred by that f inancial contribution from
July 2009 onwards is being enjoyed by Boeing.
8.737. The European Union 's analytical approach, on the other hand, obviates the need to
determine whether the benefit conferred by a financial contribution to Party A in Year N has
"passed through " to an assignee of that financial contribution so that it is s ubsequently being
enjoyed by Party B in Year N + 1, by characterizing the assignment of the financial contribution by
Party A to Party B as itself giving rise to a new, distinct and direct financial contribution by a
government to the assignee. For the European Union, because Boeing enjoyed the right to use the
Project Site as Vought 's assignee under the Vought Sublease as of 30 July 2009, South Carolina
can be considered from that date to have made a new financial contribution of "goods … other than
general infrastructure" directly to Boeing under the Vought Sublease.
8.738. The parties' positions involve the question of how to characterize a financial contribution
that involves a government-provided legal right which is to be enjoyed over a period of time (e.g.
to occupy land, to obtain a particular tax treatment). More specifically, the question is whether the
government-provided legal right should be characterized for purposes of Article 1.1(a)(1) of the
SCM Agreement as a single financial contribution that occ urs at the time the government
undertakes the legal commitment, notwithstanding that the benefit conferred by that one -time
financial contribution may be analysed as being enjoyed over the period of the government 's
actual performance of that obligation , o r as a continuing or recurring series of financial
contributions commensurate with the government's performance of the obligation over time.

2044 Appellate Body Report, US – Softwood Lumber IV, para. 71. See also Appellate Body Report, US –
Carbon Steel (India), para. 4.69.

8.739. The United States regards the Vought Sublease over the Project Site as a "unified asset"
provided by South Carolina at the time of the execution of the Vought Sublease on
30 July 2006.2045 The existence and magnitude of any subsidy arising from the Vought Sublease
would be measured by reference to the market rates at the time the Vought Sublease was
executed and its terms (e.g. period and annual rental) were set. Whether the agreed annual rental
was below the market rate is an ex ante analysis that would be assessed at the time the South
Carolina authorities and Vought executed the Vought Sublease, even if the benefit were to be
considered to be enjoyed over the period of the sublease. 2046 When Boeing purchased Vought 's
South Carolina interests and assets – including Vought's interests under the Vought Sublease – for
over USD 1 billion in a July 2009 transaction with Vought, S outh Carolina "provided" nothing. It
was already contractually obligated to honour the annual rental and term of the Vought
Sublease.2047 The only question is whether the European Union can demonstrate that any benefit
conferred on Vought can be considered to have "passed through " to Boeing as assignee of
Vought's interests under the Vought Sublease in 2009, which the European Union has failed to do.
8.740. The European Union regards the Ground Sublease of the Project Site as "ongoing", rather
than a "completed single act in 2006".2048 According to the European Union, there are a number of
factors that support such a characterization, including: (a) the "nature of the land rights" provided
under a ground sublease, being "possession and use, rather than ownership "; (b) the conditioning
of those rights on certain performance obligations by the sublessee and the broader relationship of
other aspects of the Project Gemini incentive package to Boeing 's location of its facility on public
land; (c) South Carolina 's "ongoing supervisory relationship to Boeing as landlord "; and (d) the
limited term of the sublease and the eventual "reversion" of the Project Site to South Carolina. 2049
Moreover, the "goods or services " provided to Boeing are "qualitatively different " from those
previously provided to Vought, because the parts of the Project Site other than those already in
use by the Project Emerald companies were only made useable for the Project Gemini facilities and
infrastructure through approximately USD 50 million spent by South C arolina on land
remediation.2050 In addition, "Boeing's lease " is materially different from the Vought Sublease
because the former eliminated the performance requirements that potentially could have triggered
additional payment obligations on the part of Vought.2051
8.741. We do not consider it appropriate to characterize the financial contribution that arises from
the Ground Sublease of the Project Site, involving as it does a government provision of land for
the term of the sublease, as a financial contribution that i s ongoing, or continues, for the duration
of the Ground Sublease.2052 Like the United States, we see the financial contribution as a one -time
financial contribution made by South Carolina at the time the government undert akes the legal
obligation under the su blease, notwithstand ing that its performance of the obligation will
necessarily occur over time. When the South Carolina authorities entered into the Vought Sublease
with Vought in 2006, they became legally obligated to provide Vought or Vought 's assignees with
exclusive use and possession of the Project Site for the period of the Ground Sublease. This did
not change when Boeing became assignee of Vought's rights under the Vought Sublease.
8.742. We are not persuaded by the European Union 's arguments that the "nature" of the rights
granted to the sublessee, or the rights and obligations of South Carolina as sublessor, under the
Ground Sublease of the Project Site, warrant a characterization of the relevant financial
contribution as one that is "ongoing". We note th at ground leases (or land leases, as they are
sometimes called) are a particular form of property interest that typically involve the long-term
lease of land only. 2053 A ground lease tenant will usually construct its own buildings on the land

2045 United States' comments on the European Union's response to Panel question No. 107, para. 174.
2046 United States' comments on the European Union's response to Panel question No. 107, para. 180.
2047 United States' comments on the European Union's response to Panel question No. 107, para. 181.
2048 European Union's response to Panel question No. 172, para. 578.
2049 European Union's response to Panel question No. 172, para. 578.
2050 European Union's response to Panel question No. 172, para. 579.
2051 European Union's response to Panel question No. 172, para. 580.
2052 This is very different from the question of whether it is appropriate to analyse any benefit conferred
by such a financial contribution as being amortized over the period of the ground sublease, or over some other
appropriate period.
2053 Black's Law Dictionary describes a "ground lease" as follows:
A long term (usu. 99 -year) lease of land only. Such a lease typically involves
commercial property, and any im provements built by the lessee usu. revert to the
lessor.

and own those bu ildings for the duration of the ground lease term, after which the buildings will
become the property of the lessor when the control of the land reverts to the lessor. The long-term
nature of the lease means that the lessee will control the land for a suff icient length of time to
make him or her willing to invest in site and building improvements.2054 Ground leases are in many
respects regarded as an alternative to outright fee purchases, and may enable a lessee to obtain
long-term control and use of land that would not otherwise be available, or avoid the up -front
capital cost of purchasing land.2055
8.743. These characteristics of ground leases (which apply equally to the Ground Sublease of the
Project Site) suggest that they are comparable in many respects to outright purchases of land.
Under a ground lease, the lessee obtains exclusive use and control of the land for a long (but
necessarily finite) duration, rather than indefinitely, as in the case of an outright purchase. Like an
outright purchase, however, the lesso r grants the lessee the right to exclusive use and control of
the land for the term of the ground lease once, on execution of the Ground Sublease. This is the
case even though the period of time over which the ground lessee will necessarily enjoy the
exclusive use and control of the land is confined to the term of the ground lease (rather than
indefinitely, as in the case of an outright purchase).
8.744. The European Union argues that "subsidies involving leases of land are considered to
involve recurring benefit s" in U.S. law and practice in countervailing duty investigations. 2056 We
find it instructive that the authorities the European Union refers to in fact address the
characterization of the benefit rather than the financial contribution as being recurring in na ture.
We note in this regard that it is important not to confuse the concepts of an ongoing financial
contribution and a recurring benefit. We emphasize that in concluding that the financial
contribution made by the South Carolina authorities in granting V ought a Ground Sublease of the
Project Site in 2006 was made once on 25 August 2006 rather than continually or on a recurring
basis for the duration of the Ground Sublease, we do not suggest that the benefit or indeed the
subsidy in question existed only o nce in 2006. We mean only to say that the financial contribution
provided directly to Vought under the Vought Sublease in 2006 was not "continuous" and did not
become a financial contribution provided directly to Boeing on 30 July 2009 without any action o n
the part of the South Carolina authorities at that time.
8.745. We are therefore unable to identify any basis on which to conclude that South Carolina can
be said to have granted a new direct financial contribution to Boeing on 30 July 2009 when Boeing,
in a p rivate transaction with Vought, assumed Vought 's rights as sublessee under the Vought
Sublease. The legal instrument through which Boeing, as of 30 July 2009, enjoyed the exclusive
possession and use of the Project Site remained the Vought Sublease , and So uth Carolina 's
obligations with respect to that legal instrument, and thus the financial contribution , were
crystallized on 25 August 2006.
8.746. The European Union has argued that under "Boeing's lease", South Carolina eliminated the
performance requirements that previously would have triggered additional payment obligations on
the part of Vought, and thus that Boeing was "provided the land on materially different (and more
favourable) terms than was Vought ".2057 However, the replacement of the "Additional Rent "
provisions contained in identical terms in both the Vought Sublease and the Amended and
Restated Sublease with a "Performance Provision" occurred only as a result of the Project Gemini
Fee Agreement, which was entered into on 1 January 2010. The European Uni on has nowhere
argued that the Project Gemini Agreement, by amending certain aspects of the Amended and
Restated Sublease, so materially altered South Carolina 's obligation with respect to the Ground

(Black's Law Dictionary, 10th edn, B. A. Garner (ed.) (Thomson Reuters, 2004), p. 1025)
2054 C. Carneghi, "Determining Ground-Lease Rental Rates", The Appraisal Journal, April 2004, (Exhibit
EU-1108), p. 257.
2055 C. Carneghi, "Determining Ground-Lease Rental Rates", The Appraisal Journal, April 2004, (Exhibit
EU-1108), p. 257.
2056 European Union's response to Panel question No. 172, para. 586, and authorities cited at fn 1112
thereto.
2057 European Union's response to Panel question No. 172, para. 580 (emphasis original); comments on
the United States' response to Panel question No. 121, para. 349.

Sublease of the Project Site as to warrant the conclusio n that there was a new, direct financial
contribution to Boeing as of 1 January 2010, nor do we think such a conclusion is warranted.2058
8.747. Although not specifically argued by the European Union, we have additionally considered
the possibility that, if the lega l validity of Vought 's assignment to Boeing of its subleasehold
interest in the Project Site were conditional upon first obtaining the consent of S outh Carolina
Public Railways as sublessor, or C harleston County Aviation Authority as less or, there could
arguably be sufficient government action in July 2009 to warrant treating such consent to the
Vought assignment as "reasonably proximate" to Boeing's use and enjoyment of the Project Site,
and thus a "provision" of the property in question, for purposes of A rticle 1.1(a)(1)(iii). However,
while some lease instruments may expressly prohibit assignments of leases without the prior
consent of the lessor, the terms of the Vought Sublease do not appear to do so, meaning that the
legal effectiveness of Vought 's assignment of its interests under the Vought Sublease to Boeing
was not conditional upon any prior consent from S outh Carolina Public Railways as the
sublessor.2059
8.748. We similarly do not find any provision of the underlying Ground Lease to S outh Carolina
Public R ailways that could potentially operate to prevent the legal effectiveness of Vought 's
assignment of its interest under the Vought Sublease to Boeing without the prior consent of S outh
Carolina Public Railways or Charleston County Aviation Authority . We note that Charleston County
Aviation Authority (the lessor of the Project Site under the Ground Lease) did execute a consent to
the Amended and Restated Sublease on 19 November 2009. 2060 This consent is almost identical to
the consent that Charleston County Aviation Authority previously gave to the Vought Sublease.2061
However, it is not apparent that this consent was legally necessary, as section 12.01 of the Ground
Lease appears to enable S outh Carolina Public Railways to assign or sublease its interest in the
Ground Lease to any party without the consent of Charleston County Aviation Authority.2062
8.749. We note that, when the Ground Lease was amended on 19 November 2009, the following
sentence was added to section 12.01:
Through assignment of the Vought Sublease, {C harleston County Aviation Authority }
specifically authorizes the sublease by {S outh Carolina Public Railways } of its rights
hereunder to Boeing under the {Amended and Restated} Sublease and further
authorizes the lease by Boeing of certain Improvements within the Leased Premises to
entities engaged in manufacturing.2063
8.750. Once again, it is not clear that C harleston County Aviation Authority 's authorization of
Vought's assignment of its interest under the Vought Sublease to Boeing was legally necessary. It
appears th at this amendment to section 12.01 of the Ground Lease was added through an
abundance of caution to provide clarity that C harleston County Aviation Authority was aware of
Boeing's assumption of the Vought Sublease and its plans to construct further facilit ies on the
Project Site.

2058 We are similarly not persuaded that the question of whether a lease or sublease of land should be
analysed as a one-time or "ongoing" financial contribution is assisted by attempted analogies to the very
different context of breaches of international obligations having a "continuing character" or involving
"composite acts" in Articles 14 and 15 of the ILC's Articles on State Responsibility. (See European Union's
response to Panel question No. 172, fn 1091).
2059 Section 16 of the Vought Sublease permits Vought to assign or sublet additional portions of the
Project Site to third parties involved in the manufacture of aeronautical composites products for projects which
foster strategic development opportunities with appropriate investment and job creation without the prior
consent of South Carolina Public Railways. After 31 December 2013, the mutual consent of the parties is
required for any assignment or sublease of any "unused portion" of the Project Site. However, section 16 does
not on its terms prevent Vought from assigning its leasehold interest in the whole of the Project Site without
South Carolina Public Railway's prior consent.
2060 The consent appears as an attachment to the version of the Amended and Restated Sublease
submitted as Exhibit EU-471.
2061 The consent appears as an attachment to the version of the Vought Sublease submitted as Exhibit
EU-474.
2062 Ground Lease Agreement, (Exhibit EU-473).
2063 See First Amendment to Ground Lease Agreement by and between Charleston County Aviation
Authority and South Carolina Public Railways (19 November 2009), (Exhibit EU-476), section 11.

8.751. We therefore consider that there is insufficient support for the proposition that there was a
direct financial contribution to Boeing when Vought assigned its rights under the Vought Sublease
to Boeing on 30 July 2009, even leaving aside the terms of reference difficulties to which we have
previously referred.2064
8.2.8.5.3.3 Whether S outh Carolina Public Railway's entering into the Amended and
Restated Sublease with Boeing on 19 November 2009 is a new direct financial
contribution to Boeing
8.752. As we have previously explained, the terms of the European Union 's panel request and
arguments in its submissions, compared to its responses to the Panel 's questions and comments
on the United States responses, have left the Panel somewhat uncertain as to which legal
instrument the European Union challenges as the "long-term lease of government-owned land", or
the "sublease of the project site".
8.753. The European Union does not appear to have explicitly argued that S outh Carolina Public
Railway's entering into the A mended and Restated Sublease with Boeing on 19 November 2009
terminated the Vought Sublease, thereby putting to an end that financial contribution, and
bringing into existence a new direct financial contribution to Boeing. 2065 We nevertheless consider
whether the facts in question may support such a conclusion. In our view, if the Amended and
Restated Sublease could be considered to involve a new legal commitment on the part of South
Carolina to provide a Ground Sublease of the Project Site directly to Boeing, there would be a basis
for concluding that South Carolina made a direct financial contri bution to Boeing on
19 November 2009.
8.754. The United States argues that in executing the Amended and Restated Sublease with
Boeing on 19 November 2009, S outh Carolina Pub lic Railways did not enter into a new legal
relationship with Boeing. Rather, the Amended and Restated Sublease simply "formalized" Boeing's
role as successor -in-interest to Vought under the Vought Sublease. 2066 For the United States,
Boeing's interest as sublessee of the Project Site derives from the assignment by Vought of its
interests under the Vought Sublease on 30 July 2009.2067
8.755. We recall that on 28 October 2009, some three months after acquiring Vought 's South
Carolina operations (i.e. the Project Emerald facilities and infrastructure), and taking over Vought's
interest as sublessee under the Vought Sublease, Boeing decided to locate its second 787 final
assembly and delivery facility (i.e. the Project Gemini facilities and infrastructure) on the same
Project Site, allegedly as a result of the tax and other incentives offered by South Carolina. 2068 As
detailed in paragraph 8.710 above, on 19 November 2009, C harleston County Aviation Authority
and South Carolina Public Railways amended the underlying Ground Lease for the Project Site to
acknowledge that the Vought Sublease had been assigned to Boeing on 30 July 2009, as well as to
update certain factual information. 2069 At the same time, S outh Carolina Public Railways and
Boeing execute d the Amended and Restated Sublease which was expressed as amending,
restating, and entirely taking the place of the Vought Sublease.2070

2064 See fn 2043 above.
2065 We note that the European Union does not argue that the Amended and Restated Sublease involved
a new legal commitment by South Carolina to provide a Ground Sublease of the Project Site directly to Boeing.
Rather, the European Union argues that Boeing's interests as sublessee of the Project Site arose on 30 July
2009 when it was assigned Vought's interests under the Vought Sublease. For example, the European Union
explains in its first written submission that Boeing's purchases of Vought and Global Aeronautica additionally
led to it "taking over the $1 per year lease to the Project Emerald site at Charleston International Airport",
which lease "also covers the location of Boeing's 787 Final Assembly and Delivery Facility". (European Union's
first written submission, paras. 696, 552, and 553, and fn 1554).
2066 United States' second written submission, para. 492 and fn 722; response to Panel question
No. 101(b), para. 195; and response to Panel question No. 101(d), para. 199.
2067 Thus, the United States argues, to the extent the sublease of the Project Site involves a financial
contribution by South Carolina in the form of a provision of land other than general infrastructure: (a) it was
made to Vought (and not Boeing) on execution of the Vought Sublease on 25 August 2006; and (b) there was
no financial contribution made by South Carolina to Boeing.
2068 These incentives are the Project Gemini measures, set out in para. 8.682 above.
2069 First Amendment to Ground Lease Agreement by and between Charleston County Aviation Authority
and South Carolina Public Railways (19 November 2009), (Exhibit EU-476), recitals 3 and 4.
2070 Amended and Restated Sublease, (Exhibit EU-471), section 1.

8.756. Our examination of the Vought Sublease and the Amended and Restated Sublease
indicates that the Amended and Restated Sub lease is an instrument embodying the same Ground
Sublease of the Project Site that was originally provided to Vought under the Vought Sublease
(and of which Boeing became the assignee from Vought from 30 July 2009). 2071 The Project Site
the subject of the Amended and Restated Sublease is the same Project Site covered by the Vought
Sublease, and is defined in the same way in both instruments. The Amended and Restated
Sublease simply restates the terms of the sublease of the Project Site as originally provided i n the
Vought Sublease, replacing Vought for Boeing as the sublessee.2072 Significantly, there is nothing
to indicate that the subleasehold interests granted to Vought under the Vought Sublease (and then
assigned to Boeing) were ever terminated on or prior to 18 November 2009 such that S outh
Carolina Public Railways can be said to have granted Boeing a new subleasehold interest in the
Project Site when it executed the Amended and Restate d Sublease on 19 November 2009. We do
not see any basis for finding that So uth Carolina Public Railways provided a direct financial
contribution to Boeing on 19 November 2009 when it executed the Amended and Restated
Sublease with Boeing. We therefore conclude that the Amended and Restated Sublease is not
relevant to our determin ation of the financial contribution with respect to the sublease of the
Project Site.2073
8.757. In sum, our review of the relevant instruments suggests that Vought was legally entitled to
assign to Boeing its right to sublease the Project Site from S outh Carolina P ublic Railways on
30 July 2009, without first obtaining the consent of, or otherwise requiring any action on the part
of, South Carolina. Consequently, by entering into the Assignment and Assumption of Vought
Sublease with Boeing on 30 July 2009, Vought as signed its subleasehold interests in the Project
Site to Boeing, and Boeing thereby became the sublessee under the Vought Sublease. The
subsequent execution by South Carolina Public Railways and Boeing of the Amended and Restated
Sublease did not legally a lter this position, nor did any of the consents to the Vought assignment
executed by South Carolina Public Railways or Charleston County Aviation Authority.
8.758. As a result of the foregoing analysis, we conclude that the only relevant action that South
Carolina took in granting a Ground Sublease of the Project Site was when S outh Carolina Public
Railways entered into the Vought Sublease with Vought on 25 August 2006. 2074 Thus, the relevant
financial contribution is a financial contribution made directly to Vought in 2006.
8.759. As we have explained, we do not agree with the European Union 's characterization of the
financial contribution as "ongoing", and we do not consider that it has demonstrated the existence
of a direct financial contribution to Boeing. We wish to emp hasize that in reaching this conclusion,
we do not rule out the possibility that some or all of the benefit conferred by the financial
contribution provided to Vought in 2006 could have "passed through" to Boeing when it became
the assignee Vought's interest in the Vought Sublease on 30 July 2009, and thereby obtained the
right to use and control of the Project Site from that point onwards.

2071 This also appears to be the understanding of South Carolina, as in the second recital of the Ground
Lease, when referring to the assignment of the Vought Sublease to Boeing on 30 July 2009, Charleston County
Aviation Authority and South Carolina Public Railways state that pursuant to the Assignment and Assumption of
the Vought Sublease dated 30 July 2009, the Vought Sublease thereby became the "Boeing" Sublease. (First
Amendment to Ground Lease Agreement by and between Charleston County Aviation Authority and South
Carolina Public Railways (19 November 2009), (Exhibit EU-476)).
2072 As we note in para. 8.710, the operative terms of the Amended and Restated Sublease as regards
term, annual rent and representations of the sublessor and sublessee for all practical purposes remain the
same as those of the Vought Sublease. While the European Union argues that the "additional rent" provision in
the Vought Sublease was eliminated by the Project Gemini Agreement, we note that the Project Gemini
Agreement was executed by the State of South Carolina and Boeing on 1 January, 2010, which is subsequent
to the date on which the Amended and Restated Sublease was executed. The Amended and Restated Sublease
as originally executed contained the same "additional rent" provision as the Vought Sublease. (See
European Union's response to Panel question No. 39, para. 225).
2073 See also para. 8.746.
2074 Indeed, the European Union's own approach to the calculation of the "benefit" conferred by the
financial contribution reflects the notion that the financial contribution was made in August 2006 rather than in
2009. The European Union bases its estimate of the "benefit" on the annual value of the sublease of the Project
Site from the first full year of the sublease to Boeing (i.e. from January 2010) through the end of the final five
year extension on 31 December 2041. However, its estimate of the annual value is the "base lease value" of
the Project Site established in the Vought Sublease and negotiated with Vought in 2006. (See
European Union's first written submission, paras. 558 and 561).

8.760. While it is well accepted that a financial contribution provided to one entity can be
demonstrated to have conferred a benefit on (and thus constitute a subsidy to) another entity, the
European Union bears the onus of demonstrating that the benefit conferred by the financial
contribution to Vought passed through to Boeing as of 30 July 2009 or subsequently, particularly
in light of the United States ' arguments that Boeing 's acquisition of Vought 's South Carolina
operations, including the assignment of the sublease of the Project Site, was an arm's-length
transaction for fair market value. 2075 The European Union has not attem pted to do so, because its
characterization of the relevant financial contribution renders such a demonstration irrelevant.
However, we f ind its characterization of the relevant financial contribution, whether commencing
on 30 July 2009 or 19 November 2009, to be in error. This being so, the European Union has failed
to establish the existence of any benefit conferred on Boeing by whichever of the legal instruments
the European Union challenges as the Ground Sublease of the Project Site.
8.2.8.5.4 Conclusion
8.761. In light of our findings above with respect to the sublease of the Project Site, we conclude
that the European Union has failed to establish that the measure involves a subsidy to Boeing
within the meaning of Article 1 of the SCM Agreement.
8.2.8.6 Whether specific subsid ies exist by virtue of South Carolina 's provision of
Gemini and Emerald facilities and infrastructure to Boeing
8.2.8.6.1 Introduction
8.762. In paragraph 24 of its panel request, the European Union identifies the following measure
as a subsidy related to Project Gemini directly benefiting Boeing:
Provision of facilities and infrastructure at the Charleston International Airport site, as
provided for in the Project Gemini Agreement between Boeing and the State of South
Carolina, dated 1 January 2010, funded through state ge neral obligation bonds issued
pursuant to Title 11, Chapter 41 of the S.C. Code, as amended by Section 5 of H3130,
Act No. 124, 2009 S.C. Acts 1092 (H3130), and S.C. Code § 55-11-520, at no cost to
Boeing.
8.763. In paragraph 25 of its panel request, the European Union identifies the following measure
as a subsidy related to Project Emerald directly benefiting Boeing:
Provision of facilities and infrastructure at the Charleston International Airport site, as
provided for in the Project Emerald Confidential Site De velopment Agreement, funded
through state general obligation bonds issued pursuant to Title 11, Chapter 41 of the
S.C. Code, at no cost to Boeing.
8.764. The European Union 's arguments concern, on the one hand, facilities and infrastructure
relating to Boeing 's 787 final assembly and delivery facility (Gemini facilities and infrastructure)
and, on the other, facilities and infrastructure relating to Boeing 's 787 fuselage fabrication and
integration complex (Emerald facilities and infrastructure). 2076 The United State s argues that the
European Union has failed to demonstrate that the alleged financial contribution confers a benefit
(with regard to the Gemini facilities and infrastructure) and that a financial contribution to Boeing
exists (with regard to the Emerald fa cilities and infrastructure), and that the alleged financial
contributions are specific within the meaning of Article 2 of the SCM Agreement.
8.765. With regard to the Project Gemini facilities and infrastructure , as explained in
Section 8.2.8.3.1, under the Project Gemini Agreement, dated 1 January 2010, which provides for
various incentives in relation to Project Gemini, South Carolina co mmitted to issue a total of
USD 220 million in state economic development bonds to offset the co sts of infrastructure
associated with Project Gemini and to issue USD 50 million in air hub bonds to offset the costs
associated with air carrier hub terminal facilities. 2077 Boeing agreed that "the commitments made

2075 United States' first written submission, para. 548.
2076 European Union's first written submission, paras. 697 and 567.
2077 Project Gemini Agreement, (Exhibit EU-467), Articles II(A) and II(B), p. 3.

by Commerce of general obligation bond fund ing set forth in this Section II were made based on
the expectation that Boeing will attain the Minimum Job requirement and the Minimum Investment
requirement as defined in Section IV herein, or, if those requirements are not met during the
applicable time -period, will be obligated to reimburse the State in accordance with the
Performance Provision attached hereto as Exhibit A."2078
8.766. The Project Gemini Agreement provides a set of procedures to ensure the proper
application of the bond proceeds, whereby Boeing enters into contracts to construct infrastructure
and facilities, pays the invoices and subsequently submits the invoices to South Carolina for
reimbursement. On 13 January 2010, the South Carolina State Budget and Control Board adopted
three resolutions, providing for the issuance and sale of economic development bonds and air hub
bonds, as contemplated by the Project Gemini Agreement. 2079 The resolutions provided that the
economic development bond proceeds were to be used as follows: USD 10 million for "{r}oad
improvements necessary to provide Project Gemini full use of the project site "; USD 53.9 million
for "{s}ite preparation, including clearing, grading, and filling the site, and construction of any
required infrastructure"; USD 156.1 million for "{c}onstruction of the new assembly facility which
is functionally related to and is part of the air carrier hub terminal facility ".2080 The air hub bond
proceeds, in the amount of USD 50 million, were to be used for "{c}onstruction of the new
assembly facility which is functionally related to and is part of the air carrier hub terminal
facility".2081
8.767. Beginning in November 2009, Boeing contracted and paid for the construction of facilities
and infrastructure pertaining to Project Gemini on the Project Site. The construct ion costs were
reimbursed, at least partially, in the amount of USD 270 million, by South Carolina through bond
proceeds. [***].2082
8.768. With respect to the Project Emerald facilities and infrastructure , as explained in
Section 8.2.8.3.2, Project Emerald was the subject of an agreement concluded in 2004 and 2006
between the relevant South Carolina authorities and Vought, on its own behalf and on behalf of
the Project Emerald entities, which contemplated a number of incentives, includi ng the issuance of
state bonds to fund certain facilities and infrastructure. 2083 Specifically, South Carolina committed
to providing economic development bond proceeds to the maximum amount of USD 120 million to
Vought while Vought inter alia committed itself to utilising these proceeds towards the construction
of infrastructure, as broadly defined in section 11 -41-30 of the South Carolina Code, within broad
categories of expenditure as laid out in the Project Emerald Agreement. 2084 The South Carolina
State Budget and Control Board approved the issuance of the economic development bonds for

2078 Project Gemini Agreement, (Exhibit EU-467), p. 3. (emphasis original)
2079 South Carolina State Budget and Control Board, A Resolution to Provide for the Issuance and Sale of
Not Exceeding in the Aggregate Fifty Million Dollars (USD 50,000,000) Principal Amount General Obligation
State Economic Development Bonds of the State of South Carolina, to Prescribe the Purposes for Which the
Proceeds Shall Be Expended, to Provide for the Payment Thereof, and Other Matters Relating Thereto
(13 January 2010), exhibit 3 (Gemini economic development bond resolution), (Exhibit EU-481); South
Carolina State Budget and Control Board, A Resolution to Provide for the Issuance and Sale of Not Exceeding in
the Aggregate One Hundred Seventy Million Dollars (USD 170,000,000) Principal Amount General Obligation
State Economic Development Bonds of the State of South Carolina, to Prescribe the Purposes for Which the
Proceeds Shall Be Expended, to Provide for the Payment Thereof, and Other Matters Relating Thereto
(13 January 2010) (Gemini additional economic development bond resolution), (Exhibit EU-482); and South
Carolina State Budget and Control Board, A Resolution to Provide for the Issuance and Sale of Not Exceeding in
the Aggregate Fifty Million Dollars (USD 50,000,000) Principal Amount General Obligation State Air Carrier Hub
Terminal Facilities Bonds of the State of South Carolina, to Prescribe the Purposes for Which the Proceeds Shall
Be Expended, to Provide for the Payment Thereof, and Other Matters Relating Thereto (13 January 2010),
exhibit 2 (Gemini air hub bond resolution), (Exhibit EU-483).
2080 Gemini economic development bond resolution, (Exhibit EU-481), pdf p. 44; Gemini additional
economic development bond resolution, (Exhibit EU-482), pdf p. 44.
2081 Gemini air hub bond resolution, (Exhibit EU-483), pdf p. 45.
2082 Project Gemini Reimbursement Documents (formerly Exhibit US-13-287), (Exhibit EU-1269) (BCI).
2083 Initial Project Emerald Site Development and Incentive Agreement, (Exhibit EU-560); and Final
Project Emerald Incentive Agreement, (Exhibit EU-550).
2084 Final Project Emerald Incentive Agreement, (Exhibit EU-550), sections 2.1 and 2.3. While the Initial
Project Emerald Agreement originally contemplated the issuance of both economic development bonds and air
hub bonds, it appears that Project Emerald was only eligible for economic development bonds, and only that
type of bond was issued. Compare section 2.1 of the Initial Project Emerald Site Development and Incentive
Agreement, (Exhibit EU-560) and section 2.1 of the Final Project Emerald Incentive Agreement, (Exhibit
EU-550).

this purpose in a resolution adopted on 14 December 2004. This resolution provided that the bond
proceeds were to be utilized as follows: USD 7.5 million for "site prep "; USD 5 Million for
"wetlands", USD 2 million for "airport improvements "; USD 2 million for "road improvements ";
USD 2 million for a "training/multi-use center"; and USD 97 million for "manufacturing facilities".
The remaining USD 4 million was allocated to the costs of issuing the bonds. This resolution also
provided a tentative timetable for expenditure of the bond proceeds in support of Project Emerald
from November 2004 to April 2006.2085
8.769. Vought was granted the right to sublease the Project Site in the Initial Project Emerald
Agreement concluded on 29 November 2004, an arrangement subsequently formalised through
the Ground Lease and the Vought Ground Sublease, both dated 25 August 2006. 2086 The Vought
Ground Sublease provides in Article 7 that "{s}ublessee is subleasing the Premises for the purpose
of constructing thereon facilities related to the manufacture of products for the aeronautics
industry (the 'Improvements')". Prior to the beginning of production in 2006, Vought contracted
and paid for the construction o f facilities and infrastructure on the Project Site. Vought 's
construction costs were then partially reimbursed by the South Carolina Department of Commerce
through economic development bond proceeds.2087
8.770. On 6 July 2009, Vought and Boeing entered into the Vo ught Asset Purchase Agreement,
pursuant to which Vought sold its title and interest in the assets that it owned, leased, licensed,
used or held for use in connection with the design, manufacture, and assembly of the aft fuselage
sections of the 787. On 30 July 2009, Vought assigned to Boeing its rights to the Project Site
under the Assignment and Assumption of Vought Sublease 2088, and to the Emerald facilities and
infrastructure constructed thereon, under two apparently [***] instruments.2089
8.771. On 19 November 2009 , Boeing entered into the Amended and Restated Ground Sublease
with South Carolina Public Railways2090, Article 7 of which provides that "{s}ublessee is subleasing
the Premises for the purpose of (a) constructing thereon or (b) using previously constructed
thereon facilities related to or supporting the manufacture of products for the aeronautics industry
(the 'Improvements')".
8.2.8.6.2 Main arguments of the parties
8.772. Regarding the Gemini facilities and infrastructure , the European Union argues that South
Carolina constructed custom-built facilities and infrastructure for Boeing and is presently providing
Boeing with the exclusive use of these facilities and infrastructure for the entirety of their useful
life. Such a provision of goods and services other than general infrastructure constitutes a financial
contribution within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement. 2091 The
European Union asserts, in this regard, that the State of South Carolina maintains title to the
facilities and infrastructure construc ted with the bond proceeds and that Boeing only has a
leasehold interest in these facilities and infrastructure. 2092 The European Union argues, in the
alternative, that South Carolina has provided Boeing with funding for the construction of its 787

2085 South Carolina State Budget and Control Board, Resolution providing for the issuance and sale of
not exceeding in the aggregate one hundred sixty million (USD 160,000,000) principal amount general
obligation state economic development bonds of the State of South Carolina, to prescribe the purposes for
which the proceeds shall be expended, to provide for the payment thereof, and other matters relating thereto
(14 December 2004), (Exhibit EU-551).
2086 Ground Lease Agreement, (Exhibit EU-473). Exhibit E of the Ground Lease contains the Vought
Ground Sublease.
2087 South Carolina Office of the State Treasurer, Debt Management System, Project Emerald
Reimbursement Documents, 6 January 2005 (formerly Exhibit US-13-288), (Exhibit USA-247) (BCI).
2088 Assignment of Vought Sublease, (Exhibits EU-475/USA-449 (exhibited twice)).
2089 Bill of Sale, Assignment and Assumption Agreement (30 July 2009), (Exhibit USA-515) (BCI); and
Assignment and Bill of Sale from Vought Aircraft Industries, Inc. to Boeing Commercial Airplanes Charleston
South Carolina, Inc. (30 July 2009), (Exhibit EU-552). Also see United States' response to Panel question
No. 120, para. 249.
2090 Amended and Restated Sublease, (Exhibit EU-471).
2091 European Union's first written submission, para. 573. We note that while Article 1.1(a)(1)(iii) of the
SCM Agreement refers to "goods or services other than general infrastructure" (emphasis added), the
European Union mainly refers in its submissions to "goods and services".
2092 European Union's first written submission, paras. 574-576.

final assembly facility through the transfer of bond proceeds to Boeing, which constitutes a direct
transfer of funds in the sense of Article 1.1(a)(1)(i) of the SCM Agreement.2093
8.773. The European Union considers that its explanation of why under the Vought Ground
Sublease Vought only has a leasehold interest in the Emerald facilities and infrastructure also
applies to Boeing's interest in the Gemini facilities and infrastructure. Thus, Boeing has a leasehold
interest, or the functional equivalent thereof, in the Premises , including all improvements
constructed thereupon at whatever point.2094
8.774. In response to a Panel question, the European Union explains that, if the Panel were to
reach the factual conclusion that Boeing constructed the Gemini facilities and infrastructure an d
that South Carolina partially reimbursed Boeing 's costs of constructing these facilities and
infrastructure, the measures should nevertheless be characterized as a provision of goods and
services other than general infrastructure within the meaning of Ar ticle 1.1(a)(1)(iii) of the SCM
Agreement.2095 In this respect, the European Union notes that the Appellate Body has indicated
that a panel 's characterization of a measure should identify the measure 's most significant
features.2096 Thus, although as a formal ma tter funds were being transferred directly from South
Carolina to Boeing, the essence of the transaction is one of South Carolina providing goods and
services to Boeing. The transfer of funds from South Carolina to Boeing is merely a means to the
end of enabling South Carolina to provide goods and services to Boeing. Indeed, even before the
funds were raised through the sale of economic development bonds and air hub bonds it had
already been determined that those funds must be expended on goods and services to be provided
to Boeing, including for the construction and assembly of a new assembly facility. Boeing pays for
the construction of the facility and infrastructure, and is then promptly reimbursed by the
government for this expenditure. Moreover, the Un ited States has acknowledged that "the State
{of South Carolina} (or a political subdivision of the State) retains an ownership or reversionary
interest in such property ".2097 According to the European Union, it should make no difference to
the fundamental na ture of the transaction, for purposes of the analysis under Article 1.1(a)(1)
whether Boeing paid for the goods and services and was reimbursed, or whether the government
initially paid for the goods and services to be provided to Boeing. 2098 The European Uni on also
contends that the United States ' argument on how to determine whether a benefit exists implies
that the United States agrees that the measure should be characterized as a provision of goods
and services within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.2099
8.775. The European Union further argues that the provision of the Gemini facilities and
infrastructure confers a benefit within the meaning of Article 1.1(b).2100 The provision of facilities is
made for less than adequate remuneration in rela tion to prevailing market conditions, as Boeing
provides nothing in exchange. This is so regardless of whether the financial contribution is
considered as a provision of goods and services other than gener al infrastructure under
Article 1.1(a)(1)(iii), or as a direct transfer of funds under Article 1.1(a)(1)(i). Indeed, paying
nothing constitutes less than adequate remuneration since Boeing would have two options to
obtain access to the custom -made Gemini facilities and infrastructure in the market: either raise
funds in the market to construct the facilities and infrastructure itself, or find another market
participant to construct and then lease the facilities and infrastructure. Each option carries with it a
financing cost.2101

2093 European Union's first written submission, para. 577.
2094 European Union's response to Panel question No. 101(c), paras. 129 and 130.
2095 European Union's response to Panel question No. 106.
2096 European Union's response to Panel question No. 106, para. 163.
2097 United States' response to the Panel's request for information pursuant to Article 13 of the DSU,
dated 28 February 2013, response to question No. 64, para. 144.
2098 European Union's response to Panel question No. 106, para. 164. See also European Union's
comments on United States' response to Panel question Nos. 101, para. 305; and 116, paras. 340-342.
2099 European Union's response to Panel question No. 106, para. 165; comments on United States'
response to Panel question No. 101, para. 306.
2100 European Union's first written submission, paras. 578-582; second written submission,
paras. 635-638.
2101 European Union's response to Panel question No. 105, paras. 155 and 156; first written submission,

8.776. With respect to specificity, the European Union argues that the provision of the Gemini
facilities and infrastructure is specific within the meaning of Articles 2.1(a) and 2.1(c).2102 First, the
transfer of bond proceeds is specific to Boeing within the meaning of Article 2.1(a) since So uth
Carolina committed to providing the Gemini facilities in the Project Gemini Agreement, the
resolutions authorising the issuance of bonds explicitly restricted the use of the bond proceeds to
the construction of the facilities for Boeing 's use, and the legislative provision pursuant to which
the bonds were issued was enacted under H3130, the Boeing incentive legislation. 2103
Furthermore, access to the subsidy is limited to the aviation and aerospace industry, since air hub
bond proceeds may only be issued for air carrier hub terminal facilities, and economic development
bond proceeds may only be used for buildings when used in connection with air hub carrier
terminal facilities or located on government -owned land.2104 Second, the provision of the Gemini
facilities and infrastructure is specific within the meaning of Article 2.1(c) since this type of subsidy
has only been used by a limited number of enterprises, and Boeing and its suppliers have been its
predominant users.2105
8.777. Regarding the Emerald facilities and infrastructure, the European Union argues that South
Carolina constructed custom-built facilities and infrastructure for Project Emerald and is presently
providing Boeing with the exclusive use of these facilities and infrastructure for the remainder of
their useful life. Such a provision of goods and services other than general infrastructure
constitutes a financial contribution within the meaning of Article 1.1(a)(1)(iii) of the SCM
Agreement.2106 The European Union asserts, in this regard, that the State of South Ca rolina
maintains title to the Emerald facilities and infrastructure constructed with the bond proceeds and
that Boeing only has a leasehold interest in these facilities and infrastructure.2107
8.778. The European Union rejects the argument of the United Sta tes that South Carolina does
not provide any Emerald facilities and infrastructure to Boeing since Boeing purchased the right to
use the facilities and infrastructure from Vought and Global Aeronautica at arm's-length and for
fair market value. The European Union contests the assertion that this purchase was made for fair
market value and argues that the United States fails to explain how Boeing 's transactions with
Vought could change the fact that South Carolina is currently providing the facilities and
infrastructure to Boeing at below-market rates.2108
8.779. In response to a Panel question, the European Union argues that Vought never actually
owned, and therefore could not sell, the bond -funded Emerald facilities and infrastructure to
Boeing, as they were owned a t all times by South Carolina (or an agency thereof). 2109 First, the
European Union contends that as a matter of the property law s of U .S. states: ( a) the term
"Premises" as used in the Vought Ground Sublease refers to buildings and land together; and ( b)
ownership of buildings and other permanent improvements constructed upon leased premises
passes to the lessor.2110 Second, the European Union argues that South Carolina built the Emerald
facilities and infrastructure. 2111 South Carolina law requires that bond issua nces be used to fund
buildings located only on land owned by a state agency, or at an air carrier hub terminal facility,
for a public purpose. 2112 As such, improvements constructed with the proceeds of state bonds
become part of the leased premises, pursuant to the underlying rules of U .S. state property

2102 European Union's first written submission, paras. 583-586; second written submission,
paras. 639-642.
2103 European Union's first written submission, paras. 583 and 584.
2104 European Union's first written submission, para. 584; second written submission, para. 639.
2105 European Union's first written submission, para. 585; second written submission, para. 639.
2106 European Union's first written submission, para. 701.
2107 European Union's first written submission, para. 702. As support for its view that Boeing only has a
leasehold interest in the Emerald facilities and infrastructure, the European Union invokes Article 6.06(A) of the
Ground Lease, as incorporated into the Boeing Ground Sublease, governing the ownership of improvements to
the Project Site that are real property (Category I improvements). (European Union's first written submission,
para. 702).
2108 European Union's second written submission, para. 727. The European Union further states that, to
the extent that the United States argues that the expected future value of the subsidies passed through to
Vought and Global Aeronautica at the time of the sale to Boeing, a similar argument was rejected by the panel
in the original proceedings. (European Union's second written submission, paras. 727 and 728 (referring to
Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.881)).
2109 European Union's response to Panel question No. 101, para. 134.
2110 European Union's response to Panel question No. 101(a), paras. 121, 122, and 125.
2111 European Union's response to Panel question No. 101(a), para. 121.
2112 European Union's response to Panel question No. 101(a), paras. 122 and 123.

law.2113 In this respect, the European Union contends that section 6.06(A) of the Ground Lease
does not affect the respective property interests of S outh Carolina Public Railways and Vought in
Category I Improvem ents. In particular, given that S outh Carolina Public Railways is part of the
South Carolina Department of Commerce, section 6.06(A) does not provide a basis for transferring
ownership of the improvements built by the South Carolina Department of Commerce to
Vought.2114 Finally, the European Union argues that section 4.9 of the Vought Asset Purchase
Agreement does not clarify the nature of Vought 's rights in the Emerald facilities and
infrastructure.2115
8.780. The European Union considers that the fact that the Emerald facilities and infrastructure
are owned by South Carolina, and that the facilities and infrastructure became part of the Premises
subject to the Ground Sublease, confirms that South Carolina, through C harleston County Aviation
Authority and S outh Carolina Public Railways as lessors, is "providing" such facilities and
infrastructure directly to Boeing as lessee.2116
8.781. Nonetheless, the European Union posits, with regard to each of the financial contributions
associated with the provision of land and the provision of the Emerald and Gemini facilities and
infrastructure, that South Carolina or a state agency is providing Boeing with the right to possess
and use tangible assets that would (or do) belong to the state. In this regard, it is irrelevant
whether Boeing is considered to have legal title to, or simply a leasehold interest in, such assets as
both arrangements would constitute "provision" of goods and services.2117
8.782. The European Union further argues that the provision of the Emerald facilities and
infrastructure confers a benefit to Boeing within the meaning of Article 1.1(b), since it is made for
less than adequate remuneration in relation to prevailing market conditions. 2118 Finally, the
European Union contends that the provision of the facilities and infrastructure is specific within the
meaning of Articles 2.1(a) and 2.1(c). Indeed, the resolutions authorising the issuance of the
bonds indicate that access to the subsidy is de jure limited to the Project Emerald companies, or at
a minimum the aeronautics industry. The subsidy is also de facto specific since it has only been
used by a limited number of enterprises, and Boeing and its suppliers have been the predominant
users.2119
8.783. Regarding the Gemini facilities and infrastructure , the United States argues that the
European Union 's assertion regarding the existence of a financial contribution in the form of a
provision of goods rests on factual misunderstandings. 2120 First, the United States argues that
Boeing, not South Carolina, constructed the facilities and infrastructu re, and that South Carolina 's
only role was to reimburse a portion of Boeing 's costs.2121 In this respect, the United States points
to the reimbursement forms and supporting documentation for Boeing 's expenditures in
constructing the facilities and infrastructure.2122 Second, the United States contends that , contrary
to the European Union 's assertion, Boeing, not South Carolina , maintains title to the facilities and
infrastructure constructed with the bond proceeds. Boeing obtained this title at the latest upon
Boeing's construction of the facilities and infrastructure, and pursuant to the Ground Lease, such

2113 European Union's response to Panel question No. 101(a), para. 125.
2114 European Union's response to Panel question No. 101(a), para. 124. The European Union argues
that while it is possible that Vought retained ownership of improvements constructed solely by Vought, subject
to the reversionary interest of the South Carolina Civil Aviation authority upon expiry of the lease, such
term-limited ownership does not appear to differ from a transferable leasehold interest for the same term.
(European Union's response to Panel question No. 101(a), para. 126).
2115 European Union's response to Panel question No. 101(a), para. 128.
2116 European Union's response to Panel question No. 101(d), para. 134.
2117 European Union's response to Panel question No. 101, para. 132.
2118 European Union's first written submission, para. 705.
2119 European Union's first written submission, paras. 706-708.
2120 United States' second written submission, para. 512. The United States indicates with respect to the
alleged financial contribution in the form of a provision of bond-funded facilities and infrastructure to Boeing in
the context of Project Gemini that it "simply addresses the EU case as it has argued it, and has demonstrated
why the EU's case is flawed. The United States has not taken a position on the correct characterization of this
series of transactions outside the context of the EU's claims and arguments". (United States' comments on
European Union's response to Panel question No. 101, fn 257). See also United States' comments on
European Union's response to Panel question No. 101(d), fn 229.
2121 United States' response to Panel question Nos. 101, para. 203, 116, paras. 240-242; and comments
on European Union's response to Panel question No. 106, para. 169.
2122 United States' response to Panel question No. 116, para. 240.

property remains Boeing 's until the expiration or termination of the Ground Lease. 2123 With
reference to a statement by the European Union that "in any circumstance involving a provision of
goods, the goods will have been constructed or acquired before they are provided ", the
United States argues that the European Union 's own standard implies that South Carolina could
not have provided the Emerald or Gemini facili ties and infrastructure to Boeing because it never
constructed or acquired those facilities or infrastructure. Since the Gemini facilities and
infrastructure were never owned by South Carolina , they could not have been provided by South
Carolina to Boeing. The United States considers that the Europ ean Union 's assertion that "it is
irrelevant whether Boeing is considered to have legal title or simply a leasehold interest in such
assets, as both arrangements would constitute 'provision'" is belied by the Euro pean Union 's
arguments, which are based on South Carolina 's purported ownership of the facilities and
infrastructure.2124
8.784. The United States considers that in contending that it makes no difference whether Boeing
paid for the goods and services and was reimbur sed, or whether the government initially paid for
the goods and services to be provided to Boeing , the European Union ignores the fact that only a
portion of the costs were reimbursed.2125
8.785. With respect to the Emerald facilities and infrastructure , the United States argues that
there is no financial contribution by a government since Boeing 's right to use the facilities and
infrastructure stems from Vought, not South Carolina. More specifically, Boeing obtained
ownership of the Emerald facilities and infrastru cture through the Vought Asset Purchase
Agreement and related legal instruments. 2126 The United States argues that its position that
Vought owned the Emerald facilities and infrastructure, prior to selling them to Boeing is supported
by section 6.06(A) of the Ground Lease. This provision indicates that when improvements are
constructed by the sublessee of Operator (e.g. Vought or Boeing), such improvements remain the
property of sublessee until expiration or termination of the Ground Lease. It is not until the
expiration or termination of the Ground Lease that such improvements become the property of the
Charleston County Aviation Authority (the Lessor). Thus, while South Carolina (through C harleston
County Aviation Authority ) does not have and has never had ti tle to the improvements, it does
maintain a future interest in the improvements. 2127 The United States also considers that Vought's
ownership of the Emerald facilities and infrastructure is corroborated by the Vought Asset Purchase
Agreement. Indeed, section 4.9(c)(i) states that Vought "owns the Facilities free and clear of any
Encumbrances except for Permitted Encumbrances and Outstanding Encumbrances".2128
8.786. Furthermore, the United States argues that the European Union is wrong to state that the
Emerald facilities and infrastructure were built by South Carolina. The facilities and infrastructure
were in fact built by Vought. Only after paying for the construction of the facilities and
infrastructure did Vought apply for partial reimbursement from the South Caroli na Department of
Commerce. The South Carolina Department of Commerce had no control over the construction
process itself, nor did it select which of the expenditures it would reimburse. There is no basis for
concluding that, by the South Carolina Departmen t of Commerce partially reimbursing Vought 's
construction costs, S outh Carolina Public Railways gained title to the Emerald facilities and
infrastructure.2129 In any event, the European Union is wrong to presume that ownership of the
Emerald facilities and in frastructure is determined by who built them. Instead, section 6.06(A) of
the Ground Lease provides a clear statement as to "Title to Improvements and Alterations".2130
8.787. Finally, the United States rejects the European Union 's argument that it ultimately does
not matter whether Vought had a leasehold interest in the facilities and infrastructure or a
time-limited ownership. Where South Carolina never had more than a future interest in the

2123 United States' response to Panel question No. 101, paras. 199 and 202.
2124 United States' comments on European Union's response to Panel question No. 101, paras. 149 and
150.
2125 United States' comments on European Union's response to Panel question No. 106, para. 169.
2126 See e.g. United States' response to Panel question Nos. 101(b), para. 194, and 101(d), para. 199.
2127 United States' response to Panel question No. 101, para. 190.
2128 United States' response to Panel question No. 101(a), para. 191.
2129 United States' comments on the European Union's response to Panel question No. 101(a),
para. 140.
2130 United States' comments on the European Union's response to Panel question No. 101(a),
paras. 138 and 139.

Emerald facilities and infrastructure, South Carolina could not have "provided" those facilities and
infrastructure within the meaning of Article 1.1(a)(1).2131
8.788. The United States argues that the provision of the Gemini facilities and infrastructure
confers no benefit within the meaning of Article 1.1(b). 2132 First, the European Union 's benefit
arguments are based on the factually inaccurate premise that Boeing received the bond funds for
the Gemini facilities and infrastructure for free. Boeing has in fact compensated South Carolina
through its investment in un improved real property at the Project Site, which will revert to South
Carolina at the end of the Amended Ground Lease. 2133 Second, the European Union has failed to
provide an adequate benchmark for determining benefit since the relevant question for the
European Union 's arguments is how much more Boeing would pay to rent the facilities and
infrastructure in question if South Carolina were a market actor. 2134 Furthermore, the
United States is aware of no logic or principle endorsed by the Appellate Body supporting the
European Union 's po sition that, even if the financial contribution is properly characteri zed as a
direct transfer of funds, the benefit has the same value as the value of the goods and services that
must, by law, be purchased with the funds transferred by the government.2135
8.789. With respect to specificity, the United States argues that the provision of the bond -funded
Gemini facilities and infrastructure is not specific within the meaning of Article 2.2136 The specificity
analysis should be carried out at the level of the South Carol ina legislative system for issuing state
bonds.2137 First, the provision of bond -funded facilities and infrastructure is not specific within the
meaning of Article 2.1(a), since there is no provision in this legislative system limiting access for
funds raised through economic development bonds, air hub bonds, and industrial revenue bonds to
certain enterprises.2138 Moreover, none of the individual pieces of legislation pursuant to which the
bonds are issued limit access to certain enterprises. 2139 The mere fact that the Project Gemini
Agreement and the South Carolina State Budget and Control Board resolutions authorising the
issuance of bonds mention Boeing by name is not sufficient to sati sfy the requirements of
Article 2.1(a), since the specificity analysis must be carried out at a different level.2140 Second, the
provision of bond -funded facilities and infrastructure is not specifi c within the meaning of
Article 2.1(c), since the South Carolina bond scheme has funded facilities and infrastructure that
are used by a variety of companies, only two of which are in the aerospace industry.2141
8.2.8.6.3 Evaluation by the Panel
8.2.8.6.3.1 Whether there is a financial contribution
8.790. The issue before the Panel is whether South Carolina authorities provide the Gemini and
Emerald facilities and infrastr ucture2142 to Boeing, such that a financial contribution exists within
the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement ( "a government provides goods or
services other than general infrastructure, or purchases goods "). In addition, with regard to th e
Gemini facilities and infrastructure, the European Union argues in the alternative that a financial
contribution exists in the form of a direct transfer of funds in the sense of Article 1.1(a)(1)(i) of
the SCM Agreement ("a government practice involves a direct transfer of funds (e.g. grants, loans,
and equity infusion), potential direct transfers of funds or liabilities (e.g. loan guarantees) "). The

2131 United States' comments on the European Union's response to Panel question No. 101(a),
para. 145.
2132 United States' first written submission, paras. 583 and 584; second written submission, para. 519.
2133 United States' first written submission, para. 488; response to Panel question Nos. 105, para. 224,
128, para. 265, and 129, paras. 266 and 267; and comments on European Union's response to Panel question
Nos. 105, paras. 162-168, and 106, para. 169.
2134 United States' first written submission, paras. 583 and 584; second written submission, para. 519.
2135 United States' comments on European Union's response to Panel question Nos. 105, paras. 162 and
164-168, and 106, para. 170. Also see United States' response to Panel question No. 105, para. 228.
2136 United States' first written submission, paras. 619-632; second written submission, paras. 523-532.
2137 United States' first written submission, para. 624.
2138 United States' first written submission, paras. 625-628; second written submission, paras. 524-528.
2139 United States' first written submission, para. 626.
2140 United States' first written submission, para. 627.
2141 United States' first written submission, paras. 629-632; second written submission, paras. 529-532.
2142 As noted above, "Gemini facilities and infrastructure" refers to Boeing's 787 final assembly and
delivery facility and "Emerald facilities and infrastructure" refers to Boeing's 787 fuselage fabrication and
integration complex.

European Union makes no such alternat ive argument under Article 1.1(a)(1)(i) with respect to the
Emerald facilities and infrastructure.2143
8.791. The principal argument of the European Union to support its view that South Carolina
"provides" the Gemini and Emerald facilities and infrastructure to Boeing 2144 is that South Carolina
"constructed", and "is presently providing Boeing with exclusive use of ", the Gemini and Emerald
facilities.2145 The European Union argues, in this respect, that South Carolina owns, and that
Boeing has a leasehold interest in, the Gemini and Emerald facilities and infrastructure.2146.
8.792. We consider that the evidence before us does not suppor t this argument of the
European Union regarding the construction of, and ownership interest in, the Gemini and Emerald
facilities and infrastructure: (a) we see no factual basis for the contention that South Carolina
"constructed" the Gemini and Emerald facilities; and (b) it follows from the Ground Lease (and, in
the case of the Emerald facilities and infrastructure, from the Vought Asset Purchase Agreement)
that Boeing actually owns, and does not sublease, the Gemini or Emerald facilities and
infrastructure.
8.793. First, as noted above, in January 2010, and pursuant to commitments made in the Project
Gemini Agreement, South Carolina issued bonds to defray a portion of the costs incurred by
Boeing in connection with the con struction of certain Project Gemini facilities and infrastructure.
The Project Gemini Agreement provides a set of procedures to ensure the proper application of the
bond proceeds, whereby Boeing enters into contracts to construct infrastructure and facilities, pays
the invoices and subsequently submits the invoices to South Carolina for reimbursement. 2147 In
accordance with these procedures, [***]. We see nothing in the record to suggest that South
Carolina's role with respect to the construction of these faci lities and infrastructure went beyond
the provision of funding to offset a portion of the costs incurred by Boeing.2148

2143 European Union's first written submission, para. 701.
2144 The European Union's argument concerns the alleged provision of the Gemini and Emerald facilities
and infrastructure to Boeing. The European Union does not request the Panel to make a finding that prior to
Boeing's assumption of the Vought Ground Sublease in July 2009 a financial contribution existed in relation to
Vought by virtue of South Carolina's provision of the Emerald facilities and infrastructure to Vought. The aim of
the European Union's discussion of Vought's legal interest in the Emerald facilities is to bolster its arguments
that Boeing only has a leasehold interest in these facilities. The European Union asserts that since Vought only
held a leasehold interest in the Emerald facilities, Boeing could not have acquired ownership of the facilities
when it acquired Vought's assets. See e.g. European Union's comments on United States' response to panel
question No. 101(a), para. 293 ("{g}iven that United States' central premise with respect to ownership of the
project Emerald facilities is incorrect, it follows that all of its claims which depend on that premise are, in turn,
incorrect. Accordingly, because Vought did not own the Project Emerald facilities, it could not have sold them
to Boeing; rather it must have simply assigned its leasehold interest. Nor does Boeing now hold title to the
Project Emerald facilities, as it could not have acquired from Vought greater rights to the property than Vought
had, itself. It additionally follows that, if Vought held only a leasehold interest in the Project Emerald facilities,
title to the facilities must be held by the lessor (CCAA) or sub-lessor (SCPR/SCDOR)").
2145 European Union's first written submission, paras. 701 and 573.
2146 While the argumentation presented by the European Union as to why South Carolina should be
considered to "provide" the Gemini and Emerald facilities and infrastructure is mainly based on the assertion
that Boeing has access to these facilities and infrastructure pursuant to a sublease arrangement with the South
Carolina authorities, the European Union has also suggested, at a later stage of this proceeding, that even in
the absence of such a sublease arrangement South Carolina should be considered to "provide" the Emerald and
Gemini facilities and infrastructure to Boeing. (See para. 8.805 below).
2147 See para. 8.766 above.
2148 With respect to the reimbursement through state bonds being characterized as partial in nature, we
note that the European Union contests the extent of the land remediation reimbursed by South Carolina, and
argues that South Carolina paid for "all or nearly all" of the remediation necessary to make the Project Site
usable. (European Union's comments on United States' response to Panel question No. 123, para. 352;
Supplemental Expert Report of D. E. Fields, MAI, CRE, FRICS, 24 November 2014, (Exhibit EU-1349) (BCI),
p. 4; also see comments on United States' response to Panel question Nos. 125-127, paras. 357-360, and 128,
para. 362). Nonetheless, the European Union does not appear to contest the characterization of the
reimbursement for the building of facilities as partial. (See European Union's response to Panel question
No. 106, para. 167; also see European Union's comments on United States' response to Panel question
No. 123, para. 352: "despite its best efforts, Boeing has yet to find a state that would directly pay for all of its
capital expenditures" (fn omitted, emphasis original)). The United States explains that Boeing spent a total of
[***] in real property investment at the Project Site. As this entire figure was eligible for reimbursement from
state bonds, Boeing, at its discretion, selected USD 270 million worth of expenses for which to seek
reimbursement. (United States' response to Panel question No. 123, paras. 254-256; also see Boeing

8.794. Similarly, the evidence before us shows that, prior to the beginning of production in 2006,
Vought contracted and paid for the constructio n of the Emerald facilities and infrastructure. The
construction costs were then partially reimbursed by the South Carolina Department of Commerce
through economic development bond proceeds. 2149 Indeed, in the Project Emerald Agreement,
South Carolina committ ed itself to providing economic development bond proceeds to the
maximum amount of USD 120 million to Vought, while Vought inter alia committed itself to
utilising these proceeds towards the construction of "infrastructure", as broadly defined in section
11-41-30 of the South Carolina Code , within broad categories of expenditure as laid out in the
Project Emerald Agreement.2150 As such, it seems to us that South Carolina merely provided bond
funds to Vought, which were to be used for the construction of broadl y-defined categories of
facilities and infrastructure.
8.795. In light of the above, we do not consider that the European Union has demonstrated that
South Carolina constructed or built the Gemini or Emerald facilities and infrastructure. Instead, we
find that S outh Carolina provided bond proceeds to Boeing, in the context of Project Gemini, and
similarly to Vought, in the context of Project Emerald, which were to be used for the construction
of broadly-defined categories of facilities and infrastructure.2151
8.796. Second, the Ground Lease, as incorporated into the Vought Ground Sublease and the
Amended and Restated Ground Sublease, contains a provision that specifically addresses the issue
of ownership of the facilities and infrastructure constructed on the Project Site. This provision
indicates that Vought and subsequently Boeing obtained ownership over such facilities and
infrastructure. Section 6.06 of the Ground Lease, entitled "Title to Improvements and Alterations",
provides ownership rules for "Improvements" built on the Project Site. "Improvements" are
defined as:
{A}ny and all improvements, additions or alterations made to the Leased Premises by
the Operator and its contractors, agents, employees, and sublessees, including, but
not limited to buildings, bridges, overpasses, retaining walls, ditches, culverts, lighting
supports, earth fills, earth excavations, clearing, grubbing, grading, roads, utilities,
paving, ground cover, fences, signs, railway spurs and tracks, and landscaping,
constructed, installed or placed on, under or above the Leased Premises.2152
Improvements are divided into two categories. "Category I Improvements " are defined in the
Ground Lease as "Improvements encompassing building locations, heights, elevations, materials
used in the exterior const ruction, landscaping and any other exteriors ".2153 Facilities and
infrastructure thus appear to be covered by the scope of Category I Improvements.
8.797. Section 6.06(A) provides with respect to Category I Improvements that:
All Category I Improvements made with the Leased Premises during the Term shall
remain the property of Operator, or any assignee or sublessee of Operator, as

Investment in South Carolina (2010-3Q2012), (Exhibit USA-324) (BCI), and explanations of this Exhibit in
United States' response to Panel question Nos. 124, para. 261, and 128, para. 265). Boeing received
compensation through state bonds of [***] under the category [***], and [***] under the category [***].
(SC Department of Commerce, Summary of Reimbursements to Boeing, (Exhibit USA-519) (BCI)). The amount
of Boeing's unreimbursed real property investment at the Project Site, that is a total of [***], is split between
[***] under the category [***], [***] under the category [***], and [***] under the category [***].
The United States explains that [***] includes expenditures to [***]. [***] refers to [***]. (Comparison of
Boeing Investment in South Carolina (2010-3Q2012), (Exhibit USA-324) (BCI), and SC Department of
Commerce, Summary of Reimbursements to Boeing, (Exhibit USA-519) (BCI); also see explanations in United
States' response to Panel question Nos. 124, paras. 259-261 and fn 327, and 128, para. 265). In light of this
evidence, we consider it appropriate to characterize the reimbursement of Boeing's real property investment at
the Project Site, including land remediation as well as the building of facilities, as partial in nature.
2149 Final Project Emerald Incentive Agreement, (Exhibit EU-550), sections 2.1 and 2.3.
2150 See para. 8.768 above.
2151 The European Union does not request the Panel to find that the payments made to Vought under
these procedures constitute a financial contribution to Vought.
2152 Ground Lease Agreement, (Exhibit EU-473), section 1.01(K).
2153 Ground Lease Agreement, (Exhibit EU-473), section 1.01(F).

applicable, until expiration or termination of this Agreement, at which time all
Category I Improvements shall automatically become the property of Authority.2154
"Operator" is defined in the Ground Lease as meaning "South Carolina Public Railways, its
successors, sublessees and assign{ee}s".2155
8.798. It therefore appears to us that the clause "Operator, or any assignee or sublessee of
Operator, as applicable" indicates that if there is an assignee or sublessee of South Carolina Public
Railways, Category I Improvements shall remain the property of that assignee or sublessee. Thus,
during the Vought Ground Sublease, any Category I Improvements built b y Vought remained the
property of Vought as sublessee of the Operator. Similarly, during the term of the Amended
Boeing Ground Sublease, any Category I Improvements built by Boeing remain the property of
Boeing as sublessee of the Operator. It is only afte r the expiration or termination of the Ground
Lease that these improvements become the property of the Authority.2156
8.799. We consider that the European Union 's argument that "Premises" generally encompass
land as well as the buildings on it is irrelevant, since the term "Premises" is specifically defined in
the Ground Lease for the purposes of that agreement. Indeed, "Premises", as used in the Ground
Lease, is defined as "that portion of the Airport more particularly described in Exhibit A attached
hereto"2157, whereby Exhibit A appears to represent the 240 -acre parcel of land that constitutes
the Project Site.2158 Thus, it is clear that the definition of "Premises" is limited to land and does not
include facilities and infrastructure constructed thereon.
8.800. It follows th at the subleasehold interest in the Project Site provided for in the Vought
Ground Sublease and the Amended and Restated Ground Sublease is confined to a particular tract
of land and does not encompass any facilities and infrastructure. 2159 We consider moot t he
European Union 's argument that the ownership of the Emerald facilities and infrastructure is
governed by general rules of U.S. state property law and South Carolina law on the expenditure of
bonds. Instead, there is a specific provision of the Ground Le ase that was precisely intended to
govern the ownership of Category I Improvements built on the Premises during the term of the
lease and potential subleases, and this provision indicates that the improvements built by Vought
remain the property of Vought for the duration of the Ground Lease.
8.801. Our conclusion regarding the ownership of the Gemini and Emerald facilities and
infrastructure is based on an analysis of the text of the Ground Lease, as incorporated into the
Vought Ground Sublease and the Amended a nd Restated Ground Sublease. While the
United States also relies on the Vought Asset Purchase Agreement as evidence that Vought owned
the Emerald facilities, we agree with the European Union that the Vought Asset Purchase
Agreement is not clear as to the n ature of Vought 's right to the Emerald facilities and
infrastructure.2160 Thus, we do not consider that the Vought Asset Purchase Agreement either

2154 Ground Lease Agreement, (Exhibit EU-473), section 6.06(A).
2155 Ground Lease Agreement, (Exhibit EU-473), section 1.01(M).
2156 "Authority" means "the Charleston County Aviation Authority, the governing body of the Airport
District, which is granted the responsibilities of exercising and performing the corporate powers and duties of
the Airport District, and when used herein refers to both." (Ground Lease Agreement, (Exhibit EU-473),
section 1.01(E)).
2157 Ground Lease Agreement, (Exhibit EU-473), section 1.01(L).
2158 Ground Lease Agreement, (Exhibit EU-473), annex A.
2159 The text of the Vought Ground Sublease and the Amended and Restated Ground Sublease also
indicates that the scope of the subleasehold interest is limited to land. Article 7 of the Vought Ground Sublease
states that "{s}ublessee is subleasing the Premises for the purpose of constructing thereon facilities related to
the manufacture of products for the aeronautics industry". (Ground Lease Agreement, (Exhibit EU-473), pdf
p. 63). Article 7 of the Amended and Restated Ground Sublease states that "{s}ublessee is subleasing the
Premises for the purpose of (a) constructing thereon or (b) using previously constructed thereon facilities
related to or supporting the manufacture of products for the aeronautics industry". (Amended and Restated
Sublease, (Exhibit EU-471), pdf p. 4). In both cases, if the scope of the subleasehold included facilities, the
agreements would not state that the Premises were being subleased for the purpose of constructing facilities
thereon or using facilities already constructed thereon. Also see para. 8.769 above.
2160 The provisions of section 2 indicate that Vought sold, assigned, transferred, conveyed and delivered
assets either owned, leased, licensed, used or held for use by Vought, including the North Charleston Facility.
Such a statement is inconclusive as to the nature of Vought's rights to these facilities. Indeed, the North
Charleston Facility could have been either owned, leased, licensed or held for use by Vought. Section 4.9 in
turn indicates that Vought owns facilities, except to the extent leased pursuant to [***]. The United States

confirms or refutes our conclusion reached on the basis of the Ground Lease. At the same time,
however, the Voug ht Asset Purchase Agreement and related instruments 2161 are relevant as
evidence that Vought transferred its ownership rights in the Emerald facilities and infrastructure to
Boeing. Therefore, the assertion of the European Union that Boeing acquired its inter est in the
Emerald facilities and infrastructure through the Assignment and Assumption of the Ground
Sublease is erroneous.2162
8.802. In light of the above, we consider the factual premise of the European Union 's main
argument under Article 1.1(a)(1)(iii), namely that South Carolina owns, and Boeing only has a
leasehold interest in, the Gemini and Emerald facilities and infrastructure , to be erroneous. Rather
we find that: (a) Vought owned the facilities and infrastructure constructed on the Project Site
during the term of the Vought Sublease as a consequence of the operation of specific provisions in
the Ground Lease defining ownership rights in such facilities and infrastructure; therefore, there is
no merit to the European Union 's argument that Vought could not h ave transferred ownership of
the Emerald facilities and facilities to Boeing; (b) Boeing acquired the Emerald facilities and
infrastructure as part of its purchase of Vought 's assets in July 2009; and (c) Boeing owns the
facilities and infrastructure const ructed on the Project Site in the context of Project Gemini as a
consequence of the operation of specific provisions in the Ground Lease defining ownership rights
in such facilities and infrastructure.2163
8.803. Article 1.1(a)(1)(iii) of the SCM Agreement stipulat es that a financial contribution exists
where a government provides goods or services other than general infrastructure. In US –
Softwood Lumber IV, the Appellate Body considered whether the grant of an "intangible right to
harvest" equated to a provision of goods within the meaning of Article 1.1(a)(1)(iii) of the SCM
Agreement. The Appellate Body noted definitions of the term "provide" as "supply or furnish for
use; make available " and "to put at the disposal of ".2164 The Appellate Body reasoned that there
must be a "reasonably proximate relationship " between the governmental action of providing the
good or service and the use or enjoyment of the good or service by the recipient. 2165 It stated that
"a government must have some control over the availability of a specific thing being 'made
available'".2166
8.804. In our view, since Boeing does not sublease but actually owns the Gemini and Emerald
facilities and infrastructure, and it is clear that its ownership interest was not conveyed to Boeing
by South Carolina, there is no basis to conclude that a financial contribution to Boeing exists in the
form of a provision of goods or services other than general infrastructure. South Carolina did not,
and does not "have some control over the availability of " the facilities and inf rastructure that are
actually owned by Boeing and where Boeing acquired its ownership not from South Carolina but by
operation of the relevant provisions of the Ground Lease (in the case of the Gemini facilities and
infrastructure) or from Vought (in the case of the Emerald facilities and infrastructure).

has provided no further explanation of its assertion that the majority of facilities and infrastructure built on the
Project Site during the term of Vought's sublease was not subject to a lease by a Material Contract. (See
United States' comments on European Union's response to Panel question No. 101(a), para. 143 and fn 219).
2161 See Assignment and Bill of Sale from Vought Aircraft Industries, Inc. to Boeing Commercial
Airplanes Charleston South Carolina, Inc. (30 July 2009), (Exhibit EU-552); Exhibit J of the Vought-Boeing
Asset Purchase Agreement, (Exhibit USA-450) (BCI); and Bill of Sale, Assignment and Assumption Agreement
(30 July 2009), (Exhibit USA-515) (BCI). Also see United States' response to Panel question Nos. 101(a),
paras. 192 and 193, 101(b), para. 194 and fn 263, and 120, paras. 247-249.
2162 European Union's response to Panel question No. 101(b), para. 129 ("{t}he European Union is not
aware of any mechanism by which Boeing obtained its interest in the Premises and the various improvements
already located thereupon, other than the assignment and assumption of the Ground Sublease (including
CCAA's consent thereto), and the subsequent Amended and Restated Ground Sublease"); European Union's
comments on United States' response to Panel question No. 101(b), para. 298 ("{a}s the United States has
failed to show otherwise, the European Union continues to consider that the Assignment and Assumption of
Vought Sublease was the legal mechanism by which Boeing initially obtained its interest in the Premises and
the improvements located thereupon, subject to the consent of the CCAA" (fn omitted)).
2163 In any event, with regard to the Emerald facilities and infrastructure, even if the European Union
were correct that Boeing only has a leasehold interest in these facilities and infrastructure, we would not
necessarily find that there is a financial contribution provided by South Carolina to Boeing. This is because
Boeing obtained its interest in the Emerald facilities and infrastructure as part of its purchase of Vought's
assets. See Section 8.2.8.5.3 above.
2164 Appellate Body Report, US – Softwood Lumber IV, para. 69.
2165 Appellate Body Report, US – Softwood Lumber IV, para. 71.
2166 Appellate Body Report, US – Softwood Lumber IV, para. 71. (emphasis original)

8.805. We note that, in its responses to Panel questions, the European Union makes several
arguments suggesting that South Carolina should be considered to "provide" (within the meaning
of Article 1.1(a)(1)(iii) of the SCM Agreement), facilities and infrastructure to Boei ng regardless of
whether Boeing owns or subleases the facilities and infrastructure. Aside from the fact that these
arguments would seem to be inconsistent with the main line of reasoning advance d by the
European Union on this matter in its two written submissions, we consider that these arguments
are factually erroneous and legally unfounded as they stretch the meaning of the notion of a
"provision" of goods or services other than general infrast ructure beyond what we consider to be
the proper interpretation of that notion as reflected in Article 1.1(a)(1)(iii) of the SCM Agreement.
8.806. Thus, one argument made by the European Union in response to a Panel question is that a
provision of goods or servi ces other than general infrastructure occurs, regardless of whether
Boeing has a legal title or a leasehold interest in facilities and infrastructure, because "South
Carolina (or a state agency) is providing Boeing with the right to possess and use tangibl e assets
that otherwise would (or do) belong to the state".2167 As discussed above, Boeing owns the Gemini
and Emerald facilities and infrastructure at issue. The European Union does not explain the precise
legal meaning of this alleged "right to possess and use", how the evidence before the Panel shows
that South Carolina conveyed such a "right to possess and use " to Boeing, and on what factual
basis it asserts that these facilities and infrastructure "would (or do) belong to the state".
8.807. The European Union also argues, in respect of the Gemini facilities and infrastructure, that
South Carolina provides goods and services to Boeing by providing funding specifically for the
purpose of reimbursing costs incurred by Boeing in the construction of the Project Gemini facilities
and infrastructure; although as a formal matter funds were being transferred directly from South
Carolina to Boeing, the essence of the transaction is one of South Carolina providing goods and
services to Boeing. 2168 Related to this, the European Union contends that insofar as Boeing 's
ownership of the Gemini facilities and infrastructure is limited in time and subject to South
Carolina's reversionary interest, this should be considered to be the "functional equivalent" of a
leasehold arrangement.2169
8.808. It is not in dispute that South Carolina made payments to Boeing to cover a portion of the
costs incurred by Boeing for the construction of the Gemini facilities and infrastructure. In our
view, the most natural characterization of these payments is "a direct transfer of funds" within the
meaning of Article 1.1(a)(1)(i) of the SCM Agreement. We disagree with the European Union 's
argument that "the fundamental nature " of the transaction is a provision of goods because the
payments were made for the specifi c purpose of funding the construction of certain facilities and
infrastructure. There is nothing in the text of Article 1 to suggest that when it is clear that the
nature of the measure is a direct transfer of funds, the purpose for which the funds are gra nted
should be given a decisive weight in the characterization of that measure.
8.809. The logic underlying the European Union 's argument is that where a particular type of
financial contribution is made for the purpose of supporting a firm's financing of the construction or
purchase of a good, such a financial contribution must be treated as a provision of that good in the
sense of Article 1.1(a)(1)(iii) because of its "fundamental nature". Thus, if a government lends
money, makes a payment or grants a tax credi t to a firm for purposes of reimbursing the firm 's
acquisition costs, each of these measures would be a financial contribution in the form of a
provision of a good or service other than general infrastructure. We consider that this logic is
inconsistent with Article 1.1(a)(1), which clearly contemplates a characterization of a measure as a
financial contribution on the basis of the manner in which that measure transfers value to a
recipient.2170 Therefore, even where they are somehow related to the purchase of goods or

2167 European Union's response to Panel question No. 101(d), para. 132.
2168 European Union's response to Panel question No. 106, para. 164.
2169 See e.g. European Union's response to Panel question No. 101(c), para. 130; and comments on
United States' response to Panel question No. 101, para. 305.
2170 It is also inconsistent with the approach taken to the same issue by other panels and the Appellate
Body. For example, in EC and certain member States – Large Civil Aircraft, the panel addressed whether
certain infrastructure-related grants to Airbus (i.e. grants towards the costs of constructing the A380 assembly
line in Hamburg, a grant for the expansion of Airbus' Nordenham facility, a grant for Airbus facilities in
Broughton, Wales and grants for the expansion and modernization of Airbus and EADS plants in Puerto de
Santa Maria, Illescas, Puerto Real, Sevilla and La Rinconada, Spain) were specific subsidies to Airbus. These
infrastructure-related grants were analysed as financial contributions to Airbus in the form of direct transfers of

services by a recipient, grants, loans, and tax measures are distinctive types of financial
contributions. The term "provide goods or services other than general infrastructure " cannot be
interpreted so broadly as to include measures that fall naturally within the scope of the other types
of financial contribution identified in Article 1.1(a)(1).
8.810. We consider that for a government to "provide", i.e. "to supply or furnish for use " or "to
make available " facilities and infrastructure, these facilitie s and infrastructure must have been
created. Indeed, the Appellate Body has observed that while the circumstances of the creation of
infrastructure may be relevant to a proper characteri zation of what is provided, the creation of
infrastructure is a precondition, and thus necessary, for the provision of that infrastructure. 2171 We
do not consider that a private entity can be "provided" with created facilities and infrastructure by
a government within the meaning of Article 1.1(a)(1)(iii) where that private ent ity is itself
responsible for the construction of those facilities and infrastructure.
8.811. The notion that the financing provided by South Carolina is somehow tantamount to the
actual provision of those facilities and infrastructure is also contradicted by th e fact that South
Carolina only covered a part of Boeing 's expenditures for the construction of these facilities and
infrastructure. Moreover, the European Union 's position is based on the factual premise that the
bond proceeds were pre -destined to be spen t on the construction of specific facilities and
infrastructure. The extent to which proceeds were thus pre -destined is debatable. It in fact seems
that the purpose of the bond proceeds was so broadly defined and Boeing had such a margin of
discretion in s electing which of its expenses to have reimbursed 2172 that the European Union is
unable to precisely identify the Gemini facilities and infrastructure that were allegedly provided to
Boeing beyond the evidence that is contained in the bond withdrawal requests . Similarly, in the
context of specificity, the European Union 's arguments mostly relate to the issuance of the bonds
themselves.2173 Indeed, the bond funds for Project Gemini were intended for use under
broadly-defined categories of facilities and infrastruc ture. The European Union itself acknowledges
that Boeing had complete and total control over how the proceeds were expended within the
agreed-upon categories.2174
8.812. Finally, we find that South Carolina's reversionary, future ownership in the Gemini facilities
and infrastructure does not give it any control at present over the availability of the facilities and
infrastructure and therefore does not constitute a basis for finding that South Carolina "provides"
the facilities and infrastructure to Boeing.
8.813. In light of the foregoing considerations, we: (a) reject the European Union 's
argument that a financial contribution exists within the meaning of Article 1.1(a)(1)(iii)
of the SCM Agreement because South Carolina provides Gemini and Emerald facilities
and infrastr ucture to Boeing 2175; (b) find that the payments made by South Carolina
pursuant to commitments made in the Project Gemini Agreement to compensate Boeing
for a portion of the costs in constructing the Gemini facilities and infrastructure are
direct transfers of fund s within the meaning of Article 1.1(a)(1)(i) of the SCM
Agreement; and (c) find that there is no financial contribution to Boeing with respect to
the Emerald facilities and infrastructure.2176
8.2.8.6.3.2 Whether there is a benefit
8.814. The issue before the Panel is whether the direct transfers of funds made by South Carolina
to compensate Boeing for a portion of the costs in constructing the Gemini facilities and

funds without objection by the European Communities as to the correct form of financial contribution. (See
Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.1010 and 7.1205-7.1218).
2171 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 964-966.
2172 See United States' response to Panel question No. 123, para. 256.
2173 European Union's response to Panel question No. 110, paras. 176 and 177.
2174 European Union's first written submission, para. 570.
2175 The parties disagree on whether the European Union has identified the facilities and infrastructure
with sufficient precision and on whether, as argued by the European Union, these facilities and infrastructure
are "tailor-made". In light of our conclusion that the European Union has not established that South Carolina
actually provide facilities and infrastructure to Boeing, we do not see the need to address these issues.
2176 While payments were made in connection with the construction of the Emerald facilities and
infrastructure, these payments were made to Vought. The European Union does not argue in this proceeding
that any financial contributions to Vought have given rise to subsidies to Boeing.

infrastructure, which the Panel has found to be financial contributions within the m eaning of
Article 1.1(a)(1)(i), confer a benefit within the meaning of Article 1.1(b). The disagreement
between the parties mainly focuses on the identification of the correct benchmark for determining
benefit, as well as the question of whether Boeing provided remuneration to South Carolina in
exchange for the direct transfers of funds that would offset any benefit conferred.
8.815. At the outset, we recall that the European Union considers the proper characteri zation of
the financial contribution associated with the Gemini facilitie s to be the provision of goods or
services within the meaning of Article 1.1(a)(1)(iii).2177 As such, the European Union's submissions
focus to a great extent on determining the benefit conferred by South Carolina's provision of a
lease of the Gemini facilities. Consequently, while taking no position on the proper characterization
of the alleged financial contribution, the United States mainly responds to the European Union 's
arguments made in the context of the financial contribution characteri zed as a provision of goods.
However, as explained above, we are of the view that the relevant financial contribution is properly
characterized as direct transfers of funds. 2178 The Panel requested the parties to explain their
position on benefit if the financial contributi on were properly characteri zed as a direct transfer of
funds, and the following sets out the parties ' positions relating to such a characteri zation of the
financial contribution.
8.816. The European Union 's position is that a benefit was conferred to Boeing sinc e it received
bond funds for the Gemini facilities in the amount of USD 270 million for free, while in the market
it would have had to pay for them. 2179 Indeed, irrespective of how the financial contribution is
characterized, paying nothing constitutes less t han adequate remuneration since Boeing would
have two options to obtain access to the custom -made Gemini facilities in the market, each
carrying with it a financing cost. First, Boeing could have raised funds in the market sufficient to
construct the custo m-made facilities itself, with a corresponding cost of funds for the investment
(either as actual expenditure or as opportunity cost, in case Boeing had the funds available).
Second, and alternatively, Boeing could have found another market participant to make the
investment in the construction of the custom -made facilities, and leased these from the investor.
In that case, the investor would agree to the construction and lease of custom -made facilities for
Boeing only if the lease would result in the inves tor expecting an appropriate return on its
investment.2180
8.817. The United States ' position is that the European Union has failed to provide an adequate
benchmark, since the United States is aware of no logic or principle endorsed by the Appellate
Body that supports the European Union's position that, even if the financial contribution is properly
characterized as a direct transfer of funds, the benefit has the same value as the value of the
goods and services that must, by law, be purchased with the funds transfe rred by the
government.2181 Furthermore, the European Union 's reliance on a benchmark comprising of the
cost of constructing the facilities plus a finance charge is precisely the methodology found to be
inconsistent with Articles 1.1(b) and 14 by the Appellat e Body in EC and certain member States –
Large Civil Aircraft.2182
8.818. For the reasons detailed below, we find that the direct transfers of funds made by South
Carolina to compensate Boeing for a portion of the costs in constructing the Gemini facilities confer
a benefit within the meaning of Article 1.1(b). It is well established in previous panel and Appellate
Body reports that a financial contribution confers a benefit and thus constitutes a subsidy within
the meaning of Article 1.1 where the financial contrib ution is provided to the recipient on terms
that are more favourable than the terms available to the recipient on the market. 2183 In other
words, the "market benchmark" for determining the existence of a subsidy is the terms on which
that financial contribution would have been available to the recipient on the market.

2177 European Union's response to Panel question No. 106, para. 162.
2178 See para. 8.808 above.
2179 European Union's response to Panel question No. 105, para. 153.
2180 European Union's response to Panel question No. 105, paras. 155 and 156.
2181 United States' comments on European Union's response to Panel question Nos. 105, paras. 162 and
164-168, and 106, para. 170.
2182 United States' comments on European Union's response to Panel question No. 105, paras. 164-166;
response to Panel question No. 105, para. 228.
2183 See e.g. Appellate Body Reports, Canada – Aircraft, paras. 154 and 157; Japan – DRAMs (Korea),
para. 225; and EC and certain member States – Large Civil Aircraft, para. 705.

8.819. The European Union considers an appropriate benchmark in the present instance to be
either what Boeing would have had to pay in financing costs had it built the Gemini facilities itself,
or what Boeing would have had to pay in rent to an investor expecting an appropriate return on
investment.2184 Indeed, the European Union argues that regardless of which characterization of the
financial contribution is most appropriate, since the bond funds were us ed to construct facilities
and infrastructure, the benefit of such a financial contribution is to be determined with respect to
those facilities and infrastructure. We agree with the United States to the extent that the
European Union has failed to explain how the benefit determination is the same whether the
financial contribution is properly characterized as a direct transfer of funds, or a provision of goods
or services.2185 The European Union 's approach to determining benefit confounds the distinction
between the two different types of financial contribution embodied in Articles 1.1(a)(1)(i) and
1.1(a)(1)(iii), and the different methodologies involved in determining benefit for different types of
financial contributions. We note the Appellate Body's observation that:
{T}he characterization of a transaction under Article 1.1(a) of the SCM Agreement
may have implications for the manner in which the assessment of whether a benefit is
conferred is to be conducted. For instance, the context provided by Article 1 4 of the
SCM Agreement presents different methods for calculating the amount of a subsidy in
terms of benefit to the recipient depending on the type of financial contribution at
issue.2186
8.820. We have previously explained that the financial contribution at issue consists of funds
provided to Boeing to offset some of Boeing 's costs of constructing the Gemini facilities, and that
this financial contribution is properly characterized as a direct transfer of funds within the meaning
of Article 1.1(a)(1)(i) of the SCM Agreement. Whether that financial contribution confers a benefit
is necessarily determined by comparing the terms on which Boeing received that financial
contribution (i.e. the funds), compared to the terms on which that financial contribution would
have been provided to it on the market. In our view, like the infrastructure-related grants analysed
by the panel in EC and certain member States – Large Civil Aircraft , the financial contribution
clearly confers a benefit.2187
8.821. A further issue raised by the parties' benefit arguments is what, if anything, Boeing can be
considered to have given as remuneration to offset any benefit conferred by the financial
contribution. The European Union claims that Boeing received the funds for the Gemini facilities for
free. Any residual value from Boeing's unreimbursed investment in real property at the Project Site
that may revert to South Carolina at the end of the Amended Ground Lease in 2041 is nominal and
fails to provide adequate remuneration, thus meaning that the direct transfers of funds confer a
benefit.2188 The United States argues that the European Union 's benefit arguments are based on
the factually inaccurate premise that Boeing received the bond funds for the Gemini facilities and
infrastructure for free. In fact, Bo eing has compensated South Carolina through its investment in
unreimbursed real property at the Project Site in the amount of [***], the residual value of which
will revert to South Carolina at the end of the Amended Ground Lease, thus obviating any
benefit.2189
8.822. We consider both parties' positions to be flawed, since an assessment of benefit should be
carried out on an ex ante basis, and there is no evidence before us that any remuneration for the
direct transfers of funds was foreseen in the agreement betwee n South Carolina and Boeing that
could be considered to offset any benefit conferred. Both parties' arguments on benefit appear to
stray from the text and interpretation of Article 1.1(b). The Appellate Body has indicated that the
benefit determination is an ex ante analysis, carried out at the time the financial contribution is

2184 European Union's response to Panel question No. 105, para. 156.
2185 See United States' comment on European Union's response to Panel question No. 106, para. 170.
2186 Appellate Body Reports, Canada – Renewable Energy / Canada – Feed-In Tariff Program,
para. 5.130.
2187 See Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.1010 and
7.1205-7.1218. See also Panel Report, US – Upland Cotton, para. 7.1116.
2188 European Union's response to Panel question Nos. 106, para. 167, and 111, paras. 182-195. Also
see Expert Report of D. E. Fields, MAI, CRE, FRICS, 2 December 2013, (Exhibit EU-1267) (BCI); and
Supplemental Expert Report of D. E. Fields, MAI, CRE, FRICS, 24 November 2014, (Exhibit EU-1349) (BCI).
2189 United States' response to Panel question Nos. 105, para. 224, and 128, para. 265; comments on
European Union's response to Panel question Nos. 105, paras. 162-168, and 106, para. 169. Also see
United States' response to Panel question No. 129, paras. 266 and 267.

made. To determine whether a benefit has been conferred, a comparison is made between the
terms and conditions of the financial contribution when it is granted with the terms and co nditions
that would have been offered on the market at that time. 2190 In making such an ex ante analysis,
we see that the United States has failed to show that the Project Gemini Agreement between
South Carolina and Boeing foresaw that Boeing would invest [***] in real property at the Project
Site, the residual value of which would re vert to South Carolina, via the Charleston County
Aviation Authority , in 2041 at the latest. While it may be that some residual value of Boeing 's
investment of [***] in real prope rty at the Project Site will revert to South Carolina 2191, the
United States has failed to show that this residual value was foreseen in the agreement between
South Carolina and Boeing, and should therefore be reflected in the ex ante analysis of benefit
consistent with Article 1.1(b), nor do we see any evidence on the record to this effect. 2192 As such,
we do not consider that Boeing can be considered to have compensated South Carolina for the
direct transfers of funds, and instead find that these transfers are correctly described as a grant to
Boeing.
8.823. In light of the above, we find that the direct transfers of funds made by South
Carolina to compensate Boeing for a portion of the costs in constructing the Gemini
facilities confer a benefit within the meaning of Article 1.1(b).
8.2.8.6.3.3 Whether the subsidy is specific within the meaning of Article 2.1 of the SCM
Agreement
8.824. The first question raised by the parties ' arguments is whether the subsidy provided
through the direct transfers of funds made by South Carolina to comp ensate Boeing for a portion
of the costs in constructing the Gemini facilities is specific within the meaning of Article 2.1(a) of
the SCM Agreement, i.e. whether "the granting authority, or the legislation pursuant to which the
granting authority operates, explicitly limits access to the subsidy to certain enterprises".
8.825. It is clear from the text of Article 2.1(a) that the "the express limitation can be found
either in the legislation by which the granting authority operates, or in other statements or mean s
by which the granting authority expresses its will ".2193 The European Union does not argue that
such an explicit limitation exists as a result of "other statements or means by which the granting
authority expresses its will". The question before us in this case is whether access to the subsidy is
subject to an explicit limitation by virtue of "the legislation pursuant to which the granting
authority operates".
8.826. As to the meaning of "explicitly limits" in Article 2.1(a), the Appellate Body has explained
that "a subsidy is specific under Article 2.1(a) if the limitation on access to the subsidy to certain
enterprises is express, unambiguous, or clear from the content of the relevant instrument, and not
merely 'implied' or 'suggested"'.2194 Whether "access to the subsidy" is explicitly limited must focus
on whether the granting authority, or the legislation pursuant to which the granting authority
operates, limits the eligibility to receive the subsidy to certain enterprises. 2195 With regard to the
term "certain enterprises", the Appellate Body has observed that "the relevant enterprises must be

2190 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 706.
2191 The parties disagree on the calculation of such residual value. (Parties' response and comments on
Panel question Nos. 123-130).
2192 The fact that Boeing's investment of [***] in real property at the Project Site contributed to its
overall investment requirement of USD 750 million, set out in the Project Gemini Agreement (as confirmed by
the United States in response to a question from the Panel – United States' response to Panel question No.
129, paras. 266 and 267), is in our view insufficient to consider any residual value from Boeing's investment of
[***] as remuneration in our benefit determination. Indeed, the general requirement to invest USD 750
million as part of the Project Gemini package of incentives says nothing about an obligation to invest precisely
[***] in real property at the Project Site.
2193 Panel Report, US – Large Civil Aircraft (2nd complaint) para. 7.190.
2194 Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China), para. 372. See also
Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.190 and 7.192.
2195 See, in particular, Appellate Body Reports, US – Anti-Dumping and Countervailing Duties (China),
para. 368 ("Article 2.1(a) thus focuses not on whether a subsidy has been granted to certain enterprises, but
on whether access to that subsidy has been explicitly limited. This suggests that the focus of the inquiry is on
whether certain enterprises are eligible for the subsidy, not on whether they in fact receive it"); and US –
Large Civil Aircraft (2nd complaint), para. 753 ("{t}his inquiry focuses not only on whether the subsidy was
provided to the particular recipients identified in the complaint, but focuses also on all enterprises or industries
eligible to receive that same subsidy").

'known and particularized', but not necessarily 'explicitly identified', and that they may have 'some
mutual or common relation or purpose', or 'degree of similarity'".2196
8.827. Since "eligibility is key to a consideration of de jure specificity under subparagraphs (a)
and (b) of Article 2.1 of the SCM Agreement "2197, we consider that the term "legislation pursuant
to which the granting authority operates " in Article 2.1(a) must be understoo d to mean the
legislation that defines the criteria of eligibility for a subsidy.2198 South Carolina provided the direct
transfers of funds to Boeing to compensate for a portion of the costs in constructing the Gemini
facilities pursuant to provisions of South Carolina Code sections 11-41-40 and South Carolina Code
section 55-11-520 relating to the issuance of economic development bonds and air hub bonds,
respectively. Accordingly, these provisions constitute "the legislation pursuant to which the
granting authority operates" for purposes of the analysis under Article 2.1(a).2199
8.828. In this regard, we see no merit in the argument of the European Union that the individual
resolutions adopted by South Carolina authorizing the issuance of the economic development
bonds and air hub bonds establish an explicit limitation on access to the subsidy within the
meaning of Article 2.1(a). The bond resolutions that the European Union relies on are clearly
instances of application of a broader legislative framework in place for th e issuance of economic
development bonds and air hub bonds. The fact that, as alleged by the European Union, "the
resolutions authorising issuance of the bonds explicitly restricted the use of the proceeds to the
construction of specified facilities and in frastructure for Boeing 's use "2200 simply reflects the
application of the relevant statutory provisions to this individual case and does not demonstrate an
"explicit limitation" of access to the subsidy to certain enterprises.2201
8.829. At the same time, however, we are also not persuaded that the inquiry into whether the
measure is specific within the meaning of Article 2.1(a) should be conducted at the level of what
the United States refers to as South Carolina 's "system for issuing state bonds to provide facilities
and infrastructure".2202 In our view, the United States has not defined that "system" with sufficient
precision. In its first written submission, the United States asserts that the relevant legislative
framework encompasses not only economic development bond s and air hub bonds but also
industrial revenue bonds, since the common purpose of all of these bonds is to enable South
Carolina to fund facilities and infrastructure for economic development projects to promote job
creation and/or retention in South Carolina.2203 In its second written submission, the United States
also refers to "state highway bonds for road construction " and "state institution bonds to fund
construction of facilities for state four-year colleges and universities".2204 It is thus unclear whether
the "system for issuing state bonds to provide facilities and infrastructure" should be understood to
comprise only the three types bonds discussed in the United States ' first written submission i.e.
economic development bonds, industrial revenue bonds and air hub bonds or whether the two type
of bonds mentioned in the second written submission of the United States also form part of that
system.

2196 Appellate Body Report, US – Carbon Steel (India), para. 4.365. The Appellate Body has also stated
that "{a}ny determination of whether a number of enterprises or industries constitute 'certain enterprises' can
only be made on a case-by-case basis". (Appellate Body Report, US – Anti-Dumping and Countervailing Duties
(China), para. 373 (quoting Panel Report, US – Upland Cotton, para. 7.1142)). See also Appellate Body Report,
US – Washing Machines, paras. 5.220.5.221 (explaining that the notion of "certain enterprises" in Article 2.2 of
the SCM Agreement does not depend on the legal personality of the subsidy recipients).
2197 Appellate Body Report, US – Carbon Steel (India), para. 4.384.
2198 This interpretation is also supported by a reading of Article 2.1(a) in the context of Article 2.1(b).
See Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 750.
2199 The Appellate Body Report in the original proceeding emphasizes the need for an inquiry concerning
specificity under Article 2.1(a) properly to take into account the broader legislative framework pursuant to
which the subsidy has been provided. (Appellate Body Report, US – Large Civil Aircraft (2nd complaint),
paras. 750, 753, and 841). Also see Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.565.
2200 European Union's first written submission, para. 583.
2201 We also consider that the fact that "the provision of these bond-funded facilities and infrastructure
was among the commitments South Carolina made to Boeing as part of the Project Gemini Agreement" is an
insufficient basis to find that access to the subsidy is explicitly limited to certain enterprises. (European Union's
first written submission, para. 583).
2202 United States' first written submission, paras. 625-632.
2203 United States' first written submission, para. 619.
2204 United States' second written submission, para. 526.

8.830. In light of these considerations, and since the subsidy at issue here concerns proceeds
from the issuance of e conomic development bond s and air hub bond s for Project Gemini, we
consider that whether the subsidy is specific within the meaning of Article 2.1(a) should be
determined on the basis of the text of the relevant legislative provisions relating to the issua nce of
economic development bonds and air hub bonds.
8.831. In this context, the European Union argues that access to the subsidy is limited to the
aviation and aerospace industry, since air hub bond proceeds may only be issued for air carrier
hub terminal facili ties, and economic development bond proceeds may not be used for buildings
except when used in connection with air carrier hub terminal facilities or located on
government-owned land.2205 The United States counters that the provision of bond-funded facilities
and infrastructure is not specific within the meaning of Article 2.1(a), since the system of
legislation for issuing state bonds to provide facilities is not explicitly limited to certain
enterprises.2206 There is no provision in South Carolina law limiting access for funds raised through
economic development bonds and air hub bonds to certain enterprises. Moreover, none of the
individual pieces of legislation pursuant to which the bonds are issued limit access to certain
enterprises.2207
8.832. As noted above 2208, section 11-41-40 of the South Carolina Code provides that economic
development bonds can be used to fund financing for infrastructure. In this context, "economic
development project" is defined as "a project in this State as defined in Section 12 -44-30(16) in
which a total of at l east four hundred million dollars is invested in the project by the sponsor and
at least four hundred new jobs are created at the project by the sponsor ".2209 With respect to
economic development bonds, the European Union makes two argumen ts in support of its position
that the relevant statutory provisions explicitly limit access to the subsidy to "certain enterprises:
that is, Boeing, or, at a minimum, the aviation and aerospace industry".2210
8.833. First, the European Union argues that an amendme nt made in 2009 to increase the total
amount of general obligation bonds 2211 "was enacted for Boeing as part of H3130 ".2212 While we
agree that this amendment was made in relation to commitments made by South Carolina
vis-à-vis Boeing in the context of Project Gemini, we see nothing in the text of this amendment2213
to suggest that this additional amount of economic development bonds may only be used in
respect of economic development projects involving certain enterprises.
8.834. Second, the European Union asserts that "economic development bond proceeds may not
be used for buildings (as they were in this case), except in the context of projects associated with
an air hub carrier terminal facility or located on government -owned land".2214 The European Union
does not explain how this warrants the conclusion that "the statutory provisions pursuant to which
the economic development bonds … were issued contain explicit limitations to certain
enterprises".2215 Moreover, the European Union only considers the eligibility criteria for e conomic
development bond proceeds used for buildings. This is unwarranted, inter alia because the
economic development bond proceeds transferred to Boeing were used [***2216].2217
8.835. In sum, we consider that, with respect to the issuance of economic development bo nds to
finance infrastructure, the European Union has not offered sufficient reasoning to establish that the

2205 European Union's first written submission, para. 584; second written submission, para. 639.
2206 United States' first written submission, paras. 625-628; second written submission, paras. 524-528.
2207 United States' first written submission, para. 626; also see second written submission, paras. 526
and 527.
2208 See fn 1943 above.
2209 State General Obligation Economic development Bond Act, S.C. Code, Title 11, chapter 41, (Exhibit
EU-477), section 11-41-30.
2210 European Union's first written submission, para. 584.
2211 See para. 8.685 above.
2212 European Union's first written submission, para. 584.
2213 State General Obligation Economic development Bond Act, S.C. Code, Title 11, chapter 41, (Exhibit
EU-477), section 11-41-50(B).
2214 European Union's first written submission, para. 584. (emphasis original)
2215 European Union's second written submission, para. 639.
2216 See para. 8.767 above.
2217 European Union's first written submission, para. 584.

measure at issue is explicitly limited to certain enterprises within the meaning of Article 2.1(a).
Having made such a finding, we consider it unnecessary to pronounce on Article 2.1(b).2218
8.836. With respect to air hub bonds, section 55-11-520 of the South Carolina Code provides that
this type of bond can be used to acquire land, construct, enlarge, improve, extend, renovate, and
equip suitable air carrier hub terminal facilities, and purchase equipment, ground support
equipment, machinery, special tools, maintenance, boarding facilities, and any real or personal
property for operation of air carrier hub terminal facilities. 2219 The parties disagree as to wheth er
the fact that proceeds from air hub bonds may be issued only for "air carrier hub terminal
facilities", defined as airport terminal facilities from which certain categories of air carriers operate
makes the measure specific within the meaning of Article 2.1(a). Since we find that the air hub
bonds are specific within the meaning of Article 2.1(c), we do not consider it nece ssary to address
that question.
8.837. A second issue raised by the parties ' arguments is whether the direct transfers of funds
made by South Carolina to compensate Boeing for a portion of the costs in constructing the Gemini
facilities are specific within the meaning of Article 2.1(c). The European Union argues that the
transfer of bond proceeds is specific within the meaning of Article 2.1(c ) on the grounds that this
type of subsidy has only been used by a limited number of enterprises, and Boeing and its
suppliers have been the predominant users. 2220 The United States counters that the provision of
bond-funded facilities and infrastructure i s not de facto specific, since the South Carolina bond
scheme has funded facilities and infrastructure that are used by a variety of companies, only two
of which are in the aerospace industry.2221
8.838. The evidence before the Panel indicates that since the adoption o f South Carolina
legislation authorising the issuance of economic development bonds in 2002, South Carolina has
issued economic development bonds for BMW (in 2003 in the amount of up to
USD 105 million)2222, the Project Emerald companies (in 2004 in the amoun t of up to
USD 160 million)2223, and Boeing. In addition, economic development bonds were issued for
certain public entities in 2005, namely the City of Greenville, the City of Myrtle Beach, and the
Trident Technical College, in the amount of up to USD 7 mill ion each.2224 Since the adoption of
legislation authorising the issuance of air hub bonds in 1989 2225, air hub bonds have only been
issued to Boeing, a fact which the United States does not contest.2226
8.839. We are of the view that the European Union has failed to esta blish that the transfer of
funds to Boeing through economic development bond proceeds is specific within the meaning of
Article 2.1(c) because it is used by a limited number of certain enterprises, or is predominantly
used by Boeing and its suppliers. The European Union provides no reasoning as to why, in light of
the level of diversification in the South Carolina economy and the duration of the economic
development bond scheme, the grant of economic development bond proceeds to BMW, the
Project Emerald companies and Boeing amounts to use by a limited number of enterprises.

2218 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 876 ("{h}aving found
that the IRB subsidies are not specific within the meaning of Article 2.1(a), analysis by the Panel under
Article 2.1(b) was not necessary").
2219 See fn 1951 above.
2220 European Union's first written submission, para. 585; second written submission, para. 639.
2221 United States' first written submission, para. 631; see also second written submission,
paras. 529-532.
2222 United States' response to the Panel's request for information pursuant to Article 13 of the DSU,
dated 28 February 2013, response to question No. 67, para. 150. Also see South Carolina State Budget and
Control Board, Freedom of Information Act Response Letter, 23 July 2012, (Exhibit EU-490), p. 1, and South
Carolina State Budget and Control Board, Freedom of Information Act Response Supplemental Letter,
31 July 2012, (Exhibit EU-491).
2223 See para. 8.768 above. Also see South Carolina State Budget and Control Board, Freedom of
Information Act Response Letter, 23 July 2012, (Exhibit EU-490), p. 1.
2224 South Carolina State Budget and Control Board, Freedom of Information Act Response Letter,
23 July 2012, (Exhibit EU-490), p. 1.
2225 United States' response to the Panel's request for information pursuant to Article 13 of the DSU,
dated 28 February 2013, response to question No. 67, para. 150.
2226 United States' response to the Panel's request for information pursuant to Article 13 of the DSU,
dated 28 February 2013, response to question No. 67, para. 150.

8.840. With respect to predominant use, the Panel noted in the original proceeding that
predominant use "requires consideration of whether the subsidy programme in issue is mainly or
most frequently used by 'certain enterprises'", taking into account the extent of diversification of
economic activities within the jurisdiction of the granting authority, as well as the length of time
during which the subsidy programme has been in operation. 2227 The European Union argues that
Boeing and its suppliers have been the predominant users of th e subsidy, benefitting from
USD 390 million out of a total of USD 495 million in economic development bonds and air hub
bonds, or 79% of the bonds by value. 2228 We do not consider this information to show that the
economic development bond scheme has mainly or most frequently been used by certain
enterprises. While this information could be relevant to an argument that a disproportionately
large amount of subsidy has been g ranted to certain enterprises, this is not an argument that the
European Union makes. 2229 To find otherwise would be to confound predominant use by certain
enterprises (the second of the "other factors " listed in Article 2.1(c)), and the granting of
disproportionately large amounts of subsidy to certain enterprises (the third of the "other factors"
listed in Article 2.1(c)).2230 The European Union makes no other arguments why, in light of the
diversification of the South Carolina economy and the duration of the e conomic development bond
scheme, economic development bond proceeds have been mainly or most frequently used by
certain enterprises.
8.841. Further to the above, with respect to economic development bond proceeds provided to
public entities, the European Union st ates that "{b}ecause specificity is assessed with respect to
enterprises and industries, the European Union does not include economic development bonds
issued for public entities, such as cities or public colleges ".2231 Notwithstanding this, precisely the
fact that economic development bonds can be and have been issued to public entities, namely two
cities and a public college, in addition to private entities, suggests that the scheme is not limited to
"certain enterprises" within the meaning of Article 2.1(c).
8.842. However, we do consider that the European Union has established that the grant of air hub
bond proceeds to Boeing is specific within the meaning of Article 2.1(c) , in the sense that the use
of the subsidy programme is limited to certain enterprises. In t his regard, we note that i t is
undisputed that air hub bonds have only been issued to Boeing during the almost three -decade
long existence o f the scheme. The fact that air hub bonds have only been issued for Boeing is
unsurprising since the evidence before the Panel suggests that only Boeing meets the
requirements to benefit from air hub bond proceeds, namely to be the operator of an "air carrier
hub terminal facility" as defined in the South Carolina Code. While the Project Emerald Agreement
originally contemplated the issuance of both economic devel opment bonds and air hub bonds, it
appears that Project Emerald was only eligible for economic development bonds, and only that
type of bond was issued. 2232 The definition of "air carrier hub terminal facility" was amended in

2227 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.746 and 7.747.
2228 European Union's first written submission, para. 585 and fn 1377.
2229 The European Union does not argue that a disproportionate amount of subsidy has been granted to
certain enterprises, nor does it address the question of whether there is a "disparity between the expected
distribution of that subsidy, as determined by the conditions of eligibility, and its actual distribution", necessary
for the demonstration of disproportionality of grants. See Appellate Body Report, US – Large Civil Aircraft (2nd
2230 We note that in the original proceeding, the Panel conducted an analysis of the City of Wichita
industrial revenue bonds under several of the factors listed in Article 2.1(c), but based its finding of specificity
on the granting of disproportionately large amounts of subsidy to certain enterprises. (See Panel Report, US –
Large Civil Aircraft (2nd complaint), paras. 7.743-7.779). Also see Appellate Body Report, US – Large Civil
Aircraft (2nd complaint), paras. 879 and 886-889, upholding for different reasons the Panel's finding of
specificity.
2231 European Union's second written submission, fn 1064. Also see first written submission, fn 1377;
and United States' second written submission, paras. 529 and 530.
2232 Compare section 2.1 of the Initial Project Emerald Site Development and Incentive Agreement,
(Exhibit EU-560), and section 2.1 of the Final Project Emerald Incentive Agreement, (Exhibit EU-550).
Nonetheless, in the Project Emerald Agreement the "parties acknowledge that {South Carolina Department of
Commerce} will request a modification to existing legislation to facilitate Project Emerald's qualification for the
issuance of Air Hub Bonds". Initial Project Emerald Site Development and Incentive Agreement, (Exhibit
EU-560), section 2.4. A Bond Counsel Opinion in the Project Emerald Agreement also noted the following:
"{w}e have been informed that the Project Emerald Consortium will not independently satisfy the requirement
that the Project account for at least 'twenty common carrier departing flights a week on an annual basis for the
purposes of transporting cargo and air freight'", within the meaning of section 55-11-500(1) of the South
Carolina Code. (Initial Project Emerald Site Development and Incentive Agreement), (Exhibit EU-560),
exhibit D.

2005 to encompass section 55 -11-500(a)(3)2233 in addition to section 55 -11-500(a)(1), and air
hub bonds were issued for the first time to Boeing, which fulfil led the requirements of
section 55-11-500(a)(3).2234
8.843. As such, we find that the European Unio n has established that subsidy provided
by South Carolina through air hub bond proceeds to compensate Boeing for a portion of
the costs in constructing the Gemini facilities and infrastructure is specific within the
meaning of Article 2.1(c). However, the European Union has failed to establish that the
subsidy provided by South Carolina through economic development bond proceeds is
specific within the meaning of Article 2.1.
8.844. Finally, we note that the European Union also argues that the subsidies provided to Boeing
through air hub bond proceeds and economic development bond proceeds are specific pursuant to
Article 2.3 of the SCM Agreement. Article 2.3 provides that "{a}ny subsidy falling under the
provisions of Article 3 shall be deemed to be specific". We r eject t his argument because in
Section 10 of this Report we find that the European Union has failed to establish that any subsidy
at issue in this proceeding is prohibited by Articles 3.1 and 3.2 of the SCM Agreement.
8.2.8.6.4 The amount of the subsidy
8.845. The European Union argues that, where the financial contribution in question is South
Carolina's provision of funding for the construction of Boeing 's 787 facilities and infrastructure
through the transfer of bond proceeds to Boeing, such that the subsidy is character ized as a direct
transfer of funds, the amount of the financial contribution is the total value of the funds (i.e. the
proceeds of both the economic development bonds and the air hub bonds) , which it alleges is
USD 270 million between 2010 and 2011. 2235 However, the European Union considers that the
value of the benefit is USD 400.64 million between 2011 and 2035, or USD 67.53 million between
2013 and 2015.2236 The European Union 's estimate of the amount of the subsidy (i.e.
USD 400.64 million between 2011 and 20352237, or USD 67.53 million between 2013 and 20152238)
is based on its estimate of the value of the facilities and infrastructure that the European Union
alleges were provided to Boeing 2239, plus the imputed financing costs for Boeing to either raise
funds in the market to construct the facilities and infrastructure itself, or find another market
participant to construct and then lease the facilities and infrastructure .2240 The European Union
argues that, a s Boeing paid nothing for the facilities and infrastructure, t he entire amount
represents the benefit conferred to Boeing.2241
8.846. The United States does not provide a n estimate of the amount of the subsidy, arguing
instead that the financial contribution conferred no benefit to Boeing on account of adequate
remuneration provided to South Carolina through real property investment at the Project Site, and

2233 H3234, signed into law on 5 April 2005. S.C. Code, section 55-11-500(a)(3) provides: "{a}n 'air
carrier hub terminal facility' is an airport terminal facility from which an air carrier … operates either: … (3)
irrespective of the number of flights, two or more specially equipped planes that are : (i) used for the
transportation of specialized cargo; and (ii) subject to ad valorem property taxation or a fee in lieu of taxes in
this State".
2234 Gemini air hub bond resolution, (Exhibit EU-483), p. 48, section 1.
2235 European Union's first written submission, para. 577.
2236 European Union's first written submission, para. 582; second written submission, paras. 636-638;
response to Panel question Nos. 105, paras. 150-161, and 106, paras. 162-168; comments on United States'
response to Panel question No. 105, paras. 319-329; and South Carolina's Subsidies to Boeing's LCA Division,
(Exhibit EU-39), p. 1.
2237 European Union's first written submission, para. 581.
2238 South Carolina Subsidies to Boeing's LCA Division, (Exhibit EU-39), p. 1.
2239 The European Union estimates the value of the facilities and infrastructure at USD 270 million from
2011 to 2035.
2240 European Union's response to Panel question Nos. 106, para. 166, and 105, paras. 155 and 156.
However, the European Union rejects as a mischaracterization the United States' assertion that its valuation
addresses the cost to Boeing to raise an amount of money equal to what South Carolina raised through state
bonds. (European Union's second written submission, para. 636).
2241 European Union's first written submission, para. 581.

because the European Union has failed to provide an appropriate benchmark to determine and
estimate any benefit conferred.2242
8.847. The European Union's estimate of the amount of the subsidy, based on what it would cost
Boeing to raise funds to construct the facilities, or find another market participant to construct and
lease the facilities, suffers from a fundamental factual and legal flaw regarding the nature of the
subsidy. In Section 8.2.8.6.3.1, we reject as factually unsupported the European Union's argument
that South Carolina provides the Gemini facilities and infrastructure to Boeing. We also reject as a
legal matter the European Union 's argume nt that, in relation to the Gemini facilities and
infrastructure, there was a financial contribution to Boeing in the form of a provision of goods or
services other than general infrastructure , since we consider that Article 1.1(a)(1) contemplates a
characterization of a measure as a financial contribution on the basis of the manner in which that
measure transfers value to a recipient. Rather, we find that the payments made by South Carolina
pursuant to commitments in the Project Gemini Agreement to compens ate Boeing for a portion of
the costs in constructing the Gemini facilities and infrastructure are direct transfers of funds within
the meaning of Article 1.1(a)(1)(i) of the SCM Agreement.
8.848. In Section 8.2.8.6.3.2, we find that these financial contributions, which are direct transfers
of funds (and essentially infrastructure -related grants), confer a benefit. In so doing, we explain
that our benefit determination is not affected by any alleged remuneration or "compensation"
provided by Boeing in relation to the grants.
8.849. Moreover, in Section 8.2.8.6.3.3, we find that only the direct transfers of funds made by
South Carolina through air hub bonds are specific. The total amoun t of these bond proceeds is
USD 50 million. This being so, and bearing in mind that there is no requirement in a dispute under
Part III of the SCM Agreement for panels to quantify precisely the amount of a subsidy benefiting
a product at issue in every case 2243, it suffices for present purposes to consider the amount
of the subsidy to be equal to the amount of the air h ub bond proceeds, namely
USD 50 million.2244
8.2.8.6.5 Conclusion
8.850. In light of our findings above with respect to the Gemini and Emerald facilities and
infrastructure, we conclude that:
a. The European Union has failed to establish that financial contributions exist within the
meaning of Article 1.1(a)(1)(iii) of the SCM Agreement because South Carolina provides
Gemini and Emerald facilities and infrastructure to Boeing, and thus has also not
established that specific subsidies exist within the meaning of Articles 1 and 2 of the
SCM Agreement in this regard.
b. The European Union has established that the payments made by South Carolina
pursuant to commitments in the Project Gemini Agreement to compensate Boeing for a
portion of the costs incurred by Boeing in respect of the construction of the Gemini
facilities and infrastructure through air hub bond proceeds involve a specific subsidy
within the meaning of Articles 1 and 2 of the SCM Agr eement, in the amount of
USD 50 million.
8.2.8.7 Whether property tax reductions through the Boeing and Project Emerald FILOT
Agreements are specific subsidies to Boeing
8.2.8.7.1 Introduction
8.851. In paragraph 24 of its panel request, the European Union identifies as one of the Project
Gemini-related subsidies presently benefiting Boeing:

2242 United States' first written submission, paras. 583 and 584; second written submission, paras. 518
and 519; response to Panel question No. 105, paras. 218-229; and comments on European Union's response
to Panel question Nos. 105, paras. 162-168, and 106, paras. 169-171.
2243 Appellate Body Report, US – Upland Cotton, paras. 462-467; and Panel Report, Mexico – Olive Oil,
para. 7.152.
2244 Gemini Air Hub Bond Resolution, (Exhibit EU-483).

Property tax reductions under a fee -in-lieu-of taxes agreement between Charleston
County and Boeing, dated 1 December 2009, as authorized by Title 12, Chapter 44 of
the S.C. code, including the provi sion of special source credits as provided for in such
agreement, and authorized by S.C. Code § 4-1-175.
8.852. In paragraph 25 of its panel request, the European Union identifies as one of the Project
Emerald-related subsidies presently benefiting Boeing:
Property tax reductions under a fee -in-lieu-of taxes agreement between Charleston
County and Vought Aircraft industries, Global Ae ronautica, and Boeing, dated
19 December 2006, and assigned to Boeing on or about 10 February 2010, as
authorized by Title 12, Chapt er 44 of the S.C. Code, and provided for in the Project
Emerald Confidential Site Development Agreement, including the provision of
infrastructure credits as provided for in such agreement, and authorized by S.C. Code
§ 12-44-70.
8.853. The European Union argues that the above -referenced FILOT agreements in respect of
Project Gemini and Project Emerald, through which Boeing pays negotiated fees in place of the ad
valorem property taxes that it would otherwise owe in respect of the 787 final assembly and
delivery f acility, and the 787 fuselage fabrication and integration complex, respectively, are
specific subsidies to Boeing.
8.854. Real property, personal property used in business, and certain other personal property
(e.g. aeroplanes) are subject to property taxes in So uth Carolina. Such property taxes are
calculated by multiplying the periodically appraised fair market value of property by an assessment
ratio set forth in the South Carolina Constitution according to the type of property. The resulting
assessed value is then multiplied by a millage rate, i.e. a varying tax rate applied by each local
taxing jurisdiction (e.g. county)2245, to obtain the amount of tax due.2246
8.855. Assessment ratios are established in the South Carolina Constitution and differ according
to property classification. All manufacturing property, whether real or personal, is assessed at the
ratio of 10.5% 2247, a higher rate than in neighbouring states. 2248 The South Carolina legislature
has, through legislation enacted between 1988 and 1997, granted counties the authority to
exempt certain projects from property taxes in exchange for entering into agreements that provide
for the annual payment of fees with respect to property which would otherwise be subject to
property taxes.2249 These agreements are known as FILOT agreements. In general terms, FILOT
agreements꞉ (a) freeze the value of real property; and (b) provide for a reduced assessment ratio.
They may also set a fixed millage rate. 2250 FILOT agreements may be supplemented by Special
Source Revenue Credits (revenue credits), which rebate a portion of the fee due under the

2245 A "mill" is a unit of monetary value equal to one thousandth of a dollar, or USD 0.001.
2246 See South Carolina Department of Revenue, South Carolina Tax Incentives for Economic
Development 20, 2013 edn, (South Carolina Department of Revenue, 2012) (South Carolina Tax
Incentives), (Exhibit EU-494), pp. 141 and 142.
2247 County Equalization and Reassessment, S.C. Code, Title 12, chapter 43, (Exhibit EU-525),
section 12-43-220(a)(1). By way of context, most commercial personal property is also assessed at 10.5%,
whereas commercial real property is assessed at 6%. (See South Carolina Tax Incentives, (Exhibit EU-494),
pp. 142-148).
2248 See Alliance for South Carolina's Future, The Economic Impact of Boeing in South Carolina,
(May 2010), (Exhibit EU-489), p. 3; and Lincoln Institute of Land Policy, 50-State Property Comparison Study,
(April 2012), (Exhibit USA-331), p. 20.
2249 The legislation in question is the "Big Fee" FILOT statute, enacted in 1988, followed by the "Little
Fee" and "Simplified Fee" statutes. See Industrial Development Projects, S.C. Code, Title 4, chapter 29,
(Exhibit USA-243), section 4-29-67; Fee in Lieu of Property Taxes, S.C. Code, Title 4, chapter 12, (Exhibit
USA-330), section 4-12-30; and Fee in Lieu of Tax Simplification Act, S.C. Code, Title 12, chapter 44, (Exhibit
EU-539), section 12-44-44. The legislative findings for the "Simplified Fee" statute, the full title of which is the
"Fee in Lieu of Tax Simplification Act", enacted in 1997, explain that the legislation simplifies the method for
obtaining the fee in lieu of tax benefits and makes this incentive more attractive by eliminating the
requirement in the existing FILOT legislation for the issuance of industrial revenue bonds or the transfer of title
to property to a county. See the Fee in Lieu of Tax Simplification Act, S.C. Code, Title 12, chapter 44, (Exhibit
EU-539), section 12-44-20.
2250 Fee in Lieu of Tax Simplification Act, S.C. Code, Title 12, chapter 44, (Exhibit EU-539), section 12-
44-50(A)(1).

agreement and thereby further reduce the assessment ratio. Counties evaluate projects, negotiate
terms, approve agreements, and collect fee payments.2251
8.856. South Carolina law authorizing FILOT agreements provides for three main types of FILOT
agreements which differ, inter alia, with respect to the minimum required investments and the title
to project property. 2252 Notwithstanding these differences, all three types of agreements provide
for a reduced assess ment ratio of 6%. Furthermore, the South Carolina law regarding FILOT
agreements also contains special provisions for very large investments, known as "Super Fee "
agreements or "Enhanced Investment Fee" agreements, depending on the particular FILOT statute
under which the FILOT agreement is authorized. Under both super fee agreements and enhanced
investment fee agreements, a company investing USD 150 million and creating 125 new jobs, or
investing USD 400 million regardless of job creation, is subject to a reduced assessment ratio of
4%.2253 Where a party to a FILOT agreement fails to meet the requirements to qualify for the
lower assessment ratios, the higher constitutional assessment ratio will be applied retroactively to
the property covered by the agreement.2254
8.857. On 1 December 2010, Charleston County entered into an Enhanced Investment Fee
Agreement with Boeing (the Boeing F ILOT Agreement).2255 The property covered by the Boeing
FILOT Agreement consists of Boeing 's 787 final assembly and delivery facility (i.e. the Project
Gemini property), as well as Boeing 's South Carolina Interior Responsibility Center. 2256 The tax
treatment applicable to this project property for a minimum of thirty years 2257 is based on꞉ (a) an
assessment ratio of 4 %; (b) a fixed millage rate of 269. 8; and (c) a fair market value estimate
determined by the South Carolina Department of Revenue according to state legislation. 2258 In
addition, the Boeing F ILOT Agreement grants a rebate equal to half of each of Boeing 's first 15
annual payments in the form o f revenue credits. 2259 The Boeing F ILOT Agreement contains a
provision regarding the allocation of property between the Project Emerald F ILOT Agreement and
the Boeing F ILOT Agreement.2260 The Boeing F ILOT Agreement also provides that the Project
Emerald F ILOT Agreement "shall remain in full force and effect, and shall be controlling, with
respect to the Vought Project".2261
8.858. On 19 December 2006, Charleston County entered into an Enhanced Investment Fee
Agreement with Vought, G lobal Aeronautica and Boeing (the Project Emerald F ILOT
Agreement).2262 The property covered by the Project Emerald F ILOT Agreement consists of
property used for the purpose of manufacturing and assembling aircraft components, including
portions of the fuselage for the Boeing 787 aircraft (i.e. the Project Emerald property).2263 The tax

2251 With respect to Big Fee agreements, see e.g. South Carolina Tax Incentives, (Exhibit EU-494),
pp. 184 and 185. See also United States' second written submission, para. 534.
2252 By way of example, Little Fee and Simplified Fee agreements generally require a minimum
investment of USD 2.5 million, whereas Big Fee agreements generally require a minimum investment of
USD 45 million. Furthermore, under Little Fee and Big Fee agreements, title to the project property must be
held by the county, whereas under Simplified Fee agreements, title is usually held by the project sponsor. (See
South Carolina Tax Incentives, (Exhibit EU-494), p. 204, and generally pp. 175-205).
2253 South Carolina Tax Incentives, (Exhibit EU-494), p. 204, and generally pp. 175-205.
2254 Fee in Lieu of Tax Simplification Act, S.C. Code, Title 12, chapter 44, (Exhibit USA-245), section 12-
44-140(B).
2255 Boeing FILOT Agreement, (Exhibit EU-470), recital 1 of which refers to the Simplified Fee statute,
S.C. Code, Title 12 chapter 44. See also European Union's first written submission, fn 1309.
2256 See United States' response to the Panel's request for information pursuant to Article 13 of the DSU,
dated 28 February 2013, response to question No. 78, para. 170; and South Carolina Department of Revenue,
Boeing PT-300S Forms, 2012, (Exhibit US-13-318) (BCI). See also Boeing FILOT Agreement, (Exhibit EU-470),
section 1.3, p. 6 (definitions of "Project" and "Site"), and exhibit A.
2257 Boeing FILOT Agreement, (Exhibit EU-470), section 5.6.
2258 Boeing FILOT Agreement, (Exhibit EU-470), section 5.1(a).
2259 Boeing FILOT Agreement, (Exhibit EU-470), section 5.2(a).
2260 Boeing FILOT Agreement, (Exhibit EU-470), p. 10.
2261 Boeing FILOT Agreement, (Exhibit EU-470), section 11.11.
2262 Fee Agreement between Charleston County, Vought Aircraft Industries, Inc., Global Aeronautica,
LLC, and the Boeing Company (19 December 2006) (Project Emerald FILOT Agreement), (Exhibit EU-556),
recital 1 (referring to Simplified Fee statute, S.C. Code, Title 12, chapter 44).
2263 See Project Emerald FILOT Agreement, (Exhibit EU-556), recital 4, p. 1 (definition of the "Site"),
section 1.01, p. 5 (definition of the "Project"), and section 2.2(b). See also United States' response to Panel
question No. 143, para. 294; and State of South Carolina, Department of Revenue, Emerald Property Return
PT-300, schedule S-1 (2013), (Exhibit USA-529) (BCI).

treatment applicable to this project property for a minimum of thirty years 2264 is based on꞉ (a) the
value of the real property established during the first year of the agreement; (b) an assessment
ratio of 4%; and (c) a fi xed millage rate of 273. 2265 In addition, the Project Emerald F ILOT
Agreement grants a rebate equal to 25% of the fees paid for ten years in the form of revenue
credits.2266 In 2010, following approval by Charleston County on 11 August 2009 2267, Vought
assigned its rights under the Project Emerald FILOT Agreement to Boeing.2268
8.2.8.7.2 Main arguments of the parties
8.859. The European Union argues that the reductions of Boeing 's property tax liability for
property including the 787 final assembly and delivery facility, through the Bo eing F ILOT
Agreement, and for the 787 fuselage fabrication and integration complex through the Project
Emerald FILOT Agreement, constitute specific subsidies within the meaning of Articles 1 and 2.
8.860. The European Union argues that both the Boeing F ILOT Agreement and the Project
Emerald F ILOT Agreement involve the foregoing of revenue otherwise due and thus a financial
contribution within the meaning of Article 1.1(a)(1)(ii), or alternatively a direct transfer of funds
within the meaning of Article 1.1(a)(1)(i). The European Union is of the view that its position finds
support in the three -step analysis set out by the Appellate Body in the original proceeding for
determining the existence of revenue foregone, and structures its arguments according to that
analysis. The European Union identifies the benchmark tax treatment of comparable taxable
activity of comparable taxpayers as the standard property tax treatment of other manufacturers in
Charleston County. The European Union considers a benchmark based on other manufacturers to
be appropriate, since property tax is contingent on the nature of the property, and manufacturing
property is treated as a comprehensive category.2269 Furthermore, the European Union considers a
benchmark based on other manufacturers in Charleston County is appropriate, since Charleston
County is the granting authority, and property taxes in South Carolina are imposed by local
governments, not the state government. The property tax treatment of such taxpayers (i.e. other
manufacturers in Ch arleston County) is based on꞉ (a) the valuation by appraisal of a
manufacturer's real property every five years or upon a triggering event; (b) the assessment ratio
of 10.5%; and (c) fluctuating millage rates. 2270 Based on a comparison with other manufacturer s,
the Boeing F ILOT Agreement and the Project Emerald F ILOT Agreement involve the foregoing of
revenue otherwise due because, in the absence of the agreements, the manufacturing property
covered by the agreements would be subject to higher taxation under t he general rule governing
the taxation of manufacturing property.2271 In the alternative, the European Union argues that the
revenue credits, involving the transfer of funds by check or wire to Boeing as reimbursements for
expenditures on Special Source Improvements, constitute a direct transfer of funds.2272
8.861. The European Union contends that both the Boeing F ILOT Agreement and the Project
Emerald F ILOT Agreement confer benefits to Boeing within the meaning of Article 1.1(b). The
foregoing of taxes that would otherwise be due "clearly confers a benefit".2273
8.862. The European Union argues that the Boeing F ILOT Agreement and the Project Emerald
FILOT Agreement are specific within the meaning of Articles 2.1(a) and 2.1(c). With respect to de

2264 Project Emerald FILOT Agreement, (Exhibit EU-556), section 1.01, p. 5 (definition of "Termination
Date").
2265 Project Emerald FILOT Agreement, (Exhibit EU-556), section 4.1.
2266 Project Emerald FILOT Agreement, (Exhibit EU-556), section 4.2.
2267 Assignment and Assumption of Fee Agreement between Vought Aircraft Industries, Inc. and Boeing
Commercial Airplanes Charleston South Carolina, Inc. (10 February 2010), (Exhibit EU-557), second recital,
referring to a Charleston County resolution adopted on 11 August 2009.
2268 Assignment and Assumption of Fee Agreement between Vought Aircraft Industries, Inc. and Boeing
Commercial Airplanes Charleston South Carolina, Inc. (10 February 2010), (Exhibit EU-557).
2269 European Union's first written submission, para. 682.
2270 European Union's first written submission, para. 682.
2271 European Union's first written submission, paras. 683 and 726.
2272 Nevertheless, the European Union has indicated that, if the Panel finds the Boeing FILOT Agreement
as a whole to provide a financial contribution through the foregoing of government revenue otherwise due, the
Panel need not consider the European Union's alternative argument that the rebate provisions can also be
characterized as a direct transfer of funds. (European Union's second written submission, para. 715; first
written submission, para. 684).
2273 European Union's first written submission, paras. 687 and 730 (both citing Panel Report, US – FSC,
para. 7.103).

jure specificity within the mean ing of Article 2.1(a), the legislation pursuant to which Charleston
County authorised and approved the Boeing F ILOT Agreement and the Project Emerald F ILOT
Agreement explicitly limit the availability of these arrangements to Boeing and the Project Emerald
companies, respectively. 2274 With respect to de facto specificity within the meaning of
Article 2.1(c), the Boeing FILOT Agreement and the Project Emerald FILOT Agreement are used by
a limited number of enterprises, are predominantly used by certain enterpris es, and grant
disproportionately large amounts of the subsidy to certain enterprises. In addition, the manner in
which discretion has been exercised in granting the subsidy further indicates specificity.2275
8.863. The United States rejects the European Union 's argument that the FILOT agreements at
issue provide financial contributions through the foregoing of revenue otherwise due within the
meaning of Article 1.1(a)(1)(ii). The United States additionally argues that the European Union has
failed to demonstrate tha t the Project Emerald F ILOT Agreement provides a subsidy to Boeing,
given that Project Emerald was an investment package for Vought and Global Aeronautica and the
European Union has failed to demonstrate that any alleged benefits conferred to Vought and/or
Global Aeronautica passed through to Boeing.2276
8.864. The United States argues that FILOT agreements are the rule rather than the exception for
the property taxation of similarly situated industrial taxpayers in South Carolina. 2277 The
United States considers that the FILOT agreements at issue in this dispute are an example of a
situation in which a notional general tax rate (the rate of 10.5% mandated by the South Carolina
Constitution) does not constitute the appropriate benchmark.2278 "Similarly situated" taxpayers are
large industrial taxpayers in South Carolina 2279 (i.e. companies eligible for FILOT agreements
because they invest over USD 150 million and create 125 jobs, or invest USD 400 million in
projects in South Carolina).2280 Indeed, industrial taxpayers throughout the State of South Carolina
receive the same tax treatment as Boeing if they meet the statutory investment and employment
thresholds2281 and are generally assessed pursuant to an assessment ratio of less than 4% through
FILOT agreements coupled with revenue credits. When compared to this benchmark, the
applicable assessment ratio under the FILOT agreements at issue is not out of the norm.2282
8.865. The United States also rejects the argument that the FILOT agreements provide financial
contributions through a direct t ransfer of funds within the meaning of Article 1.1(a)(1)(i) of the
SCM Agreement. The FILOT agreements and revenue credits do not entail payments or any other
funds flowing from South Carolina to Boeing, and instead merely provide for the adjustment of tax
payments to reflect the correct tax rate. 2283 Indeed, the amount to be rebated does not belong to
South Carolina in the first place. 2284 Furthermore, the European Union fails to specify the amount
of the supposed revenue credits, or to identify the alleged check or wire payments.2285
8.866. The United States argues that FILOT agreements, such as the Boeing F ILOT Agreement
and the Project Emerald F ILOT Agreement, are not specific. Rather, they are a general feature of
South Carolina industrial property tax law and widely available throughout South Carolina due to
the relatively high property tax rate fixed by the South Carolina Constitution. 2286 The "legislation
pursuant to which the granting authority operates ", namely the Simplified Fee statute, including
the statutory prov ision for Enhanced Investment Fees, South Carolina Code section 12-44-30(7)

2274 European Union's first written submission, para. 731 (referring to Charleston County Council,
Minutes of 21 December 2004 Meeting where an Inducement Resolution is approved, (Exhibit EU-561));
Charleston County, Ordinance 1476 (19 December 2006), (Exhibit EU-562), para. 688 (referring to Charleston
County Council, Minutes of 17 November 2009 Meeting where an Inducement Resolution is approved, (Exhibit
EU-540); and Charleston County Council, Minutes of 12 January 2010 Meeting where a County Ordinance is
approved, (Exhibit EU-541)).
2275 European Union's first written submission, paras. 689-691 and 732; second written submission,
para. 717; and response to Panel question No. 112, paras. 197-201.
2276 United States' first written submission, paras. 546-553.
2277 United States' first written submission, para. 582; response to Panel question No. 104, para. 215.
2278 United States' first written submission, para. 565.
2279 United States' second written submission, paras. 537 and 538.
2280 United States' first written submission, para. 566.
2281 United States' second written submission, para. 542.
2282 United States' first written submission, para. 566.
2283 United States' first written submission, para. 567.
2284 United States' second written submission, para. 544.
2285 United States' second written submission, para. 544.
2286 United States' first written submission, para. 633.

and chapter 44, Title 12, does not explicitly limit access to FILOT agreements to certain
enterprises within the meaning of Article 2.1(a). Furthermore, South Carolina 's FILOT programme
is non-specific under Article 2.1(b) since it establishes "objective criteria or conditions " that are
"clearly spelled out in law, regulation or other official document{s}" that govern eligibility to FILOT
agreements within the meaning of footnote 2 to the SCM Agreement. Finally, the European Union
has failed to establish that the challenged agreements are de facto specific within the meaning of
Article 2.1(c).2287
8.2.8.7.3 Evaluation by the Panel
8.2.8.7.3.1 Whether there is a financial contribution
8.867. The first question before the Panel is whether the tax treatment of property covered by the
Boeing F ILOT Agreement and the Project Emerald F ILOT Agreement involves a financial
contribution in the form of the foregoing of revenue otherwise due, within the meaning of
Article 1.1(a)(1)(ii) of the SCM Agreement. The European Union 's basic position is that, in the
absence of the challenged FILOT agreements, the property in question would be subject to the
standard treatment of manufacturing property pursuant to the Constitution of the State of South
Carolina, which is significantly higher. The United States ' basic position is that the FILOT
agreements do not involve the foregoing of revenue otherwise due because they provide for tax
treatment that is identical to the treatment of manuf acturing property in projects with similar
investment and employment levels.
8.868. Both parties structure their arguments according to the three-step analysis set out by the
Appellate Body in the original proceeding for determining the existence of revenue fore gone.2288 In
our view, it is essential to consider the broader legal rationale underlying this analysis before
studying its specific stages.
8.869. The Appellate Body has observed that the foregoing of revenue otherwise due within the
meaning of Article 1.1(a)(1)(ii) implies that less revenue has been raised by the government than
would have been raised in a different situation, and crucially that "the word 'foregone' suggests
that the government has given up an entitlement to raise revenue that it could 'otherwise' have
raised".2289 However, this cannot be an entitlement in the abstract, because governments could, in
theory, tax all revenues. There must therefore be some defined, normative benchmark against
which a comparison can be made between the revenue actually ra ised and the revenue that would
have been raised "otherwise".2290 The Appellate Body has also emphasized that this comparison
must be made under the domestic taxation rules established by the Member in question. 2291
Because domestic taxation rules can be varied and complex, identifying the appropriate
benchmark for comparison under Article 1.1(a)(1)(ii) may be difficult.2292 The Appellate Body has
observed, in this regard, that panels must ensure that in identifying the appropriate benchmark for
comparison, "they identify and examine fiscal situations which it is legitimate to compare "2293 and
that the examination under Article 1.1(a)(1)(ii) "involve{s} a comparison of the fiscal treatment of
the relevant income for taxpayers in comparable situations ".2294 In this connecti on, the Appellate
Body has expressed reservations regarding the application of a "but for " test as a basis for

2287 United States' first written submission, paras. 634 and 635; second written submission,
paras. 547-554. See also United States' response to Panel question Nos. 132, paras. 271-273, 133,
paras. 274-282, 138, paras. 2 and 3, 140, para. 170, and 142, paras. 14 and 15; and comments on
European Union's response to Panel question Nos. 104, para. 158, and 112, paras. 200 and 201.
2288 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 812-814 (reproduced below
at para. 8.874). European Union's first written submission, paras. 594 and 681-683; and United States' first
written submission, para. 563.
2289 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 806 (referring to Appellate
2290 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 806 (referring to Appellate
2291 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 806 (referring to Appellate
Body Report, US – FSC, para. 90), and para. 808 (referring to Appellate Body Report, US – FSC (Article 21.5 –
EC), para. 89).
2292 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 809.
2293 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 809 (referring to Appellate
Body Report, US – FSC (Article 21.5 – EC), para. 90).
2294 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 809 (referring to Appellate
Body Report, US – FSC (Article 21.5 – EC), para. 92).

determining the fiscal treatment in the absence of the contested measure 2295 and emphasized the
need to take into account "the structure of the dome stic tax regime and its organizing
principles".2296
8.870. In light of the guidance provided by the Appellate Body, we consider that the tax
treatment of property covered by the Boeing F ILOT Agreement and the Project Emerald F ILOT
Agreement is a financial contribut ion within the meaning of Article 1.1(a)(1)(ii) because it is an
instance of a government giving up an entitlement to raise revenue that it could otherwise have
raised. We find support for this view in꞉ ( a) the characterization of the FILOT agreements by the
South Carolina tax authorities ; (b) the nature of the FILOT agreements as conditional tax
incentives that provide benefits in consideration of commitments by co mpanies regarding levels of
investment and employment ; and (c) the application to the facts of this case of the three -step
analysis set out by the Appellate Body in the original proceeding.2297
8.871. First, the South Carolina tax authorities themselves describe the benefits of FILOT
agreements by comparing them with the rule that applies generally to manufacturing property,
and have explicitly characteri zed FILOT agreements as involving savings on property taxes that
would be otherwise due on a project:
Industries investing at least $2.5 million in South Carolina may negotiate for a
fee-in-lieu of property taxes, resulting in a savings of about 40% on the property
taxes otherwise due for a project. Additionally, certain large investments may be able
to further reduc e their liability. Under a fee in lieu of property tax agreement, the
assessment ratio can be negotiated down from 10.5 % to 6%. For large investments,
the assessment ratio can be reduced down to 4%. The county and the industry may
agree to either set the m illage rate for the entire agreement period or have the
millage change every five years in step with the average millage rate for the area
where the industry's project is located. Any personal property subject to the fee in lieu
of property taxes depreciat es in accordance with South Carolina law while the real
property is either set at cost for the life of the agreement or can be appraised every
five years.2298
8.872. Second, as reflected in the text of the Boeing F ILOT Agreement and Project Emerald FILOT
Agreement, FILOT agreements are conditional tax incentives available to all companies able and
willing to make or expand manufacturing investments of a certain magnitude in South Carolina,
and are aimed at inducing companies to locate within the state by counteracting the relatively high
property tax assessment ratio set in the South Carolina Constitution. For example, the first two
recitals of the Boeing FILOT Agreement state the following:
Whereas, to induce companies to locate in the State and to encourage companie s now
located in the State to expand their investments and thus to make use of and employ
workers and other resources of the State, the County is authorized by Title 12,
chapter 44 (the "Fee Act"), Code of Laws of South Carolina 1976, as amended, (the
"Code") and specifically Section 12-44-30(7) of the Fee Act, to enter into an enhanced
investment fee agreement with companies meeting the requirements of such Fee Act
which identifies certain property of such companies as economic development
property …
Whereas, pursuant to the Act, and based on factual representations by the Company
to the County, the County finds that: (a) it is anticipated that the Project (as defined
herein) will benefit the general public welfare of the County by providing services,
employment and other public benefits not otherwise adequately provided locally; (b)
neither the Project nor any documents or agreements entered into by the County in

2295 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 810 (referring to Appellate
Body Report, US – FSC, para. 91, and to Appellate Body Report, US – FSC (Article 21.5 – EC), fn 66). See also
Appellate Body Report, US – FSC (Article 21.5 – EC), paras. 815, 818, and 823.
2296 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 815.
2297 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 812-814 (reproduced below
at para. 8.874).
2298 South Carolina Department of Revenue, "Fee in Lieu", available at:
<http://www.sctax.org/tax/fee-in-lieu>, accessed 1 September 2016, (Exhibit EU-1436).

connection therewith will give rise to any pecuniary liability of the County or
incorporated mu nicipality or to any charge against their general credit or taxing
power; (c) the purposes to be accomplished by the Project are proper governmental
and public purposes; and (d) the benefits of the Project to the public are greater than
the costs to the public … .2299
The Boeing F ILOT Agreement states that "the County agreed to make available to Boeing the
benefits of certain programs, including a payment-in-lieu of taxes arrangement, in consideration of
Boeing's agreement to invest in the County through the d evelopment, acquisition, and installation
of certain facilities".2300
8.873. Thus, statements of the South Carolina tax authorities and the text of the agreements at
issue clearly indicate that the treatment of manufacturing property provided for in the Boeing
FILOT Agreement and the Project Emerald F ILOT Agreement is understood as a "benefit" that
companies receive in return for making certain commitments with respect to levels of investment
and employment and which constitutes a departure from the otherwise applicable rule under which
manufacturing property is subject to an assessment ratio of 10.5%. The measure can be properly
characterized as conditional tax incentives that embody a quid pro quo arrangement where an
entity is granted some form of tax advantage in exchange for fulfilling set requirements, and
conversely a taxing authority relinquishes an existing entitlement to raise revenue that it could
otherwise raise where an entity fulfils the set requirements.
8.874. Our tentative conclusion that the challenged FILOT agreements involve a situation in which
the government gives up an entitlement to raise revenue that it could have raised otherwise finds
further support in the application to the facts of this case of the three -step analysis set out by the
Appellate Body in the original proceeding:
The identification of circumstances in which government revenue that is otherwise due
is foregone requires a comparison between the tax treatment that applies to the
alleged subsidy recipients and the tax treatment of compara ble income of comparably
situated taxpayers. Accordingly, a panel examining a claim under Article 1.1(a)(1)(ii)
of the SCM Agreement should first identify the tax treatment that applies to the
income of the alleged recipients. Identifying such tax treatmen t will entail
consideration of the objective reasons behind that treatment and, where it involves a
change in a Member's tax rules, an assessment of the reasons underlying that change.
As a second step, the panel should identify a benchmark for comparison –that is, the
tax treatment of comparable income of comparably situated taxpayers. We recognize
that this is not always a straightforward exercise, and may in some circumstances be
exceedingly difficult. Identifying a benchmark involves an examination of the structure
of the domestic tax regime and its organizing principles. In some cases, the principles
will be ones well recognized in the tax regimes of Members; in other cases, they will
be unique to the particular domestic regime. It may be that disparate tax measures,
implemented over time, do not easily offer up coherent principles serving as a
benchmark. In any event, the task of the panel is to develop an understanding of the
tax structure and principles that best explains that Member 's tax regime, and to
provide a reasoned basis for identifying what constitutes comparable income of
comparably situated taxpayers. Evidence relied upon in such an analysis must be
located in the "rules of taxation that each Member, by its own choice, establishes for
itself". In doing so, a Member will be held to account for the tax structure and
principles that it itself employs. This is akin to the approach undertaken in the field of
public finance for purposes of estimating what are known as "tax expenditures".
Finally, as a third step, the panel should compare the reasons for the challenged tax
treatment with the benchmark tax treatment it has identified after scrutinizing a
Member's tax regime. Such a comparison will enable a panel to determine whether, in
the light of the treatment of the comparable income of comparably situated taxpayers,

2299 Boeing FILOT Agreement, (Exhibit EU-470), p. 1. Similarly, see Project Emerald FILOT Agreement,
(Exhibit EU-556), recitals 4 and 5.
2300 Boeing FILOT Agreement, (Exhibit EU-470), recital 3. Similarly, see Project Emerald FILOT
Agreement, (Exhibit EU-556), recital 4.

the government is foregoing revenue that is otherwise due in relation to the income of
the alleged recipients.2301
8.875. As to the first step of this analysis, we have described the tax treat ment applicable to the
property covered by the Boeing FILOT Agreement and the Project Emerald FILOT Agreement above
in paragraphs 8.857 and 8.858. We consider that the "objective reasons behind that treatment"
can be discerned from the stated purpose of the agreements. As expressed in the Boeing F ILOT
Agreement, the purpose is "to induce companies to locate in the State and to encourage
companies now located in the State to expand their investments a nd thus to make use of and
employ workers and other resources of the State".2302
8.876. We observe that the disagreement between the parties primarily concerns the second step
of the Appellate Body 's analysis, namely the identification of the benchmark tax treatmen t and
more specifically how "comparably situated taxpayers " should be defined. The identification of
comparable taxable, income, activity or property of "comparably situated taxpayers " and the tax
treatment applicable to such taxpayers under the second ste p of the Appellate Body's analysis has
direct implications for the comparison carried out under the third step, and the determination of
whether the Boeing F ILOT Agreement and the Project Emerald F ILOT Agreement involve the
foregoing of revenue that is otherwise due. For the reasons detailed below, we are of the view that
the group of comparably situated taxpayers in this instance should be considered to comprise
manufacturers subject to the tax rules set out in the South Carolina Constitution with regard t o
manufacturing property, rather than large industrial users eligible for enhanced investment fee
agreements, as argued by the United States.
8.877. First, regarding the "structure and organising principles ", a central feature of South
Carolina's property tax reg ime is that it distinguishes between broad categories of property, with
different rules applying to each of these categories. 2303 This suggests to us that, in the case at
hand the "comparable property of comparably situated taxpayers "2304 is manufacturing proper ty
and therefore that the appropriate benchmark is the constitutional assessment ratio of 10.5% that
applies generally to manufacturing property. Under the approach advanced by the United States,
Boeing and other large industrial taxpayers are "comparably situated" because they satisfy the
same eligibility requirements relating to investment and employment levels. This means that the
group of comparably situated taxpayers is defined by the criteria attached to the very measure
that is alleged to give rise to the foregoing of revenue otherwise due. We find the circularity of this
argument to be problematic. Since the granting of tax incentives is often conditioned on criteria
similar to the criteria that determine the eligibility for the FILOT agreements at i ssue in this
dispute, accepting the argument advanced by the United States would imply that an important
category of measures could not be found to be financial contribution s within the meaning of
Article 1 of the SCM Agreement. Indeed, if one follows the reasoning of the United States, the
Boeing FILOT Agreement and the Project Emerald FILOT Agreement could only be found to involve
revenue foregone otherwise due if there were not a single taxpayer in South Carolina which met
the same criteria for eligibili ty for the same type of FILOT agreement and was thus comparably
situated. However, the United States does not explain the legal and conceptual basis for such a
narrow conception of the scope of Article 1.1(a)(1)(ii).
8.878. Further to the above, the comparison su ggested by the United States of the tax treatment
of one individual taxpayer under a challenged measure with the treatment of other taxpayers who
qualify for the same tax treatment is at odds with cases in which the Appellate Body has
articulated the compa rability test, which examine measures applicable to a more abstractly
identified group of taxpayers. The Appellate Body found in those cases that there was revenue
foregone when the treatment of one category of taxpayers was more favourable than the
treatment of another comparable category. It gave as examples of comparable situations the
following: "{i}n general terms, in this comparison, like will be compared with like. For instance, if
the measure at issue involves income earned in sales transactions, it might not be appropriate to

2301 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 812-814 (fns omitted). While
the above analysis refers to comparable income, the Appellate Body has noted that it "understand{s} that the
same approach would apply to identifying any comparable taxable activity, transaction, or property of
comparably situated taxpayers". (Appellate Body Report, US – Large Civil Aircraft (2nd complaint), fn 1667).
2302 See para. 8.872 above.
2303 See para. 8.855 above.
2304 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), fn 1667.

compare the treatment of this income with employment income".2305 Furthermore, "{f}or instance,
if the measure at issue is concerned with the taxation of foreign -sourced income in the hands of a
domestic corporation, it might not be appropriate to compare the measure with the fiscal
treatment of such income in the hands of a foreign corporation ".2306 The very narrow benchmark
suggested by the United States is at odds with these examples of comparable situations given by
the Appellate Body.
8.879. Second, to find that there is revenue forgone based on a comparison with "comparably
situated taxpayers" defined as comprising "manufacturers" is consistent with the analysis in the
original proceeding of certain Washington State tax measures. The or iginal panel determined that
a Washington State B&O tax rate reduction for manufacturing of commercial aircraft and
components of such aircraft provided for under HB 2294 constituted a financial contribution under
Article 1.1(a)(1)(ii) of the SCM Agreement . In arriving at this conclusion, the panel made a
comparison between a general tax rate applicable to manufacturing activities in the State of
Washington and the tax rate applicable under H B 2294 with respect to the manufacturing of
commercial aircraft an d components. The panel noted, in this regard, that it was possible to
identify a general rule applicable to "every person … engaging in business as a manufacturer ".2307
The panel found further support for its characterization of the B&O tax rate reduction as a
deviation from a standard rate on the basis that HB 2294 provided that where certain
requirements were not met the reduced rate would cease to apply and the aircraft manufacturers
would be subject to the general rate for manufacturing. 2308 The Appellate Body observed that this
supported the panel 's view as to what were the benchmark tax rates because these rates
"reflected what would currently apply to these activities if the conditions for the lower rates were
not met".2309
8.880. The implication of the approach in the original proceeding is that , where tax treatment is
accorded that is more favourable than the treatment resulting from a general rule, subject to
certain conditions, the measure involves the foregoing of revenue otherwise due based on a
comparison with the situation that would exist if the conditions for the more favourable treatment
were not met. In the case of the Boeing F ILOT Agreement and the Project Emerald F ILOT
Agreement, it is clear that South Carolina 's tax code sets forth general rules on the taxation of
different types of property, including an assessment ratio of 10.5% for manufacturing property ,
and that where a party to a FILOT agreement fails to meet the requirements to qualify for the
lower assessment ratios, the higher assessment ratio under the general rule will be applied
retroactively to the property covered by the agreements.2310
8.881. In light of our view that the group of "comparably situated taxpayers " in this instance
should be considered to comprise manufacturers, subject to the constit utional property tax
assessment ratio of 10.5% in respect of manufacturing property, rather than large industrial users
eligible for Enhanced FILOT agreements, we find that a comparison of the challenged tax
treatment with the properly identified benchmark tax treatment, in light of the reasons for the
challenged tax treatment2311, indicates the foregoing of government revenue otherwise due.
8.882. We therefore conclude that each of the Boeing FILOT Agreement and the Project
Emerald F ILOT Agreement involves a financial contributio n within the meaning of
Article 1.1(a)(1)(ii).

2305 Appellate Body Report, US – FSC (Article 21.5 – EC), para. 90.
2306 Appellate Body Report, US – FSC (Article 21.5 – EC), para. 92.
2307 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.123.
2308 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.127.
2309 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 823. See also para. 825:
The Panel also determined that commercial aircraft and component manufacturers
are subject to a lower tax rate, which would in certain circumstances revert to the
higher, general tax rates. The Panel moreover considered that the scope of the
general tax rates in relation to that of various lower tax rates did not alter its
conclusion that th e general rates reflected what would have been applied to
commercial aircraft and component manufacturers in the absence of the B&O tax
reduction.
2310 Fee in Lieu of Tax Simplification Act, S.C. Code, Title 12, chapter 44, (Exhibit USA-245), section 12-
44-140(B); Boeing FILOT Agreement, (Exhibit EU-470), sections 5.7(b) and 5.7(c); and Project Emerald FILOT
Agreement, (Exhibit EU-556), section 4.3(a).
2311 See para. 8.872 above.

8.883. Further to the above, we note that the Boeing F ILOT Agreement and the Project Emerald
FILOT Agreement include fee rebates. We recall the European Union 's position that if the Panel
finds that th e Boeing F ILOT Agreement and the Project Emerald F ILOT Agreement as a whole
provide financial contributions through the foregoing of government revenue otherwise due, within
the meaning of Article 1.1(a)(1)(ii), the Panel need not consider the European Uni on's alternative
argument that the revenue credits can also be characteri zed as a direct transfer of funds within
the meaning of Article 1.1(a)(1)(i).2312 In light of our finding that the Boeing FILOT Agreement and
the Project Emerald F ILOT Agreement each involve a financial contribution within the meaning of
Article 1.1(a)(1)(ii), it is therefore unnecessary for us to pronounce on the European Union 's
alternative argument.
8.884. Finally, we recall the United States ' argument that the Project Emerald F ILOT Agreement
does not provide a financial contribution to Boeing. While we f ind that the Project Emerald F ILOT
Agreement involves a financial contribution within the meaning of Article 1.1(a)(1)(ii), we consider
it a separate question whether this financial contribution was provided to Boeing. We note that the
European Union has not argued that any benefit from the Project Emerald F ILOT Agreement
passed through to Boeing. In light of our conclusion below that the challenged FILOT agreements
are not specific within the meaning of Article 2, we do not consider it necessary to answer the
separate question of whether the Project Emerald F ILOT Agreement provided a financial
contribution to Boeing.2313
8.2.8.7.3.2 Whether there is a benefit
8.885. The United States makes no substantive arguments to refute the European Union 's
position that the foregoing of taxes that are otherwise due "clearly confers a benefit".2314 We agree
with the panel in US – FSC that the foregoing of certain taxes that would otherwise be due confers
a benefit on the taxpayer concerned.2315 We therefore find that the reduction in property tax
liability provided through the Boeing F ILOT Agreement and the Project Emerald F ILOT
Agreement each confers a benefit within the meaning of Article 1.1(b).
8.2.8.7.3.3 Whether the subsidy is specific
8.886. The first question raised by the parties' arguments is whether the subsidy granted through
the property tax reductions provided for in the Project Emerald F ILOT Agreement and the Boeing
FILOT Agreement, respectively, is specific within the meaning of Article 2. 1(a); i.e. whether "the
granting authority, or the legislation pursuant to which the granting authority operates, explicitly
limits access to a subsidy to certain enterprises".2316
8.887. An analysis of whether a subsidy is specific within the meaning of Article 2. 1(a) must focus
on whether the granting authority, or the legislation pursuant to which the granting authority
operates, limits the eligibility to receive the subsidy to certain enterprises. 2317 The European Union

2312 European Union's second written submission, para. 715; first written submission, para. 684.
2313 See Section 8.2.8.7.3.3 below.
2314 European Union's first written submission, para. 687 (citing Panel Report, US – FSC, para. 7.103).
2315 Panel Report, US – FSC, para. 7.103: "{i}n our view, the financial contribution clearly confers a
benefit, in as much as both FSCs and their parents need not pay certain taxes that would otherwise be due."
2316 The Appellate Body has explained that "a subsidy is specific under Article 2.1(a) if the limitation on
access to the subsidy to certain enterprises is express, unambiguous, or clear from the content of the relevant
instrument, and not merely 'implied' or 'suggested"'. (Appellate Body Report, US – Anti-Dumping and
Countervailing Duties (China), para. 372). See also Panel Report, US – Large Civil Aircraft (2nd complaint),
para. 7.192. With regard to the term "certain enterprises", the Appellate Body has explained that "the relevant
enterprises must be 'known and particularized', but not necessarily 'explicitly identified', and that they may
have 'some mutual or common relation or purpose', or 'degree of similarity'". (Appellate Body Report, US –
Carbon Steel (India), para. 4.365). "{A}ny determination of whether a number of enterprises or industries
constitute 'certain enterprises' can only be made on a case-by-case basis". (Appellate Body Report, US –
Anti-Dumping and Countervailing Duties (China), para. 373 (quoting Panel Report, US – Upland Cotton,
para. 7.1142)). See also Appellate Body Report, US – Washing Machines, paras. 5.220 and 5.221 (explaining
that the notion of "certain enterprises" in Article 2.2 of the SCM Agreement does not depend on the legal
personality of the subsidy recipients).
2317 See, in particular, Appellate Body Report, US – Anti-Dumping and Countervailing Duties (China),
para. 368 ("Article 2.1(a) thus focuses not on whether a subsidy has been granted to certain enterprises, but
on whether access to that subsidy has been explicitly limited. This suggests that the focus of the inquiry is on
whether certain enterprises are eligible for the subsidy, not on whether they in fact receive it." (emphasis

does not argue that the eligibility for the s ubsidy at issue is explicitly limited by virtue of
pronouncements of the granting authority; rather, the question before us is whether such an
explicit limitation exists by virtue of the legislation pursuant to which the granting authority
operates.
8.888. Since "eligibility is key to a consideration of de jure specificity under subparagraphs (a)
and (b) of Article 2.1 of the SCM Agreement "2318, we consider that the term "legislation pursuant
to which the granting authority operates " in Article 2.1(a) must be unders tood to mean the
legislation that defines the criteria of eligibility for a subsidy. 2319 Charleston County entered into
the Project Emerald FILOT Agreement and the Boeing FILOT Agreement pursuant to the provisions
of the Simplified FILOT Act that authorize th e conclusion of enhanced investment fee agreements
with companies meeting the requirements set out in those provisions. 2320 Accordingly, these
provisions constitute "the legislation pursuant to which the granting authority operates " for
purposes of the analysis under Article 2.1(a).2321
8.889. We note, in this respect, that the European Union does not advance any argument as to
how the text of the relevant provisions of the Simplified FILOT Act relating to enhanced investment
fee agreements limits the eligibility for th e subsidy to certain enterprises. While the Act provides
that such agreements can be concluded only if certain conditions relating to levels of investment
and/or employment are satisfied 2322, we consider that these conditions do not expressly limit the
eligibility for enhanced investment fee agreements to certain enterprises.
8.890. Because the Simplified FILOT Act is "the legislation pursuant to which the granting
authority operates ", we see no merit in the argument of the European Union that the subsidy
should be f ound to be specific under Article 2.1(a) on the basis that certain resolutions and
ordinances pursuant to which Charleston County authorized and approved the Project Emerald
FILOT Agreement and Boeing F ILOT Agreement "explicitly limited the availability of the FILOT
arrangement" to the Project Emerald companies and to Boeing. 2323 The fact that the County
Resolution and Ordinance adopted by Charleston County in connection with the FILOT agreements
at issue only identify the Project Emerald companies and Boeing as beneficiaries of an enhanced
investment fee agreement simply reflects the application of the Simplified FILOT Act in individual
cases and does not demonstrate an "explicit limitation " of access to the subsidy to certain
enterprises.2324
8.891. In this respect, we disagree with the European Union 's argument that "the actions of
Charleston County are the proper focus for whether the granting authority explicitly limited access
to the subsidy to certain enterprises ". Even assuming that in this case Charleston County could be

original)), and US – Large Civil Aircraft (2nd complaint), para. 753 ("{t}his inquiry focuses not only on whether
the subsidy was provided to the particular recipients identified in the complaint, but focuses also on all
enterprises or industries eligible to receive that same subsidy").
2318 Appellate Body Report, US – Carbon Steel (India), para. 4.384.
2319 This interpretation is also supported by a reading of Article 2.1(a) in the context of Article 2.1(b).
See Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 750.
2320 The agreements and associated county resolutions and ordinances explicitly refer to the relevant
provisions of section 12-44-30 of the South Carolina Code. (Project Emerald FILOT Agreement, (Exhibit EU-
556), p. 2; Charleston County Council, Minutes of 21 December 2004 Meeting where an Inducement Resolution
is approved, (Exhibit EU-561), p. 52; Charleston County, Ordinance 1476 (19 December 2006), (Exhibit EU-
562), p. 1; Boeing FILOT Agreement, (Exhibit EU-470), p. 1; Charleston County Council, Minutes of
17 November 2009 Meeting where an Inducement Resolution is approved, (Exhibit EU-540), section 2; and
Charleston County Council, Minutes of 12 January 2010 Meeting where a County Ordinance is approved,
(Exhibit EU-541), p. 4).
2321 The Appellate Body Report in the original proceeding emphasizes the need for an inquiry concerning
specificity under Article 2.1(a) properly to take into account the broader legislative framework pursuant to
which the subsidy has been provided. (Appellate Body Report, US – Large Civil Aircraft (2nd complaint),
paras. 750, 753, and 841). Also see Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.565.
2322 See para. 8.856 above. See Fee in Lieu of Tax Simplification Act, S.C. Code, Title 12, chapter 44,
(Exhibit USA-245), section 12-44-30(7), for the definition of an "enhanced investment" project.
2323 See para. 8.862 above.
2324 The European Union argues that "each of these fee agreements is explicitly restricted to a specific
company or group of companies". (European Union's second written submission, fn 1206). In our view, this has
no bearing on whether the eligibility for the subsidy is explicitly limited to certain enterprises. We also consider
that the fact that the Project Emerald FILOT Agreement was entered into pursuant to agreements concluded
between Charleston County and the Project Emerald Companies does not demonstrate that access to the
subsidy is explicitly limited to certain enterprises.

considered a granting authority within the meaning of Article 2.1(a), a proper analysis of whether
eligibility for the subsidy is limited to certain enterprises must take into account that Charleston
County operates pursuant to legislation of Sout h Carolina. Charleston County does not
autonomously define the conditions of eligibility for the subsidy; rather, when Charleston County
(or any other county in South Carolina) enters into a FILOT agreement, it acts on the basis of
conditions of eligibilit y provided for in legislation adopted by South Carolina. Thus, treating
Charleston County as "granting authority " provides no justification to narrow the scope of the
analysis under Article 2.1(a) to "the actions of Charleston County ".2325 We recall, in this respect,
that in the original proceeding the Appellate Body rejected the view that the use of the term
"granting authority" in Article 2.1(a) means that "the analysis of specificity must be limited to the
authority actually granting the alleged subsidy ", "in isolation from the legislative and regulatory
framework within which {the granting authority} operates".2326
8.892. In light of the above, we find that the European Union has failed to establish that access to
the subsidy granted through the property tax reducti ons provided for in the FILOT Agreements at
issue is explicitly limited to certain enterprises within the meaning of Article 2.1(a).
8.893. Having made such a finding that the subsidy is not specific under Article 2.1(a), we find it
unnecessary to pronounce on t he issues raised by the parties with regard to whether the
conditions attached to the subsidy satisfy the requirements of Article 2.1(b). 2327 We note that in
the original proceeding the Appellate Body observed that "having found that the IRB subsidies are

2325 We note, in this regard, that consistent with our approach to whether the FILOT Agreements at
issue are specific, within the meaning of Article 2.1(a), the original panel concluded that subsidies provided
through industrial revenue bonds issued by the City of Wichita were not specific in the sense of Article 2.1(a),
based on an examination of the relevant Kansas State statutory provisions. Thus, the panel did not consider
that the fact that the Bonds were issued by the City of Wichita warranted a limitation of the scope of the
analysis to "the actions of" the City of Wichita as granting authority. (Panel Report, US – Large Civil Aircraft
(2nd complaint), para. 7.743). See also Appellate Body Report, US – Large Civil Aircraft (2nd complaint),
para. 875.
2326 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 783. Also see paras. 756-760.
The Appellate Body considered the question of how the notion of "the granting authority" relates to the scope
of the specificity analysis in the context of an appeal by the European Union of the panel's finding that,
assuming arguendo that the allocation of patent rights under NASA and DOD contracts and agreements with
Boeing were a subsidy, that subsidy would not be specific under Article 2 of the SCM Agreement. The Appellate
Body stated that it did "not consider that the use of the term 'granting authority' in the singular limits the
inquiry. The use of the term 'granting authority', in our view, does not preclude there being multiple granting
authorities. Rather, this is likely where a subsidy is part of a broader scheme." (Appellate Body Report, US –
Large Civil Aircraft (2nd complaint), para. 749). The Appellate Body also noted that "{w}hile the scope and
operation of the granting authority is relevant to the question of whether such an access limitation with respect
to a particular class of recipients exists, it is important to keep in mind that it is not the purpose of a specificity
analysis to determine whether the authorities involved in granting the subsidies constitute a single subsidy
grantor or several grantors". (Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 756
(emphasis original)). In concluding this Section of the Report, the Appellate Body noted that "the granting
authority (which may amount to a number of such authorities) and the legislation pursuant to which such
granting authority(ies) operate(s) must be assessed within the legal framework of the WTO Member concerned
at various levels of government, legislation, and regulation". (Appellate Body Report, US – Large Civil Aircraft
(2nd complaint), para. 760).
2327 The United States argues that FILOT agreements are not specific, within the meaning of
Article 2.1(b) of the SCM Agreement, because the eligibility criteria attached to these agreements regarding
investment and employment levels are "objective criteria or conditions", within the meaning of Article 2.1(b)
(and fn 2) of the SCM Agreement. (United States' first written submission, para. 635; second written
submission, para. 550). While the European Union does not challenge the characterization of the investment
and employment-related criteria as "objective", it points out that Article 2.1(b) requires that the objective
criteria govern both eligibility and amount of the subsidy and that eligibility be automatic. According to the
European Union, the eligibility criteria for the FILOT agreements do not satisfy these conditions because "the
amount of the subsidy depends on the specific terms negotiated between the county and the project sponsor,
while the US' purportedly 'objective' criteria are merely minimum requirements for a county's discretionary
decision to negotiate a FILOT agreement". (European Union's second written submission, para. 720). See also
European Union's comments on United States' response to Panel question No. 139, fn 17 and para. 17 (citing
explanation by the South Carolina Department of Revenue that "{a} fee in lieu of property taxes is granted by
the county and it is in the sole discretion of the county as to whether to grant a fee in lieu of property taxes for
a particular project"). The United States rejects this criticism as unfounded because the European Union "fails
to explain whether or how these 'negotiations' affect the eligibility for, or the amount of, the alleged subsidy"
and has not identified any instances in which two taxpayers with projects with identical investment and
employment profiles have been treated differently with respect to either eligibility for, or the amount of, the
alleged subsidy. (United States' second written submission, para. 551).

not specific within the meaning of Article 2.1(a), analysis by the Panel under Article 2.1(b) was not
necessary".2328
8.894. The second question relating to specificity raised by the parties ' claims and arguments is
whether the subsidy granted through the property tax reductions provided for in the Project
Emerald F ILOT Agreement and the Boeing F ILOT Agreement is specific within the meaning of
Article 2.1(c) of the SCM Agreement. The European Union argues that the subsidy is specific in
terms of each of the four factor s listed in the second sentence of Article 2.1(c). 2329 The first of
these factors is the "use of a subsidy programme by a limited number of certain enterprises".2330
8.895. According to data provided by the United States in response to a Panel question, 954
FILOT agreements were concluded in South Carolina between 2000 and 2012. Furthermore, of the
total of 954 FILOT agreements concluded by South Carolina between 2000 and 2012, 929
agreements provided for a 6% assessment ratio and 25 agreements provided for a 4%
assessment ratio. Of the agreements with a 4% assessment ratio, 20 were accompanied by special
source revenue credits. The data provided by the United States also shows that with regard to
Charleston County, 29 FILOT agreements were concluded between 2000 -2012. Of that total, 26
were agreements with a 6% assessment ratio and three were agreements with a 4% assessment
ratio. Th e th ree agreements with a 4% assessment ratio were accompanied by special source
revenue credits.2331
8.896. The parties disagree on whether the anal ysis of specificity under this and other factors
enumerated in the second sentence of Article 2.1(c) should be conducted at the level of South
Carolina or at the level of Charleston County. In our view, it is not necessary to decide this issue.
Even assumi ng that, as argued by the European Union, the analysis should be confined to
Charleston County as granting authority2332, we consider that the European Union has not provided
sufficient reasoning and evidence to warrant a finding that the subsidy is specific in fact by reason
of the use of the subsidy programme by a limited number of certain enterprises.
8.897. The European Union argues that the fact that Charleston County has entered into only two
enhanced investment FILOT agreements, three FILOT agreements of any kind providing for a 4%
assessment ratio and only thirty -three negotiated FILOT agreements overall is indicative of "a

2328 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 876.
2329 See para. 8.862 above.
2330 The Appellate Body has explained that this factor is to be interpreted to mean that "a limited
quantity of enterprises or industries qualifying as 'certain enterprises' must be found to have used the subsidy
programme, without requiring that the limited quantity represent a subset of some larger grouping of 'certain
enterprises'". (Appellate Body Report, US – Carbon Steel (India), para. 4.378). Moreover, this first factor does
not require a finding of discrimination between "certain enterprises" and other, similarly situated enterprises.
(Appellate Body Report, US – Carbon Steel (India), paras. 4.381-4.390). According to the Appellate Body,
"{w}hat matters for the inquiry called for by subparagraph (a) and the first factor in subparagraph (c) is the
existence of a limitation on access to, or use of, a subsidy". (Appellate Body Report, US – Carbon Steel (India),
para. 4.385; see also Panel Report, US – Carbon Steel (India), para. 7.121). The Appellate Body has also
indicated that a "subsidy programme" as used in this first factor in Article 2.1(c) means a "plan or scheme of
some kind". (Appellate Body Report, US – Countervailing Measures (China), para. 4.141).
2331 United States' response to Panel question No. 142, paras. 14 and 15. In response to the same
question the United States also provided a list of all (28) FILOT agreements with a 4% assessment ratio
concluded in South Carolina between 2000 and 2014 (Exhibit USA-553).
2332 While the panel in the original proceeding examined the existence of specificity under Article 2.1(a)
in the case of the tax abatements granted by industrial revenue bonds issued by the City of Wichita on the
basis of the relevant Kansas State legislation, the panel limited the scope of its examination of specificity under
Article 2.1(c) to the City of Wichita as granting authority. (Panel Report, US – Large Civil Aircraft (2nd
complaint), paras. 7.746-7.779). The panel explained that for purposes of the analysis required by the last
sentence of Article 2.1(c) of the extent of diversification of economic activities within the jurisdiction of the
granting authority, the City of Wichita was the relevant granting authority:
In the case of the IRBs provided to Boeing and Spirit, although the State of Kansas
implemented the legislation authorizing the issuance of IRBs, individual cities and
counties are responsible for actually granting the IRBs. Therefore , the City of
Wichita is the relevant granting authority and the diversification of the Wichita
economy must be considered.
(Panel Report, US – Large Civil Aircraft (2nd complaint), fn 2125)
The panel's approach to the scope of the de facto specificity analysis was not raised on appeal. (Appellate Body
Report, US – Large Civil Aircraft (2nd complaint), paras. 859-889).

limited number of users ".2333 The European Union contends that the data on the number of FILOT
agreements provided by the United States in r esponse to a Panel question shows that the number
of FILOT agreements concluded by Charleston County is "quite small ", both in absolute and in
relative terms, and thus supports its position that FILOT agreements have been used by "a limited
number of certain enterprises" within the meaning of Article 2.1(c).2334
8.898. We note, first, that in making these arguments purporting to demonstrate how the subsidy
programme is used by a limited number of certain enterprises, the European Union does not
address the two factor s that must be taken into account in any analysis of de facto specificity
under the last sentence of Article 2.1(c) , i.e. the extent of diversification of economic activities
within the jurisdiction of the granting authority, and the length of time during which the subsidy
programme has been in operation. 2335 Second, if, "{i}t is the function of the inquiry under
subparagraph (c) to determine whether, for example, only a limited number of certain enterprises,
in fact, have access to the subsidy "2336, it is necess ary to provide some reasoning as to how a
given number of enterprises using a subsidy programme reflects the existence of a limitation on
access to the subsidy. 2337 That Charleston County has entered into three enhanced investment
FILOT agreements, and thirty-three negotiated FILOT agreements in total may simply be a logical
consequence of the application of the conditions attached to the subsidy in the particular context
of that County 's economy.2338 To qualify a given number of agreements as "quite small " is not
sufficient, in our view, to conclude that there is de facto specificity based on the use of the subsidy
programme by a limited number of certain enterprises.
8.899. On the other hand, if we ascertain whether there is in this case use of a subsidy
programme by a limited number of certain enterprises at the level of South Carolina, we note that
the information before us indicates that 954 FILOT agreements of different types were concluded
in South Carolina from 2000 to 2012 and that the European Union has not con tested that , as
argued by the United States, this involved a wide variety of industries and enterprises. The
European Union argues that the number of FILOT agreements concluded in South Carolina is not
relevant, but nevertheless notes that this number is "quite small" on the basis that the number of
all active FILOT agreements in South Carolina in 2013 represented at most 25% of all
manufacturing establishments in South Carolina. 2339 This argument suffers from the same flaws

2333 European Union's first written submission, para. 689; Charleston County, Chart of negotiated
Fee-in-Lieu-of-Taxes (FILOT) Agreements, (Exhibit EU-544); and Charleston County Negotiated FILOT
Agreements, (Exhibit EU-545).
2334 European Union's comments on United States response to Panel question No. 142, para. 22.
2335 Article 2.1(c), last sentence. See Panel Reports, US – Countervailing Measures (China),
paras. 7.250-7.256; and US – Washing Machines, paras. 7.251-7.255. While these reports addressed the
requirements of the last sentence of Article 2.1(c) in the context of countervailing duty determinations, there is
nothing in that sentence to suggest that it does not also apply to determinations of de facto specificity in
proceedings under Part III of the SCM Agreement. We recall that the panel in the original proceeding rejected
an argument of the European Communities that industrial revenue bonds granting property tax abatements
were de facto specific by virtue of the use of the subsidy programme by a limited number of certain enterprises
because the European Communities failed to take into account the two factors identified in the last sentence of
Article 2.1(c). (Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.778).
2336 Appellate Body Report, US – Carbon Steel (India), para. 4.384.
2337 We agree, in this regard, with the observations of the panel in US – Carbon Steel (India) on the
relationship between Articles 2.1(a) and 2.1(c):
These two provisions complement one another. Article 2.1(a) concerns limitations
on access to subsidies that exist in law. Article 2.1(c) concerns limitations on
access that are not expressly provided for in legal instruments, but whose
existence may nevertheless be determined by reference to facts. In both cases,
what matters is the existence of a restriction on access to the subsidy, in the sense
that the subsidy is available to certain enterprises, i ndustries, or groups of
enterprises or industries, but not to others.
(Panel Report, US – Carbon Steel (India), para. 7.121)
2338 The European Union asserts that according to the data provided by the United States, Charleston
County had 29 active FILOT agreements in 2012, representing at most 10% of the total number of
manufacturing establishments in Charleston County. (European Union's comments on United States' response
to Panel question No. 142, para. 22). The European Union does not explain how this comparison of the number
of FILOT agreements with the total number of manufacturing establishments in Charleston County indicates
that the subsidy is specific in fact by virtue of the use of a subsidy programme by a limited number of certain
enterprises. In particular, the European Union's argument fails to address the possibility that the total number
of FILOT agreements in Charleston County can be logically explained as resulting from the application of the
conditions attached to the different types of FILOT agreements in the context of that County's economy.
2339 European Union's comments on United States' response to Panel question No. 142, para. 22.

that we have discussed above in respect of the European Union's argument concerning the number
of FILOT agreements concluded by Charleston County.
8.900. Third, the argument of the European Union to support its claim that the subsidy is de facto
specific because of "the granting of disproportiona tely large amounts of subsidy to certain
enterprises", is inconsistent with the guidance provided by the Appellate Body as to how this
"relational concept" should be applied.2340 The various arguments made by the European Union in
this regard fail to address the question of whether there is a "disparity between the expected
distribution of that subsidy, as determined by the conditions of eligibility, and its actual
distribution" and, more specifically, "whether the actual allocation of the 'amounts of subsidy ' to
certain enterprises is too large relative to what the allocation would have been if the subsidy were
administered in accordance with the conditions for eligibility for that subsidy".
8.901. The European Union argues that Boeing and its suppliers are "disproportionate users "
based on the fact that both enhanced investment FILOT agreements, and two of three FILOT
agreements entered into by Charleston County were concluded with Boeing and its suppliers , and
that the FILOT agreements concluded with Boeing and its suppliers accounted for more than 55%
of the total minimum amounts of investment covered by the FILOT agreements concluded by
Charleston County.2341 This argument does not demonstrate that there is disproportionality within
the meaning of Article 2.1(c) beca use it does not involve any analysis of the actual allocation of
the amounts of the subsidy at issue and of how that allocation is different from what would be
expected in light of the eligibility conditions attached to the conclusion of enhanced investmen t
FILOT agreements.
8.902. The European Union also argues that Boeing and Westvaco, "have received 100 per cent of
the 4 per cent FILOT granted by Charleston County since 1998 " but account for only 27% of total
employment in manufacturing employment in the Charl eston MSA and 44% of the manufacturing
employment in Charleston County. 2342 The European Union does not explain, and we fail to see,
how a comparison of the number of the agreements with the percentage of manufacturing
employment provides any indication of a disparity between the actual distribution of the amounts
of the subsidy and the distribution that would be expected on the basis of the eligibility criteria
provided for in the Simplified FILOT Act. In particular, apart from the fact that it does not ident ify
the amount of the subsidy and how that amount is distributed, the European Union does not

2340 The Appellate Body has discussed this issue as follows:
The language of Article 2.1(c) indicates that the f irst task is to identify the
"amounts of subsidy" granted. Second, an assessment must be made as to
whether the amounts of subsidy are "disproportionately large". This term suggests
that disproportionality is a relational concept that requires an assessmen t as to
whether the amounts of subsidy are out of proportion, or relatively too large. When
viewed against the analytical framework set out above regarding Article 2.1(c), this
factor requires a panel to determine whether the actual allocation of the "amou nts
of subsidy" to certain enterprises is too large relative to what the allocation would
have been if the subsidy were administered in accordance with the conditions for
eligibility for that subsidy as assessed under Article 2.1(a) and (b). In our view,
where the granting of the subsidy indicates a disparity between the expected
distribution of that subsidy, as determined by the conditions of eligibility, and its
actual distribution, a panel will be required to examine the reasons for that
disparity so as ultimately to determine whether there has been a granting of
disproportionately large amounts of subsidy to certain enterprises.
(Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 879 (fn omitted)).
See also para. 883 ("{w}here the actual distribution of a subsidy deviates materially from the expected
distribution of that subsidy, a panel would need to examine the reasons provided by the parties to explain that
outcome"), and para. 886 ("a panel's inquiry under Article 2.1(c) should focus on the reasons that explain any
disparity between the actual and expected distributions of a subsidy"). The Appellate Body reiterated its view
that the third factor in Article 2.1(c) reflects a relational concept in its Report in US – Carbon Steel (India),
paras. 4.388 and 4.389. See also Panel Report, US – Washing Machines, paras. 7.231-7.244. The panel in US –
Washing Machines concluded from its review of Appellate Body case law on this issue that "the relational
nature of the analysis {means} that a finding of disproportionality must be based on an assessment of how the
amount of subsidy actually received relates to an objective benchmark indicative of the amount of subsidy that
the recipient would have been expected to receive if the subsidy were distributed proportionately, in
accordance with the conditions for eligibility". (Panel Report, US – Washing Machines, para. 7.236).
2341 European Union's first written submission, para. 690; second written submission, para. 717.
2342 European Union's response to Panel question No. 112, paras. 199 and 200. (underlining original,
emboldening removed)

provide any reasoning as to why, in light of those eligibility criteria, one would expect a
distribution of the subsidy in proportion to the percentage of manufac turing employment
accounted for by the companies in question.
8.903. Finally, we see no merit in the argument that "the United States cannot justify why the
investments of Boeing, its suppliers (Vought/Global Aeronautica), and Westvaco were accorded a
4% assessment rate, while all of the other 30 recipients were accorded a 6 % assessment rate".
Since this difference is a direct consequence of the application of the eligibility criteria, it cannot
form the basis for a finding of disproportionality within the analyt ical framework set out by the
Appellate Body.2343
8.904. Regarding the fourth factor listed in the second sentence of Article 2.1(c), we find that the
European Union has failed to show that the FILOT agreements at issue in this dispute are de facto
specific within the meaning of Article 2.1(c) on account of "the manner in which discretion has
been exercised by the granting authority in the decision to grant a subsidy". The mere existence of
discretion is not a sufficient basis to find that a subsidy is de facto specific under Article 2.1(c).
Rather there must be analysis of how discretion has been exercised by the granting authority in
the grant of the subsidy. 2344 In that regard, footnote 3 to Article 2.1(c) requires consideration of
"information on the frequency with which applications for a subsidy are refused or approved and
the reasons for such decisions ". The European Union does not submit any such information in
support of its argument that the Boeing F ILOT Agreement is specific because of the discretionary
nature of the measure. The fact that FILOT agreements are individually negotiated with particular
companies and must be approved as to the particular agreement by the county council 2345 says
nothing about how discretion "has been exercised in the grant of the subsi dy" and can therefore
not justify a finding of specificity under Article 2.1(c).
8.905. Finally, we note that the European Union also argues that the subsid y provided through
the property tax reductions under the Project Emerald F ILOT Agreement and the Boeing F ILOT
Agreement is specific pursuant to Article 2.3 of the SCM Agreement. Article 2.3 provides that
"{a}ny subsidy falling under the provisions of Article 3 shall be deemed to be specific". We reject
this argument because in Section 10 of this Report we find that the European Union has failed to
establish that any subsidy at issue in this proceeding is prohibited by Articles 3.1 and 3.2 of the
SCM Agreement.
8.906. In light of the above, we find that the European Union has failed to establish that
the subsidy provid ed through the property tax reduction s under the Project Emerald
FILOT Agreement and the Boeing F ILOT Agreement is specific within the meaning of
Articles 2.1(a) or (c) of the SCM Agreement.
8.907. We recall that while we f ind in Section 8.2.8.7.3.1 above that the property tax reduction s
provided for through the Project Emerald F ILOT Agreement constitute a financial contribution, we
have left open the question of whether this is a direct financial contribution to Boeing. In light of
our finding that the subsidy provided through the Project Emerald FILOT Agreement is not specific,
we consider it unnecessary to decide that issue.
8.2.8.7.4 Conclusion
8.908. In light of our findings above, we conclude that the European Union has failed to establish
that the fee-in-lieu-of taxes arrangements set forth in the Boeing F ILOT Agreement and Project
Emerald FILOT Agreement are specific, and therefore involve specific subsidies within the meaning
of Articles 1 and 2 of the SCM Agreement.

2343 European Union's response to Panel question No. 112, para. 203.
2344 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 798; and Panel Report, US –
2345 European Union's first written submission, para. 691.

8.2.8.8 Whether the corporate inco me tax credits in connection with the designation of
the Project Gemini and Project Emerald portions of the Project Site as part of the
Charleston-Colleton multi-county industrial park involve specific subsidies to Boeing
8.2.8.8.1 Introduction
8.909. In paragraph 24 of it s panel request, the European Union identifies as one of the Project
Gemini-related subsidies presently benefiting Boeing:
The provision of corporate income tax credits, as provided for in S.C. Code
§ 12-6-3360(E)(1), by virtue of designating the Boeing si te in North Charleston as
part of a business/industrial park jointly established and developed by Charleston
County and Colleton County, South Carolina.
8.910. In paragraph 25 of its panel request, the European Union identifies as one of the Project
Emerald-related subsidies presently benefiting Boeing:
The provision of corporate income tax credits, as provided for in S.C. Code
§ 12-6-3360(E)(1), by virtue of designating the Project Emerald site at Charleston
International Airport as part of a business/industrial park jointly established and
developed by Charleston County and Colleton County, South Carolina.
8.911. The European Union argues that these above-referenced tax credits reduce Boeing's South
Carolina income tax liability, and thereby constitute specific subsid ies to Boeing within the
meaning of Articles 1 and 2 of the SCM Agreement.
8.912. The South Carolina Income Tax Act, contained in Title 12, chapter 6 of the South Carolina
Code, provides for various types of corporate income tax credits, including a "job tax credi t" for
new full -time jobs created in the state pursuant to section 12 -6-3360(C) of the South Carolina
Code. In addition, the Act provides that "{t}axpayers which qualify for the job tax credit provided
in subsection C and which are located in a business or industrial park jointly established and
developed by a group of counties pursuant to Section 13 of Article VIII of the Constitution of this
State are allowed an additional one thousand dollar credit for each new full -time job created".2346
These additional tax credits (the MCIP job tax credits) are at issue in the present proceeding.
8.913. Section 13 of Article VIII of the South Carolina Constitution provides that "{c}ounties may
jointly develop an industrial or business park with other counties within the geograp hical
boundaries of one or more of the member counties ". Pursuant to this authority, Charleston County
and Colleton County entered into an Agreement for Development for a Joint County Industrial Park
in September 1995.2347 This original Agreement was amended from time to time to add or remove
property to or from the Charleston -Colleton Multi -County Industrial Park (Charleston -Colleton
MCIP). In December 2006, Charleston County included inter alia the Project Emerald-portion of the
Project Site within the limit s of the Charleston -Colleton MCIP 2348, as Charleston County had
undertaken to do in an Inducement and Millage Rate Agreement concluded on 21 December 2004
as part of Project Emerald. 2349 In February 2010, Charleston County included the Project Gemini -

2346 South Carolina Income Tax Act, S.C. Code, Title 12, chapter 6, (Exhibit EU-509), section 12-6-
3360(E)(1).
2347 See United States' first written submission, para. 572.
2348 Charleston County Council Ordinance 1475, 5 December 2006, An Ordinance to amend Ordinance
No. 972, adopted September 19, amending the agreement for development of a joint county industrial park
effective as of September 1, 1995, by and between Charleston County, South Carolina and Colleton County,
South Carolina, providing for the development of a jointly owned and operated industrial/business park so as
to (1) revise and clarify certain terms of the agreement, (2) include additional property in Charleston County
as part of the joint county industrial park, (3) remove certain property in Charleston County from the industrial
park, (4) and other matters relating thereto (Charleston County Council Ordinance 1475 (5 December 2006),
(Exhibit EU-555)).
2349 Section 2.06 of that Agreement provides: "{t}he County council covenant to take all action
necessary to expand the park pursuant to the terms of the Park Agreement in order that the Site will be
located entirely within the Park. The County will use its good faith best efforts to ensure that the Site remains a
part of the Park as long as is necessary to enable the Company to claim the maximum jobs tax credits for each
job created by the Company at the Project". (Inducement and Millage Rate Agreement between Charleston
County and Project Emerald (21 December 2004), (Exhibit EU-553), p. 4).

portion of the Project Site within the limits of the Charleston -Colleton MCIP 2350, as Charleston
County had undertaken to do in the Boeing F ILOT Agreement concluded on 2 December 2010 as
part of Project Gemini.2351
8.2.8.8.2 Main arguments of the parties
8.914. The European Union argues that the additional job tax credits 2352, provided to Boeing by
virtue of Charleston County's designation of the Project Gemini and Project Emerald portions of the
Project Site as part of the Charleston -Colleton MCIP, constitute specific subsidies to Boeing wit hin
the meaning of Articles 1 and 2 of the SCM Agreement. 2353 A comparison of the tax treatment of
jobs created at Boeing 's facilities with the tax treatment of jobs created at facilities outside of an
MCIP demonstrates that the tax treatment granted to Boeing by means of the challenged MCIP job
tax credits represents the foregoing of government revenue otherwise due. 2354 The reductions of
Boeing's state income tax liability through the MCIP job tax credits confer benefits within the
meaning of Article 1.1(b) 2355, and are specific within the meaning of Articles 2.1(a) and 2.1(c).
Indeed, the Charleston County Ordinances designating the Project Gemini and Project Emerald
portions of the Project Site as part of the Charleston -Colleton MCIP explicitly limit access to th e
challenged MCIP job tax credits to certain enterprises. In addition, Charleston County has
designated the premises of only a limited number of enterprises as within a multi-county industrial
park, and the manner in which the county has exercised its disc retion further indicates specificity.
Finally, the MCIP job tax credits are regionally specific, since they are limited to certain enterprises
located within a designated geographic region within the jurisdiction of the granting authority.2356
8.915. The United Stat es argues that the European Union has failed to establish a prima facie
case that the MCIP job tax credits are financial contributions or confer benefits: since the European
Union claims that Boeing will have no South Carolina taxable income as a result of the Income
Allocation and Apportionment Agreement, the MCIP job tax credits will offset nothing. 2357
Notwithstanding the above, the MCIP job tax credits are not specifi c within the meaning of
Article 2 since they are broadly available and widely used. Indeed , neither the State of South
Carolina nor the South Carolina Income Tax Act explicitly limit s access to job tax credits to certain
enterprises. Furthermore, MCIP designations are commonplace in the State of South Carolina, and

2350 Charleston County Council Ordinance 1626 (2 February 2010), An Ordinance to further amend the
agreement for development of a joint county industrial park, by and between Charleston County, South
Carolina and Colleton County, South Carolina, providing for the development of a jointly owned and operated
industrial/business park, so as to include additional property in Charleston County as part of the joint county
industrial park (Charleston County Ordinance 1626 (2 February 2010), (Exhibit EU-516), section 1). This
Ordinance amended the Original Agreement so as to expand the Park premises located within Charleston
County by including a parcel "owned by the Charleston County Aviation Authority and leased to The Boeing
Company". This parcel, also referred to in the Ordinance as the "Boeing Tract", is described in detail in Exhibit
A to the Ordinance. The Ordinance also provides for the distribution of revenues generated by the Park through
the payment of fees in lieu of ad valorem property taxes. See Charleston County Ordinance 1626
(2 February 2010), (Exhibit EU-516), section 2.
2351 Section 5.3 of the Boeing FILOT Agreement provides that "{t}he County will designate the Project
as part of a Multi-County Park pursuant to the Multi-County Park Act and will, to the extent permitted by law,
use its best, reasonable efforts to maintain such designation on terms which provide any additional jobs tax
credits afforded by the laws of the State for projects located within multi-county industrial or business parks
for all jobs created by the Company during the Investment Period and which facilitate the Special Source credit
arrangements set forth herein". (Boeing FILOT Agreement, (Exhibit EU-470), section 5.3).
2352 The European Union does not challenge the standard job tax credits provided under S.C. Code
section 12-6-3360(c). (See European Union's first written submission, para. 628).
2353 With respect to Project Gemini-related job tax credits, see European Union's first written
submission, paras. 627-641; and second written submission, paras. 675-682. With respect to Project
Emerald-related additional tax credits, see European Union's first written submission, paras. 709-720; and
second written submission, paras. 733-736.
2354 European Union's first written submission, paras. 631-634 and 712-714; second written submission,
paras. 675-677, 733, and 734.
2355 European Union's first written submission, paras. 636, 637, 715, and 716 (referring to Panel Report,
US – FSC, para. 7.103).
2356 European Union's first written submission, paras. 638-641 and 717-720; second written submission,
paras. 679-682, 735, and 736.
2357 United States' first written submission, paras. 571-574 and 607; second written submission,
para. 606.

they are provided to a number of enterprises located within any number of different MCIPs
throughout the state.2358
8.2.8.8.3 Evaluation by the Panel
8.916. In this Section of the Report, the Panel evaluates the European Union 's claims that the
MCIP job tax credits, granted to Boeing by virtue of the de signation of the Project Gemini and
Project Emerald portions of the Project Site as part of the Charleston -Colleton MCIP, are specific
subsidies to Boeing within the meaning of Articles 1 and 2 of the SCM Agreement.
8.2.8.8.3.1 Whether there is a financial contribution
8.917. The first question before the Panel is whether the MCIP job tax credits, granted to Boeing
by virtue of the designation of the Project Gemini and Project Emerald portions of the Project Site
as part of the Charleston-Colleton MCIP, constitute financial contributions through the foregoing of
government revenue that is otherwise due, within the meaning of Article 1.1(a)(1)(ii).
8.918. The European Union argues that Ordinances 1626 and 1475, relating to Project Gemini and
Project Emerald respectively, involve financial contributions by a government within the meaning
of Article 1.1(a)(1)(ii), namely the foregoing of government reve nue otherwise due. The
European Union refers to the three -step approach to analysing claims under Article 1.1(a)(1)(ii)
set out by the A ppellate Body in the original proceeding.2359 First, the tax treatment applicable to
Boeing's corporate income in South Carolina is Boeing 's eligibility for MCIP job tax credits for the
jobs created through the establishment of the 787 final assembly and deli very facility, and for the
jobs related to the 787 fuselage fabrication and integration complex. 2360 Second, the benchmark
tax treatment of comparable taxable activity of comparable taxpayers is the treatment afforded to
identical taxpayers carrying out ident ical activities outside of an MCIP. 2361 Third, a comparison of
this benchmark tax treatment with the treatment received by Boeing, in light of the reasons for
the establishment of the MCIP job tax credits and the designation of the Project Site as part of an
MCIP, clearly shows that the treatment accorded to Boeing amounts to the foregoing of
government revenue otherwise due.2362 The European Union estimates the amount of the financial
contribution as USD 19 million between 2011 and 2016, and at USD 3.8 million p er year from
2012 to 2015.2363
8.919. The United States ' arguments focus on an alleged inc onsistency between the
European Union's arguments on the challenged MCIP job tax credits and another South Carolina
measure; the Income Allocation and Apportionment Agreement for state corporate income tax.
The United States notes that the European Union asserts that , as a result of the special
methodology for apportioning Boeing's income provided for in th e Income Allocation and
Apportionment Agreement, Boeing will have no Sou th Carolina taxable income, and thus no
income tax liability in South Carolina. Since the MCIP job tax credits are non -refundable, may not
be sold or transferred, and may only be used to offset South Carolina income ta x, the
European Union's own arguments that the Income Allocation and Apportionment Agreement is a
subsidy to Boeing imply that the actual value of the MCIP job tax credits to Boeing is zero, and
that there is no financial contribution or benefit to Boeing.2364
8.920. However, as pointed out by the European Union, the United States has previously indicated
that Boeing [***].2365 In its request for information pursuant to Article 13 of the DSU , the Panel
asked the United States to "indicate the annual value to Boeing of the additional USD1000 -per-job
portion of a new job tax credit for locating within a multi-county industrial park". The United States
responded that "the annual value of such tax credits for jobs generated by Boeing (i.e. exclusive of

2358 United States' first written submission, paras. 638-643; second written submission, paras. 605-612.
2359 European Union's first written submission, para. 632 (referring to para. 594, in turn referring to
Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 812-814).
2360 European Union's first written submission, paras. 632 and 713.
2361 European Union's first written submission, paras. 633 and 713.
2362 European Union's first written submission, para. 634.
2363 European Union's first written submission, para. 635.
2364 United States' first written submission, paras. 574 and 607.
2365 European Union's second written submission, paras. 676 and 677.

subsidiaries) is as follows [***]".2366 The information provided by the United States in response to
the Panel's Article 13 request, indicating that [***], is at odds with the contention that the value
to Boeing of the MCIP job tax credits is zero. The United States does not advance any other
argument to refute the E uropean Union 's contention that the MCIP job tax credits granted to
Boeing by virtue of the designation of the Project Gemini and Project Emerald portions of the
Project Site as part of the Charleston-Colleton MCIP involve financial contributions to Boeing. We
therefore find that the MCIP job tax credits involve a financial contribution in the form of
the foregoing of revenue otherwise due within the meaning of Article 1.1(a)(1)(ii).
8.2.8.8.3.2 Whether there is a benefit
8.921. The United States does not advance arguments as to whether the MCIP job tax credits
confer a be nefit, other than its argument concerning the alleged inconsistency between the
European Union' s position that: (a) the Income Allocation and Apportionment Agreement is a
subsidy because it reduces Boeing's i ncome tax liability in Sout h Carolina to zero ; and (b) the
MCIP job tax credits are a subsidy because the y reduce Boeing's South Carolina income tax. We
have already rejected th is argument of the United States in the context of our determination of
whether the MCIP job tax credits involve a financial co ntribution, owing to the information
provided by the United States' response to our request for information pursuant to Article 13 of
the DSU [***]. Having found t hat the MCIP job tax credits involve a financial contribution to
Boeing in the form of the foregoing of revenue otherwise due , we conclude that the financial
contribution confers a benefit, in as much as the MCIP job tax credits mean that Boeing pays less
state income tax than would otherwise be due. We therefore find that the MCIP job tax
credits confer a benefit within the meaning of Article 1.1(b) of the SCM Agreement.2367
8.2.8.8.3.3 Whether the subsidy is specific
8.922. With respect to whether the subsidy provided to Boeing as a result of the MCIP job tax
credits is specific, the issues raised by the disagreement between the parties relate to
Articles 2.1(a), 2.1(c), and 2.2 of the SCM Agreement. The parties first disagree on whether the
MCIP job tax credits are specific within the meaning of Article 2.1(a). In partic ular, the parties
disagree on the level at which the specificity analysis should be carried out.
8.923. The European Union argues that the analysis of specificity should be carried out at the
level of Charleston County. While MCIP job tax credits are available t o enterprises satisfying the
minimum requirements set out in the relevant provisions under South Carolina tax law, the State
of South Carolina effectively delegates the role of the granting authority to the counties, since the
statutory minimum requirement s are that the location of an enterprise 's facility be designated as
being within an MCIP by two or more counties. 2368 The European Union argues that the challenged
MCIP job tax credits are de jure specific within the meaning of Article 2.1(a) since: ( a) the area
designated as part of the Charleston -Colleton MCIP by Charleston County Ordinance 1626 was
expressly identified as a parcel "leased by The Boeing Company "2369; and (b) the area designated
as part of the Charleston -Colleton MCIP by Charleston County Ordin ance 1475 was expressly
identified by reference to Project Emerald, as well as three unrelated companies located
elsewhere, thereby explicitly limiting access to each subsidy to certain enterprises.2370
8.924. The United States considers that specificity should be assessed at the level of the State of
South Carolina, and that the European Union 's focus on county ordinances as a basis for its
arguments under Article 2.1(a) is misplaced. According to the United States, t he European has
failed to demonstrate how either the proper granting authority (i.e. the State of South Carolina) or
the legislation pursuant to which the State acts in providing the additional jo bs tax credit (i.e.
section 12-6-3360(E)(1) of the South Carolina Code) explicitly limits access to MCIP job tax credits
to certain enterprises within the meaning of Article 2.1(a). 2371 The United States argues that the
text of the relevant legislation makes it clear that the tax treatment available under that provision

2366 United States' response to the Panel's request for information pursuant to Article 13 of the DSU,
dated 28 February 2013, (Exhibit USA-198) (BCI), para. 158.
2367 Also see para. 8.885 above on tax reductions conferring a benefit.
2368 European Union's second written submission, para. 680.
2369 European Union's first written submission, para. 638; second written submission, para. 679.
2370 European Union's first written submission, para. 717.
2371 United States' first written submission, paras. 640 and 641.

is available to all enterprises that satisfy the minimum requirements set out in that provision and
that otherwise qualify for the standard job tax credit. 2372 The role of the counties is a minor one
given that MCIP designation is commonplace in South Carolina, and MCIP status is essentially
available to any substantial business that requests that its property be included in an MCIP.2373
8.925. For the reasons detailed below, we consider that the European Union has failed to establish
that the subsidy provided through the MCIP job tax credits is specific within th e meaning of
Article 2.1(a). Although Boeing receives the additional MCIP job tax credits as a result of the
inclusion of the Project Gemini and Project Emerald portions of the Project Site in the Charleston -
Colleton MCIP by virtue of Ordinances 1626 and 1 475 respectively, these ordinances do not
provide the challenged MCIP job tax credits. Rather the MCIP job tax credits are provided by the
State of South Carolina in application of section 12-6-3360(E)(1) of the South Carolina Income Tax
Act. An assessment of whether the subsidy provided through the MCIP job tax credits is specific
within the meaning of Article 2.1(a) therefore requires a state -level analysis of whether the
relevant provision of the Act explicitly limits the availability of the MCIP job tax credits to certain
enterprises. Pursuant to section 12-6-3360 of the South Carolina Code, the additional MCIP job tax
credits are available to taxpayers that: ( a) qualify for the standard job tax credits ; and (b) are
located in a business or industrial pa rk jointly established and developed by a group of Counties
pursuant to section 13 of Article VIII of the South Carolina Constitution. There is nothing in this
provision to suggest that any enterprise meeting these conditions could be denied access to the
additional MCIP job tax credits. In addition, the two conditions (satisfaction of requirements for the
standard job tax credit and location in a multi -county industrial park) do not inherently limit the
availability of the additional MCIP job tax credit s to certain enterprises. The eligibility for the
standard job tax credit depends on criteria relating to employment levels. 2374 As to the
requirement that the taxpayer be located in a multi -county industrial park, there is nothing in the
evidence before the Panel to suggest that South Carolina or the legislation of South Carolina limits
the possibility to establish multi-country industrial parks or to include business property in a multi-
county industrial park to certain enterprises.2375 For these reasons we find that the European Union
has failed to establish that the subsidy provided through the MCIP job tax credits is specific within
the meaning of Article 2.1(a).
8.926. Second, the parties disagree on whether the MCIP job tax credits are specific within the
meaning of Article 2.1(c). Consistent with its position that the analysis of specificity should be
undertaken at the county level, the European Union argues that the MCIP job tax credits are de
facto specific within the meaning of Article 2.1(c) since, to the best of the European Union 's
knowledge, Charleston County has only designated the premises of a limited number of
enterprises as being within a multi-county industrial park .2376 In addition, "the manner in which
Charleston County has exercised its discretion by amen ding the area for the purpose of providing
Boeing with MCIP job tax credits indicates that the subsidy is specific to Boeing and a limited
number of other beneficiaries".2377
8.927. The United States argues that the European Union provides no support for its assert ion
that Charleston County has only designated the premises of a limited number of enterprises as
being within a multi-county industrial park. Moreover, even if this assertion were true, the
United States argues that it would say nothing about the number o f enterprises benefiting from
MCIP job tax credits in other multi-county industrial parks elsewhere in South Carolina, which is
the correct level at which to undertake the analysis of specificity. According to the United States,
MCIP designations are in fa ct so commonplace in South Carolina that they are the rule, not the

2373 United States' second written submission, para. 610.
2374 See South Carolina Income Tax Act, S.C. Code, Title 12, chapter 6, (Exhibit EU-509), section
12-6-3360(C)(1).
2375 Whether the very fact that the MCIP job tax credits are available only to taxpayers located in
multi-county industrial parks makes the measure de jure specific is discussed below. See paras. 8.929-8.931
below.
2376 European Union's first written submission, para. 718.
2377 European Union's first written submission, paras. 639 and 718 (fn omitted). The European Union
considers that the United States' response to the Panel's request for a list of Charleston county ordinances
amending MCIP designations for identified projects or companies amounts to a failure to cooperate. It requests
the Panel to draw appropriate inferences and to find that Project Gemini and Project Emerald are "the only
identified projects or companies for which Charleston County has amended an MCIP designation".
(European Union's second written submission, fn 1142).

exception.2378 The United States also argues that the European Union fails to provide any analysis
or explanation to support its assertion that the manner in which Charleston County has exerc ised
discretion indicates that the subsidy is specific to Boeing, and that in any event the
European Union wrongly considers Charleston County as the granting authority.2379
8.928. We conclude that the European Union has failed to establish that the subsidy provided
through the MCIP job tax credits is specific within the meaning of Article 2.1(c). First, as explained
above, the European Union focuses on the actions of Charleston County when the proper granting
authority is instead the State of South Carolina. Second, the European Union's argument regarding
the exercise of discretion is inconsistent with the text of Article 2.1(c) insofar as it does not
provide any evidence of instances in which applications for the receipt of the subsidy have been
rejected.2380
8.929. The third specificity issue before the Panel is whether the MCIP job tax credits are "limited
to certain enterprises located within a designated geographical region within the jurisdiction of the
granting authority " and thereby specific within the meaning of Artic le 2.2. The European Union
argues that the MCIP job tax credits provided to Boeing are specifi c within the meaning of
Article 2.2 because they are "limited to certain enterprises located within a designated geographic
region within the jurisdiction of the granting authority ". The European Union considers that the
Charleston-Colleton MCIP, like other multi-county industrial parks in South Carolina, is a particular
geographic region designated by two counties, within the jurisdiction of the State of South
Carolina, the granting authority .2381 The European Union argues that, c ontrary to the United
States' assertions, Article 2.2 does not require a contiguous geographic region.2382 Furthermore,
the number of enterprises located within a designated geographic region is irrelevant to an
analysis of specificity under Article 2.2.2383
8.930. The United States argues that the MCIP job tax credits are not specific within the meaning
of Article 2.2 because they are not "limited to certain enterprises located within a designated
geographic region ". Rather they are provided to a number of enterprises located within any
number of different multi-county industrial parks throughout the State of South Carolina. The
United States asserts that multi -county industrial parks are pervasive in Sou th Carolina, and are
available to any business that requests the inclusion of its property within a multi-county industrial
park.2384 Since counties can freely add to or subtract property from multi-county industrial parks at
any time, a multi-county industrial park is not really a "designated" region.2385
8.931. We conclude that the European Union has not established that the challenged MCIP job tax
credits are specific within the meaning of Article 2.2. The panel in US – Anti-Dumping and
Countervailing Duties (China) considered the question of whether "a designated geographical
region" in the sense of Article 2.2 must necessarily have some sort of formal administrative or
economic identity, or whether any identified tract of land within the territory of a granting
authority can be a "designated geographical region " for the purposes of Article 2.2. The panel
concluded that a designated geographical region is any identified tract of land within the
jurisdiction of the granting authority. 2386 The findings of the panels in US – Anti-Dumping and
Countervailing Duties (China) and US – Countervailing Measures (China) seem to imply that those
panels considered that an industrial park or economic development zone can amount to "a
designated geographical region".2387 While it is true th at MCIP job tax credits are available only to

2378 United States' first written submission, para. 643.
2379 United States' first written submission, para. 642.
2380 In light of this finding, we do not consider it necessary to address the European Union's request for
the Panel to "draw appropriate inferences". (See European Union's second written submission, fn 1142). Also
see United States' response to Panel question No. 149, paras. 17-19; and Charleston County Ordinances,
(Exhibit USA-555).
2381 European Union's first written submission, paras. 640 and 719.
2382 European Union's second written submission, para. 681.
2383 European Union's second written submission, para. 682.
2384 United States' first written submission, para. 643.
2385 United States' second written submission, para. 612.
2386 Panel Report, US – Anti-Dumping and Countervailing Duties (China), paras. 9.143 and 9.144.
2387 See Panel Reports, US – Anti-Dumping and Countervailing Duties (China), paras. 9.159 and 9.162;
and US – Countervailing Measures (China), para. 7.352. We note that the Appellate Body recently addressed
several aspects of the interpretation of Article 2.2 in its Report in US – Washing Machines. Specifically, the
Appellate Body agreed with the panel in that dispute that:

taxpayers within a multi-county industrial park, it does not follow that the measure is "limited" to
certain enterprises located within a designated region. If a subsidy is provided only to enterprises
located within a region that has a fixed geographic identity, such a subsidy is "limited" to certain
enterprises within that region because it is not possible for enterprises not located within that
"designated region " to have access to the measure. In such a situ ation, the location of an
enterprise is the determining eligibility factor for the subsidy. In the case at hand, however, this
reasoning does not apply. The location of an enterprise at any particular place in South Carolina
does not prevent it from receiv ing MCIP job tax credits, because the MCIP designation itself is
readily available upon request to any company. The availability of the MCIP designation upon
request means that, while the MCIP job tax credits are available to enterprises located within a
multi-county industrial park and not available to enterprises not located within such an industrial
park, this cannot be meaningfully considered to amount to a limitation under Article 2.2. We
therefore find that the European Union has failed to establish that the subsidy provided
through the MCIP job tax credits is specific within the meaning of Article 2.2 of the SCM
Agreement.
8.932. Finally, we note that the European Union also argues that the subsid y provided to Boeing
through the MCIP job tax credits is specific pursuant to Article 2.3 of the SCM Agreement.
Article 2.3 provides that "{a}ny subsidy falling under the provisions of Article 3 shall be deemed to
be specific". We reject this argument because in Section 10 of this Report we find that the
European Union has failed to establish that any subsidy at issue in this proce eding is prohibited by
Articles 3.1 and 3.2 of the SCM Agreement.
8.2.8.8.4 Conclusion
8.933. In light of our findings above with respect to the corporate income tax credits arising from
the designation of t he Project Gemini and Project Emerald portions of the Project Site as part of
the same multi-county industrial park, we conclude that the European Union has failed to establish
that the subsidy is specific within the meaning of Articles 1 and 2 of the SCM Agreement.
8.2.8.9 Whether reductions of state corporate income taxes through an income
allocation and apportionment agreement are a specific subsidy to Boeing
8.2.8.9.1 Introduction
8.934. In paragraph 24 of its panel request, the European Union identifies as one of the Project
Gemini-related subsidies presently benefiting Boeing:
Reductions of state corporate income taxes through an income allocation and
apportionment agreement, entered into pursuant to S.C. Code § 12 -6-2320(B), as
amended by Section 1 of H3130, thereby providing a financial contribution within the
meaning of Article 1.1(a)(1)(ii) of the SCM Agreement.
8.935. The European Union claims that the State of South Carolina reduces Boeing 's state
corporate income taxes by making Boeing eligible for, and providing Boeing with, a n income
allocation and apportionment agreement that excludes significant portions of Boeing 's South
Carolina income from the calculation of its tax liability. 2388 According to the European Union, the
effect of the income allocation and apportionment agreemen t is to exclude from Boeing 's South

(i) the term "certain enterprises" in Article 2.2 of the SCM Agreement is not limited
to entities with legal personality, but also encompasses sub -units or constituent
parts of a company – including, but not limited to, its branch offices and the
facilities in which it conducts manufacturing operations – that may or may not have
distinct legal personality; (ii) the "designation" of a region for purposes of
Article 2.2 need not be affirmative or explicit, but may also be carried out by
exclusion or i mplication, provided that the region in question is clearly discernible
from the text, design, structure, and operation of the subsidy at issue; and (iii) the
concept of "geographical region" in Article 2.2 does not depend on the territorial
size of the area covered by a subsidy.
(Appellate Body Report, US – Washing Machines, para. 5.240)

2388 European Union's first written submission, para. 607.

Carolina-based income the proceeds from sales of aircraft that would otherwise be treated as sales
within South Carolina and subject to South Carolina corporate income tax, thereby reducing the
amount of South Carolina corporate income tax that Boeing must pay.
8.936. "Apportionment" refers to the process of determining the portion of corporate income
earned in multiple jurisdictions that is properly attributable to, and thus subject to taxation in, a
particular jurisdiction. I n South Carolina, business income of manufacturers and retailers is
apportioned by multiplying the taxpayer's net income (after certain allocations not relevant to the
present case) by a "sales factor "; a fraction in which the numerator is the total sales of the
taxpayer in the State of South Carolina during the taxable year, and the denominator is the total
sales of the taxpayer everywhere during the taxable year. 2389 The amount of taxable income
attributed to South Carolina is multiplied by South Carolina's corporate income tax rate of 5%.2390
8.937. Section 12-6-2320(B) of the South Carolina Code authorizes the allocation and
apportionment of a taxpayer's income on alternative bases for periods of up to five years or ten
years, by agreement with the taxpayer, for tax payers planning new or expanded facilities in South
Carolina. H3130 amended section 12-6-2320(B) of the South Carolina Code to set forth certain
conditions that must be satisfied by a taxpayer to qualify for an income allocation and
apportionment agreement of up to ten years. These conditions include:
a. the taxpayer is planning a new facility in the state and invests at least USD 750 million
in real or personal property or both in a single county in the state and creates at least
3,800 full -time new jobs with in seven years from the date on which the taxpayer
requests an agreement with an alternative allocation and apportionment method2391;
b. the South Carolina Coordinating Council for Economic Development certifies that the new
facility will have a significant bene ficial economic effect on the region for which it is
planned and that its benefits to the public exceed its costs to the public.2392
8.938. Under the amendment to South Carolina 's Income Tax Act effected by H3130, the
taxpayer may begin operating under an income allocation and apportionment agreement beginning
with the tax year in which the agreement is executed. If the taxpayer fails to meet the investment
and employment requirements set forth above, the taxpayer will be assessed any tax due as a
result of that fail ure. For any subsequent year that the taxpayer fails to maintain 3,800 full -time,
new jobs, the South Carolina Department of Revenue may assess any tax due for that year.2393
8.939. On 10 August 2010, Boeing made an application for "Qualification of Income
Apportionment Incentive" with the South Carolina Coordinating Council for Economic Development
in respect of "construction of an aerospace manufacturing facility in Charleston County, City of
North Charleston with 3,800 jobs and a capital investment of USD 750 mill ion".2394 On
8 September 2010, the S outh Carolina Coordinating Council for Economic Development certified
Boeing's eligibility to enter into negotiations with the S outh Carolina Department of Revenue to
receive the "Income Apportionment Incentive ". It also ce rtified that the facility described in

2389 South Carolina Income Tax Act, S.C. Code, Title 12, chapter 6, (Exhibit EU-509), sections 12-6-
2252 and 12-6-2280.
2390 South Carolina Income Tax Act, S.C. Code, Title 12, chapter 6, (Exhibit EU-509), section 12-6-530.
South Carolina taxable income includes not only business income subject to apportionment under S.C. Code,
section 12-6-2252, but also any income that is allocated to South Carolina pursuant to sections 12-6-2220 and
12-6-2230.
2391 South Carolina Act No. 124, S.C. Code, Acts 1092, H3130 (30 October 2009), (Exhibit EU-466),
section 1 (amending South Carolina Income Tax Act, S.C. Code, Title 12, chapter 6, (Exhibit EU-509), 12-6-
2320 to add (B)(3)(a)(ii) and (b)(3)(b)).
2392 South Carolina Income Tax Act, S.C. Code, Title 12, chapter 6, (Exhibit EU-509), section 12-6-
2320(B)(3)(c).
2393 South Carolina Income Tax Act, S.C. Code, Title 12, chapter 6, (Exhibit EU-509), section 12-6-
2320(B)(4).
2394 Boeing, Application for Qualification of Income Apportionment Incentive, (10 August 2010),
(Exhibit EU-12).

Boeing's application would have a significant beneficial economic effect on the region for which the
project is planned, and that the benefits to the public exceed the costs to the public.2395
8.940. Boeing and the S outh Carolina Department of Revenue entered into a Special Allocation
and Apportionment Agreement as of 1 January 2012 (Income Allocation and Apportionment
Agreement).2396 Under the Income Allocation and Apportionment Agreement, Boeing and the
South Carolina Department of Revenue agree that [***2397 ***2398].
8.941. [***].
8.2.8.9.2 Main arguments of the parties
8.942. The European Union argues that the Income Allocation and Apportionment Agreement
involves a financial contribution to Boeing in the form of the foregoing of government revenue
otherwise due, within the meaning of Article 1.1(a)(1)(ii) of the SCM Agreement, which confers a
benefit, and is specific.
8.943. The European Union considers that, under the Income Allocation and Apportionment
Agreement, Boeing 's sales of aircraft that are received by a purchaser in South Carolina are
deemed not to be "sales in this State" when the sales are to: (a) an airline or other customer with
a principal place of business outside of the United States ; (b) a leasing company for the ultimate
use of an operator with a principal place of business outside of the United States ; (c) a special
entity established for the purpose of U .S. Export-Import Bank financing of sales to operators
having their principal place of business outside of the United States; or (d) a separate Boeing sales
company for the ultimate use of an operator with a principal place of business outside of the
United States.2399 According to the European Union, this tax treatment differs from the benchmark
tax treatment of comparable income of comparable tax payers, namely, the single factor
apportionment method set forth in South Carolina Code sections 12-6-2252 and 12-6-2280, under
which the foregoing transactions would be considered sales within the State of South Carolina.2400
8.944. The European Union argues there fore that the effect of the Income Allocation and
Apportionment Agreement is to lower the numerator of Boeing 's "sales factor" (i.e. Boeing's sales
allocated to South Carolina), without changing the denominator (i.e. Boeing 's total sales
everywhere), there by reducing the sales factor. Accordingly, when Boeing 's total income is
multiplied by the lower sales factor, the result is a reduction in Boeing 's taxable income, and
consequently, a reduction in the amount of South Carolina corporate income tax that Boe ing must
pay.2401 The Income Allocation and Apportionment Agreement with Boeing therefore results in a
financial contribution by a government ; namely, the foregoing of government revenue otherwise
due within the meaning of Article 1.1(a)(1)(ii) of the SCM Agreement.2402

2395 Letter from A. D. Young, Executive Director, South Carolina Coordinating Council for Economic
Development to Boeing Company, dated 8 September 2010. (Boeing, Application for Qualification of Income
Apportionment Incentive, (10 August 2010), (Exhibit EU-12), pdf p. 10).
2396 Special Allocation and Apportionment Agreement between South Carolina Department of Revenue
and The Boeing Company, Inc. (1 January 2012) (Income Allocation and Apportionment Agreement) (formerly
Exhibit US-13-294), (Exhibit EU-510) (BCI).
2397 Income Allocation and Apportionment Agreement, (Exhibit EU-510) (BCI), [***].
2398 Income Allocation and Apportionment Agreement, (Exhibit EU-510) (BCI), section 3.1.
2399 European Union's first written submission, para. 611.
2400 European Union's first written submission, para. 618:
Under this apportionment methodology, transactions that would otherwise be
considered sales in South Carolina (and therefore taxable in South Carolina) are
excluded from Boeing's taxable income on the basis of the princip al place of
business of the ultimate operator – a concept otherwise wholly absent from South
Carolina's laws on apportionment of income – thus artificially reducing the amount
Boeing pays in state income taxes.
2401 European Union's first written submission, para. 612.
2402 European Union's first written submission, para. 617.

8.945. The European Union argues that the Income Allocation and Apportionment Agreement also
confers a benefit on Boeing's LCA division within the meaning of Article 1.1(b), with the entirety of
the financial contribution representing the amount of the benefit.2403
8.946. The European Union additionally argues that the Income Allocation and Apportionment
Agreement is specific within the meaning of Articles 2.1(a) and 2.1(c) of the SCM Agreement. With
respect to de jure specificity under Article 2.1(a), the Europe an Union asserts that the statutory
provision establishing Boeing's eligibility for an alternative apportionment method was enacted as
part of H3130, the Boeing incentive legislation. Additionally, the provision is subject to investment
and employment cond itions which make it applicable solely to Boeing. 2404 Finally, the Income
Allocation and Apportionment Agreement was entered into with Boeing alone, and the Special
Apportionment Method is applicable only to Boeing. 2405 As to de facto specificity within the
meaning of Article 2.1(c), the subsidy is used by a limited number of taxpayers. To the best of the
European Union 's knowledge, Boeing is the only recipient of a ten -year allocation and
apportionment agreement. Boeing is necessarily also the predominant user a s well as a
disproportionate beneficiary, receiving 100% of the subsidy. 2406 Furthermore, the European Union
points to the "untrammelled discretion" exercised by the granting authority in respect of allocation
and apportionment agreements, noting that a taxpa yer applying for an alternative apportionment
methodology is allowed to propose its own methodology. According to the European Union, Boeing
was approved for a "highly customized methodology, specifically tailored to Boeing 's specific
business practices an d commercial interests, and which bears no relation to the statutory
allocation method or any legitimate public interests ".2407 The European Union also argues that the
Income Allocation and Apportionment Agreement is a pr ohibited subsidy under Articles 3.1(a) and
3.2, footnote 4 and annex I, Item (e) of the SCM Agreement because, pursuant to the Special
Apportionment Method, sales of Boeing aircraft delivered in South Carolina are deemed not to be
South Carolina sales on condition that they are destined for ex port markets outside the
United States.2408
8.947. The United States argues that the European Union has failed to establish that the Income
Allocation and Apportionment Agreement involves a financial contribution or confers a benefit.
Indeed, the United States consi ders that the European Union 's arguments that the Income
Allocation and Apportionment Agreement involves a subsidy are based on a misunderstanding of
South Carolina's income tax law.2409
8.948. The United States considers that the European Union incorrectly interpre ts "sales in this
State" in South Carolina Code section 12 -6-2280, which represent the numerator of the sales
factor for purposes of the single factor apportionment method set forth in South Carolina Code
section 12-6-2252, as including sales in South Carolina to airlines with a principal place of business
outside the United States. It is on this basis that the European Union argues that the Special
Apportionment Method set forth in the Income Allocation and Apportionment Agreement alters the
treatment of "sales in this State " for purposes of calculating the sales factor , by excluding such
sales from the numerator, thereby reducing Boeing's South Carolina income tax liability. According
to the United States, however, "sales in this State " is defined in South Carolina Code
section 12-6-2280(B) as including sales of goods, merchandise or property that are "received by a
purchaser in this State". South Carolina Code section 12-6-2280(B) further provides that the place
at which the goods are received by a purchas er is the place where the goods are received by the
purchaser "after all transportation is completed ". Where receipt occurs outside the United States,
as is the case for sales to airlines with a principal place of business outside the United States,
there will be no "sales in this State" according to the single factor apportionment method.2410
8.949. The United States also rejects the European Union 's arguments that the Income Allocation
and Apportionment Agreement is specific. The United States notes that income all ocation and

2403 European Union's first written submission, paras. 622 and 623.
2404 European Union's first written submission, para. 624.
2405 European Union's first written submission, para. 624; second written submission, para. 668 and
fn 1127.
2406 European Union's first written submission, para. 625.
2407 European Union's first written submission, para. 625.
2408 European Union's first written submission, paras. 749 and 750; response to Panel question No. 36,
paras. 202-204.
2409 United States' first written submission, para. 603.
2410 United States' first written submission, para. 604.

apportionment agreements are part of a widely available effort by South Carolina to ensure that
the apportionment of a taxpayer's income represents the extent of the taxpayer's business activity
in the state, as well as to provide an incentive to companies that are planning new or expanded
facilities in South Carolina. 2411 The European Union incorrectly limits its specificity analysis to the
Income Allocation and Apportionment Agreement, without addressing the question of whether the
legislation or granting authority imposes limitations on access to the subsidy. 2412 Even assuming
arguendo that the specific provision authorizing the use of the ten -year allocation and
apportionment agreement in H3130 were the proper focus of the analysis, the European Un ion has
failed to articulate how the provision contains an express limitation on access to certain
enterprises.2413
8.950. The United States also considers that the European Union has failed to establish that the
measure is de facto specific under Article 2.1(c). According to the United States, approximately 40
projects have been approved for special allocation and apportionment methods since 1996.
Moreover, South Carolina Code section 12 -6-2320(B) sets forth objective criteria that must be
satisfied before an income allocation and apportionment agreement can be entered into. The
European Union has not questioned that those criteria were satisfied in Boeing 's case. Nor has it
explained how the manner in which discretion has been exercised by the granting authority in the
decision to grant the subsidy indicates that the measure is specific. 2414 The United States argues
that the European Union's claims under Article 3 of the SCM Agreement with respect to the Income
Allocation and Apportionment Agreement also fail, owing to its misunderstanding of South Carolina
income tax law and consequent failure to establish a prima facie case that the Income Allocation
and Apportionment Agreement confers a specific subsidy to Boeing, let alone a subsidy that is
contingent on export performance.2415
8.2.8.9.3 Evaluation by the Panel
8.2.8.9.3.1 Whether there is a financial contribution
8.951. We here examine the European Union's claim that the special sourcing rules provided for in
the Income Allocation and Apportionment Agreement constitute a specific subsidy within th e
meaning of Articles 1 and 2 of the SCM Agreement. We begin by determining whether the
European Union has demonstrated that the Income Allocation and Apportionment Agreement, and
more specifically, [***], involves a foregoing of government revenue otherwise due, and thus is a
financial contribution within the meaning of Article 1.1(a)(1)(ii) of the SCM Agreement.
8.952. The tax treatment at issue involves the method by which South Carolina assesses Boeing 's
liability for state corporate income taxes. As previousl y explained, when a taxpayer has taxable
business income in multiple jurisdictions, taxing jurisdictions may apply various apportionment
methodologies to determine how much of the taxpayer 's total income is properly taxable by that
taxing jurisdiction. Sou th Carolina mainly applies a single factor; namely sales, to apportion the
business income of manufacturers and retailers for purposes of assessing liability to South Carolina
income taxes. Thus, under section 12 -6-2252 of the South Carolina Code , manufact urers and
retailers in South Carolina are assessed income tax on their income "apportioned" to the State of
South Carolina, based on their net income (after certain allocations) multiplied by a ratio
representing the proportion of their sales in South Caro lina, compared to their overall total sales
(the sales factor). 2416 The "sales factor " is more precisely defined in South Carolina Code
section 12-6-2280:
(A) The sales factor is a fraction in which the numerator is the total sales of the
taxpayer in this State during the taxable year and the denominator is the total sales of
the taxpayer everywhere during the taxable year.

2411 United States' first written submission, para. 644.
2412 United States' first written submission, para. 645.
2413 United States' first written submission, para. 645.
2414 United States' first written submission, para. 646.
2415 United States' first written submission, para. 677.
2416 South Carolina Income Tax Act, S.C. Code, Title 12, chapter 6, (Exhibit EU-509), section 12-6-
2252(A).

(B) The term "sales in this State " includes sales of goods, merchandise, or property
received by a purchaser in this State. The place wher e goods are received by the
purchaser after all transportation is completed is considered the place at which the
goods are received by the purchaser. Direct delivery into this State by the taxpayer to
a person designated by a purchaser constitutes delivery to the purchaser in this State.
8.953. Under the Income Allocation and Apportionment Agreement, [***], which is the focus of
the European Union 's challenge, provides that Boeing will use the general apportionment method
set forth in South Carolina Code section 12-6-2252. [***].
8.954. The difference between the parties centres around whether, under the definition of "sales
factor" in South Carolina Code section 12-6-2280(A), and more particularly, the numerator of the
sales factor which consists of the "sales in this S tate" as defined in South Carolina Code
section 12-6-2280(B), Boeing's sales of LCA to foreign customers are sales in this State, such that
the Income Allocation and Apportionment Agreement would change their status to out -of-state
sales for purposes of assessing Boeing's liability to South Carolina income taxes, or whether under
South Carolina Code section 12-6-2280, such sales would in any case be considered out -of-state
sales, such that they are treated in the same way under both the general provisions o f South
Carolina income tax law and the Income Allocation and Apportionment Agreement.
8.955. The United States disagrees that South Carolina Code section 12-6-2280(B) defines "sales
in this State" in a manner that includes sales by Boeing of airplanes to foreign purchasers. For the
United States, export sales are treated in the same way under South Carolina income tax law and
under the Income Allocation and Apportionment Agreement: In both cases, income from export
sales is apportioned outside South Carolina. The refore, the special sourcing rules in the Income
Allocation and Apportionment Agreement do not entail a more favourable apportionment of
Boeing's income from foreign sales of LCA than would apply under the terms of South Carolina
Code section 12-6-2280 itself.
8.956. The United States supports its position by noting that , while the first sentence of South
Carolina Code section 12-6-2280(B) provides that the term "sales in this State" includes sales of
goods, merchandise or property received by a purchaser in this State, the second sentence of
South Carolina Code section 12-6-2280(B) provides that the place where goods are received by
the purchaser is considered the place at which the goods are "received" by the purchaser "after all
transportation is completed ". For the United States, an export sale of an LCA manufactured by
Boeing in South Carolina involves the transportation of the aircraft outside of South Carolina and
the territory of the United States. For purposes of South Carolina Code section 12-6-2280(B), the
aircraft is therefore "received" outside South Carolina. Because export sales of aircraft must be
transported to the airline outside the United States, they are not i n any event "received" in
South Carolina.2417
8.957. The European Union contests this understandin g of when and where an aircraft is
"received" by a foreign customer for purposes of South Carolina Code section 12 -6-2280(B).
According to the European Union, Boeing aircraft are formally delivered (covering actual handover
and legal transfer of title) at Boeing's Washington and South Carolina delivery centres. The
European Union argues that, u nder South Carolina Code section 12-6-2280(B), the sale of an
aircraft to a foreign purchaser which is delivered to the purchaser at Boeing's delivery centre in
South Carolina would be treated as a sale "in this State". According to the European Union, South
Carolina Code section 12 -6-2280(B) does not make any reference to whether the purchaser or
eventual operator is located outside of the United States. Rather, the apportionment of sales inside
or outside South Carolina is based on the place where the purchaser "receives" the good. The
European Union argues therefore that, when a foreign customer takes formal delivery of an aircraft
at Boeing's 787 delivery centre in South Carolina, the aircraft is "received by the purchaser " in

2417 United States' response to Panel question No. 35, para. 147: "{b}y definition, export sales involve
transporting goods outside the territory of the country where the goods were manufactured. Thus, an export
sale involving LCA manufactured by Boeing in South Carolina would involve the transportation of the LCA
outside of South Carolina and the territory of the United States. Therefore, South Carolina law does not require
income from export sales to be apportioned to South Carolina because they are not 'sales in this state'".

South Carolina, and the income from such sale would therefore be apportioned to
South Carolina.2418
8.958. The question that arises therefore is when particular goods (aircraft) can be considered to
be "received" by a purchaser ( in particular, a foreign customer) for purposes of South Carolina
Code section 12-6-2280(B), and more particularly, whether aircraft are received by a foreign
customer "after all transportation is completed" at the time of formal delivery to the customer at
Boeing's delivery centre in South Carolina, or when the aircraft are transported to the airline's
headquarters outside the United States. This necessarily requires the Panel to interpret South
Carolina Code section 12-6-2280. Although it is not the role of WTO panels to interpret a Member's
domestic legislation as such, it is permissible, and in this case, essential, that the Panel interpret
the relevant provisions of South Carolina's income tax law in order to resolve the quest ion of
whether the measure in question (which is not South Carolina Code sections 12-6-2252 or 12 -6-
2280, but rather, the Special Apportionment Method set forth in the Income Allocation and
Apportionment Agreement) involves a foregoing of revenue otherwise due, and thus a financial
contribution within the meaning of Article 1.1(a)(1)(ii) of the SCM Agreement.2419
8.959. In respect of the types and threshold of evidence that may be required to prove a
particular construction of municipal law, the Appellate Body in US – Carbon Steel (India) has
explained that the nature and extent of evidence required to satisfy the burden of proof will vary
from case-to-case:
Thus, whereas in some cases the text of the relevant legislation may suffice to clarify
the content and meaning of the relevant legal instruments, in other cases the
complainant will also need to support its understanding of the content and meaning of
such legal instruments with evidence beyond the text of the instrument, such as
evidence of consistent application of such laws, pronouncements of domestic courts on
the meanings of such laws, the opinions of legal experts, and the writings of
recognized scholars.2420
8.960. In that regard, the Appellate Body stated in US – Countervailing and Anti -Dumping
Measures (China) that, in ascertaining the meaning of municipal law, a panel should undertake a
holistic assessment of all relevant elements, starting with the text of the law and including, but not
limited to, relevant practices of administering agencies, or legal interpretatio ns of municipal law
given by a domestic court.2421 In respect of the burden of proof, the Appellate Body in US – Carbon
Steel also clarified that the party asserting that another party's municipal law, as such, is
inconsistent with relevant treaty obligations bears the burden of introducing evidence as to the
scope and meaning of such law to substantiate that assertion. 2422 We consider that the burden

2418 The European Union also disagrees that the term "after all transportation is completed" in the
second sentence of S.C. Code section 12-6-2280(B) could be interpreted to mean that goods that are
"physically received" in South Carolina but then removed from that state can be considered to be "received by
the purchaser" in the place to which the goods are removed. Rather, the idea expressed in the second
sentence of S.C. Code section 12-6-2280(B), that the place of "receipt" of goods is the place in which they are
received by the purchaser "after all transportation is completed" should be understood to address cases where
goods are received in-state by a common carrier but are then shipped by that carrier to the purchaser
out-of-state. In that case, the purchaser "receives" the goods not when they are given by the seller to the
shipper in-state, but when the shipper delivers those goods to the purchaser out-of-state.
2419 The Appellate Body has acknowledged that in a number of previous disputes, panels and the
Appellate Body have been required to ascertain the meaning of municipal law in order to determine whether
the challenged measure was consistent with a provision of the covered agreements. The Appellate Body
considered in US – Hot-Rolled Steel that, "{a}lthough it is not the role of panels or the Appellate Body to
interpret a Member's domestic legislation as such, it is permissible, indeed essential, to conduct a detailed
examination of that legislation in assessing its consistency with WTO law." (Appellate Body Report, US –
Hot-Rolled Steel, para. 200). The Appellate Body has stated moreover that, as part of their duties under
Article 11 of the DSU, "panels have the obligation to examine the meaning and scope of the municipal law at
issue in order to make an objective assessment of the matter before it, including an objective assessment of
the facts of the case and the applicability and conformity with the covered agreements." (Appellate Body
Reports, US – Countervailing and Anti-Dumping Measures (China), para. 4.98; and US – Carbon Steel (India),
para. 4.445).
2420 Appellate Body Report, US – Carbon Steel (India) para. 4.446.
2421 Appellate Body Report, US – Countervailing and Anti-Dumping Measures (China), para. 4.101. See
also Appellate Body Reports, US – Carbon Steel (India), para. 4.446; and EU – Biodiesel (Argentina),
paras. 6.201 and 6.202.
2422 Appellate Body Report, US – Carbon Steel, para. 157.

should be allocated in the same manner in the situation before us; namely, where the European
Union as complaining party asserts a particular interpretation of South Carolina's income tax law in
order to demonstrate that the measure at issue (namely, the Special Apportionment Method under
the Income Allocation and Apportionment Agreement) involves a foregoing of reve nue otherwise
due, for purposes of Article 1.1(a)(1)(ii) of the SCM Agreement.
8.961. With these principles in mind, and mindful of the need to conduct a holistic assessment of
the evidence before us, we begin our interpretation of the sales factor apportionment method
applicable under South Carolina's income tax law by examining the relevant text of South Carolina
Code section 12-6-2280.
8.962. The term "sales in this State" is defined in South Carolina Code section 12-6-2280(B) to
include "sales of goods, merchandise , or property received by a purchaser in this State ". There is
no disagreement that aircraft qualify as "goods, merchandise, or property". As we have noted, the
disagreement involves the circumstances under which aircraft are considered to be "received by a
purchaser in this State" for purposes of the first sentence of South Carolina Code
section 12-6-2280(B). The second sentence of South Carolina Code section 12-6-2280(B) provides
that the "place where goods are received by the purchaser after all transpor tation is completed is
considered the place at which the goods are received by the purchaser ". The third sentence of
South Carolina Code section 12-6-2280(B) provides that "{d}irect delivery into this State by the
taxpayer to a person designated by a purch aser constitutes delivery to the purchaser in this
State".2423
8.963. The European Union considers that aircraft are "received by a purchaser in this State", for
purposes of South Carolina Code section 12-6-2280(B), when a customer takes formal delivery of
an aircraft. Formal delivery of all Boeing aircraft to all Boeing customers worldwide occurs only at
Boeing's delivery centres in Washington State, and since 2012, in South Carolina. The evidence
before us indicates that f ormal delivery of an aircraft is a process that takes place over
approximately two weeks and involves numerous inspections, test flights by Boeing flight crew,
various "acceptance flights" by customer flight crew, the handover of legal title to the aircraft in
exchange for final payment or other f inancing arrangements, delivery by the FAA (or its foreign
equivalent in the case of foreign purchasers) of the certificate of airworthiness, and the flight by
the airline's pilots back to the airline's headquarters or base for further checks and
customization.2424
8.964. The meaning of "sales in this State" in South Carolina Code section 12 -6-2280(B), and
more particularly, the circumstances in which an aircraft would be considered "received by the
purchaser after all transportation is completed" for purposes of th e second sentence of South
Carolina Code section 12 -6-2280(B), is not clear to the Panel on the face of the text of South
Carolina Code section 12 -6-2280(B). More specifically, it is not clear to the Panel that formal
delivery of an aircraft at Boeing's de livery centre in South Carolina would be considered a "sale in
this State" under South Carolina Code section 12-6-2280(B), on the basis that the aircraft was
"received by the purchaser after all transportation is completed" in South Carolina. The Panel is
not persuaded on the basis of the factual material before it that all transportation is completed,
and that an aircraft can be considered to have been received by a customer, when the customer's
representatives attend Boeing's South Carolina delivery centr e to engage in aspects of the formal
delivery process.
8.965. We note that the underlying objective of the sales factor apportionment methodology for
assessing liability to South Carolina income taxes is expressed in South Carolina Code
section 12-6-2210(B). South Carolina Code section 12-6-2210(B) provides that, where a taxpayer
is transacting or conducting business partly within and partly without South Carolina , South
Carolina income tax is imposed on a base which reasonably represents the proportion of the tr ade
or business carried on within the state .2425 We are not persuaded that Boeing's manufacture of

2423 The third sentence of S.C. Code section 12-6-2280(B) thus appears to qualify the scope of "after all
transportation is completed" in the second sentence, by providing that, in situations where an agent is
designated to collect the goods on behalf of the purchaser inside South Carolina, this would be "delivery to"
(and presumably a receipt by) the purchaser in the State, although "all transportation" would not in fact have
been completed in that scenario.
2424 See C. Sloan, "SpeciAAl Delivery Flight Event: American Airlines Boeing 777-300ER (Part Two) –
Aircraft Acceptance, Handover Event and Delivery", Airchive.com, 27 April 2013, (Exhibit EU-1119).
2425 S.C. Code section 12-6-2210(B):

aircraft in South Carolina would necessarily be considered a trade or business that is carried on
within South Carolina , in circumstances where the aircraft in question are manufactured for
out-of-state customers, which may not have any connection with South Carolina, for use wholly
outside South Carolina. Owing to the nature of large civil aircraft, the process of purchasing the
good requires the customer to collect the aircraft from a U.S.-based delivery centre and fly it back
to its own headquarters or base , from where it will be further tested before it is then "placed into
service" for that customer. In those circumstances, it would in our view be a strained
interpretation of South Carolina Code section 12-6-2280(B) to consider the customer as having
received the airplane "after all transportation is completed" in South Carolina.
8.966. The United States has submitted a statement of the Administrator of Audits for t he South
Carolina Department of Revenue in support of its interpretation of South Carolina's income tax
law, treating sales of airplanes to foreign customers as out -of-state sales. In the statement, th e
official expresses the view that, under South Carolin a income tax law, the sale of an airplane
involving a purchaser who "picks up" the airplane at Boeing 's facility in South Carolina and then
flies that airplane directly to a foreign jurisdiction where it will be put into use carrying passengers
on commercial flights, will be sourced to the foreign jurisdiction for purposes of the South Carolina
single sales apportionment formula, and will not be considered a sale in South Carolina.2426
8.967. The European Union challenges the authoritativeness of this statement as the "conclusory
statement by a South Carolina government employee with respect to a narrow factual
hypothetical".2427 The European Union points out that the statement in question is neither a
revenue ruling (i.e. an advisory opinion providing general guidance as to the interpretation of state
tax law) nor a private letter ruling (i.e. an advisory opinion which although not having the force of
law, is binding on agency personnel with respect to the person to whom it was issued based on the
specific facts and cir cumstances presented). 2428 The European Union alleges that Boeing could
have sought a private letter ruling had it wanted certainty regarding the interpretation of South
Carolina's income apportionment rules to aircraft sales, and notes that neither Boeing nor the
United States appear to have done so. 2429 However, it is not clear to us that the South Carolina
Department of Revenue would have considered it appropriate to issue a private letter ruling in the
circumstances.2430 In addition, although the Audit Services Division of the South Carolina
Department of Revenue is not the division responsible for legal interpretation, advice and
guidance, it is the division responsible for audits conducted by the Department relating to the
apportionment of income by corporation s and the sourcing of that income. 2431 Moreover, we note
that the European Union does not produce a legal opinion contradicting the views expressed in the
statement of the South Carolina tax official, or otherwise supporting its interpretation of South
Carolina Code section 12-6-2280 as meaning that formal delivery of an aircraft in South Carolina
to an out-of-state purchaser is a "sale in this State". 2432 There is similarly no evidence before the
Panel of the application of this law, or pronouncements of domestic courts on its interpretation.

If a taxpayer is transacting or conducting business partly within and partly without
this State, the South Carolina income tax is imposed upon a base which reasonably
represents the proportion of the trade or business carried on within this State.
2426 Statement of R. Taylor, State of South Carolina Department of Revenue on Application of South
Carolina Tax Law Regarding Sourcing of Income, (Exhibit USA-533).
2427 European Union's comments on the United States' response to Panel question No. 145, para. 391.
2428 European Union's comments on the United States' response to Panel question No. 145, para. 393.
See also South Carolina Department of Revenue, Revenue Procedure No. 09-3, 20 March 2009, (Exhibit
EU-1432), pp. 2-5.
2429 European Union's comments on the United States' response to Panel question No. 145, para. 394.
2430 We note in particular that the South Carolina Department of Revenue may exercise its discretion not
to issue a private ruling letter on a number of grounds, including where the inquiries concern purely
hypothetical situations, on matters in litigation, and when requests are best handled by another means. (South
Carolina Department of Revenue, Revenue Procedure No. 09-3, 20 March 2009, (Exhibit EU-1432), p. 5).
2431 Statement of R. Taylor, State of South Carolina Department of Revenue on Application of South
Carolina Tax Law Regarding Sourcing of Income, (Exhibit USA-533). Moreover, the Audit Division is the division
of the South Carolina Department of Revenue listed in the "Notices" section of the Income Allocation and
Apportionment Agreement and thus presumably is the division responsible for negotiating and administering
that agreement with Boeing. (Income Allocation and Apportionment Agreement, (Exhibit EU-510) (BCI),
section 6.1).
2432 See Panel Report, Thailand – Cigarettes (Philippines), paras. 7.708 and 7.709 for an analogous
situation in which the Philippines submitted an expert opinion in support of its position that an individual who
resells domestic cigarettes is exempt from personal income tax, and thus, unlike resellers of imported

8.968. Finally, we note that [***2433]. This is additional evidence that tends to suggest that
Boeing also did not consider, for those years at least, that its income tax liability in South Carolina
would be any different under South Carolina income tax law or the Income Allocation and
Apportionment Agreement.2434
8.969. On the basis of our holistic assessment of the text of South Carolina Code
section 12-6-2280(B), in light of the underlying purpose of the apportionment rules as expressed
in South Carolina Code section 12 -6-2210 (namely, to impose income tax on a base which
reasonably represents the proportion of the trade or business "carried on within this State"), along
with evidence before us regarding the interpretation of the apportionme nt rules in South Carolina
Code section 12-6-2280: (a) the statement of the Administrator of Audits for the S outh Carolina
Department of Revenue to the effect that income from Boeing 's sales of aircraft to foreign
customers would not be treated as sales in South Carolina under South Carolina income tax law;
and (b) [***], we are not satisfied that, under South Carolina Code section 12-6-2280, formal
delivery of the aircraft at Boeing's delivery facility in South Carolina to an out -of-state customer
would be apportioned to South Carolina. It seems to us that the more reasonable interpretation of
South Carolina Code section 12-6-2280(B), in the context of the sale and delivery of aircraft, is
that the place where the goods are received by the purchaser "after all transportation is
completed" is the place to which the aircraft are flown for entry into service, and that, where this
is outside South Carolina, such sales will not be apportioned to South Carolina under South
Carolina Code section 12-6-2280(B).2435
8.970. We are not persuaded that the European Union has demonstrated that the special
sourcing rules provided for in the Income Allocation and Apportionment Agreement, insofar as they
source income from sales and deliveries of airplanes to foreign customers, or to l easing companies
or special purpose entities , to the principal place of business of the ultimate operator of the
airplane, as sales "outside South Carolina", involve different tax treatment from that which would
be afforded to such sales and deliveries und er South Carolina Code sections 12-6-2252 and
12-6-2280.2436

cigarettes, need not prepare and maintain revenue and expense reports. Based on that opinion, considered
together with the text of the relevant provisions, and in the absence of any evidence submitted by Thailand to
contradict that expert opinion, the panel concluded that it had been established that resellers of domestic
cigarettes were exempt from income tax, and consequently from the obligation to file revenue and expense
reports.
2433 [***] (Income Allocation and Apportionment Agreement, (Exhibit EU-510) (BCI), pdf p. 17).
2434 We caution that we do not assign significant weight to this factor, owing to the fact that Boeing did
not begin making deliveries of the 787 from its South Carolina facility until 2012, and we do not have
information before us as to the customers that received those aircraft.
2435 We recognize that, under this interpretation, aircraft that are transported outside South Carolina but
within the United States are also not "received" in South Carolina for purposes of South Carolina income tax
law. Moreover, under the Special Apportionment Method in the Income Allocation and Apportionment
Agreement, such sales would be apportioned to South Carolina. In other words, the Income Allocation and
Apportionment Agreement would appear to involve an apportionment method that differs from the prescribed
statutory method in respect of sales of aircraft to U.S. customers outside South Carolina, and to apportion
those sales to South Carolina, when they would not otherwise be so apportioned. The United States
acknowledges that "it is possible that the tax treatment of Boeing's income from sales to U.S. airline customers
located outside South Carolina may change under the Apportionment Agreement." (United States' response to
Panel question No. 36, para. 151). However, it explains that it is unclear how this potential change would affect
Boeing's actual tax liability in the absence of information as to the U.S. state to which that income would
otherwise have been apportioned, and whether that other U.S. state's effective tax rate applied to such income
would represent an increase or decrease over the effective tax rate applied by South Carolina. (United States'
response to Panel question No. 36, para. 152).
2436 If it is the case, as appears to us, that the Special Apportionment Method under the Income
Allocation and Apportionment Agreement does not involve a different apportionment of Boeing's LCA sales to
foreign purchasers than would be the case under the general sales factor apportionment rules in South
Carolina Income Tax Act sections 12-6-2252 and 12-6-2280, the question naturally arises as to why South
Carolina and Boeing would enter into the Income Allocation and Apportionment Agreement. Indeed, the
European Union cautions that the Panel should exercise a degree of scepticism regarding the United States'
arguments that the Income Allocation and Apportionment Agreement has no effect on Boeing's tax liability.
(European Union's response to Panel question No. 37, para. 212). In response to a question from the Panel,
the United States explains that entering into the Income Allocation and Apportionment Agreement provides
Boeing with certainty regarding the apportionment of income generated by its significantly expanded South
Carolina operations over the ten-year term of the Agreement, once it is "activated". More specifically, it
reduces Boeing's exposure to changes in applicable tax rules after Boeing makes significant investments in the

8.971. In light of the foregoing, we therefore consider that the European Union has
failed to establish that the Income Allocation and Apportionment Agreement involves
South Carolina foregoing revenue tha t would otherwise be due in respect of Boeing's
state corporate income tax liability.
8.972. We reach this conclusion independently of the separate questions of whether Boeing has in
fact "activated" the Income Allocation and Apportionment Agreement and whether t he Panel
should make findings in the absence of evidence to that effect. We recall that the [***2437].2438
8.973. In response to the Panel 's request for information pursuant to Article 13 of the DSU, the
United States advised on 28 February 2013 that Boeing had not yet notified the South Carolina
Department of Revenue that it wished to begin using the Special Apportionment Method set out in
the Income Allocation and Apportionment Agreement.2439 The United States further advised , in its
response to Panel questions on 5 Dece mber 2013, that Boeing is not "currently using" the Special
Apportionment Method because it had not yet provided the notice required by section 3.1 of the
Income Allocation and Apportionment Agreement.2440 The United States once again advised that it
had confirmed with South Carolina tax authorities that Boeing had not, as of 1 December 2014,
provided notification under the Income Allocation and Apportionment Agreement to activate the
Special Apportionment Method.2441
8.974. The European Union considers that, just beca use Boeing may not yet have provided the
required notification to the South Carolina authorities, it does not mean that Boeing is not
currently using the Special Apportionment Method under the Income Allocation and Apportionment
Agreement. According to the European Union, Boeing is able to benefit from the Income Allocation
and Apportionment Agreement for up to 15 months before it provides the required notification to
the South Carolina Department of Revenue.2442
8.975. The evidence on record indicates that, as of 1 December 2014, Boeing had not yet notified
the South Carolina Department of Revenue that it wished to begin using the Special
Apportionment Method in respect of any tax year. Moreover, we are satisfied on the evidence that
Boeing's South Carolina corporate income tax for [***].2443 It is possible that Boeing provided the

company's operations, as well as to unanticipated disputes with tax authorities. The United States contends
that it is commonplace for companies in a wide range of industries and jurisdictions to enter into similar types
of agreements in order to achieve greater certainty with respect to future tax liability. (United States' response
to Panel question No. 147, paras. 299 and 300). Having regard to the other ways potentially open to South
Carolina and Boeing to clarify the interpretation of the sales factor apportionment rules under the South
Carolina income tax laws in the case of sales of LCA (e.g. legislative amendment, revenue ruling or private
letter ruling, or litigation) it appears to us that the option of reaching a contractual agreement for a defined
period of time through a mechanism already contemplated under S.C. Code section 12-6-2320(B), which
Boeing may elect to activate anytime within seven years from 1 January 2010, provides certain distinct
advantages for both South Carolina and Boeing. On South Carolina's side, there is no need to amend legislation
or issue a general revenue ruling that could potentially benefit other taxpayers in an unforeseen manner
without those taxpayers being required to undertake the significant investments in South Carolina that are the
condition for Boeing being able to use the Special Apportionment Method in the Income Allocation and
Apportionment Agreement. On Boeing's side, it obtains a contractually enforceable right protecting it from
changes in South Carolina income tax law which could supersede or modify any general revenue ruling or
private letter ruling it may otherwise have sought to obtain. In addition, it is able to elect if and when it wishes
to use the Special Apportionment Method. We therefore consider it plausible that Boeing could have considered
it advantageous to enter into an agreement that provides it with a measure of certainty regarding the way in
which income from sales both outside and within the United States would be apportioned for purposes of its
South Carolina income tax liability.
2437 Income Allocation and Apportionment Agreement, (Exhibit EU-510) (BCI), sections 3.1 and 1.1.
2438 Income Allocation and Apportionment Agreement, (Exhibit EU-510) (BCI), section 3.1.
2439 United States' response to the Panel's request for information pursuant to Article 13 of the DSU,
dated 28 February 2013, response to question No. 74, para. 157.
2440 United States' response to Panel question No. 36, fn 175.
2441 United States' response to Panel question No. 146, para. 298.
2442 The European Union explains that corporate tax returns are due on the 15th day of the third month
after the close of the corporation's tax year. Boeing's tax year ends on 31 December, meaning that under
section 3.1 of the Income Allocation and Apportionment Agreement, Boeing could elect to have its corporate
income tax liability for the previous year assessed on the basis of the Special Apportionment Method by
notifying the South Carolina Department of Revenue by 15 March of the following year. (See Boeing,
Application for Qualification of Income Apportionment Incentive, (10 August 2010), (Exhibit EU-12), item F.1).
2443 United States' response to Panel question No. 146, para. 298.

South Carolina authorities with the required notice by the 15 March 2015 due date for its tax
return for the tax year ended 31 December 2014. If this were the case, there would be a factual
basis for surmising that Boeing's South Carolina income tax for the year ended 31 December 2014
was, or at least will be, assessed on the basis of the Special Apportionment Method. However, in
the absence of such information, it is difficult to see how the Panel could make a finding in respect
of an event which not only has not yet occurred, but in fact may not occur. However, our
interpretation of "sales in this State " under South Carolina Code section 12-6-2280(B), as applied
to sales and deliveries of Boe ing LCA to foreign customers at Boeing 's South Carolina delivery
facility, renders it unnecessary to further address this issue.2444
8.2.8.9.4 Conclusion
8.976. As we explain above, we are not satisfied that the European Union has demonstrated that
the Special Apportionment M ethod to be applied under the Income Allocation and Apportionment
Agreement, insofar as it sources income from sales and deliveries of airplanes to foreign
customers, or to leasing companies or special purpose entities to the principal place of business of
the ultimate operator of the airplane, as sales "outside South Carolina ", involves a different tax
treatment from that which would be afforded to such sales and deliveries under South Carolina
Code sections 12-6-2252 and 12 -6-2280(B). Accordingly, the Eur opean Union has failed to
establish that the Income Allocation and Apportionment Agreement involves South Carolina
foregoing revenue that would otherwise be due in respect of Boeing 's state corporate income tax
liability.
8.977. In light of the foregoing, w e conclude that the European Union has failed to establish that
the measure involves a financial contribution within the meaning of Article 1.1(a)(1)(ii) of the SCM
Agreement and therefore a specific subsidy within the meaning of Articles 1 and 2 of the SCM
Agreement.
8.2.8.10 Whether the property tax exemption in respect of Boeing 's large cargo
freighters is a specific subsidy to Boeing
8.2.8.10.1 Introduction
8.978. In paragraph 24 of its panel request, the European Union identifies as one of the Project
Gemini-related subsidies presently benefiting Boeing:
Property tax exemptions for Boeing's Large Cargo Freighters, pursuant to S.C. Code §
12-37-220(B)(33), as amended by Section 1 of H3482, Act No. 45, 2009 S.C. Acts
763.
8.979. As already explained in the context of our evaluation of the Proj ect Emerald and Boeing
FILOT Agreements, South Carolina imposes a property tax assessment rate equal to 10.5% of the
fair market value of property owned and used by manufacturers in the conduct of their
business.2445 South Carolina also provides various gener al exemptions from property tax.
Section 12-37-220(A) of the South Carolina Code , entitled "General exemption from taxes ", sets
forth 11 exemptions from ad valorem taxation, pursuant to the provisions of section 3 of Article X
of the State Constitution and subject to the provisions of section 12 -4-720. Section 12-37-220(B)
of the South Carolina Code then provides:
In addition to the exemptions provided in subsection (A), the following classes of
property are exempt from ad valorem taxation subject to the pr ovisions of Section
12-4-720:
…

2444 Accordingly, we do not consider it necessary to address the European Union's request for the Panel
to "draw the appropriate inferences". (European Union's response to Panel question No. 172, fn 1106; and
comment on United States' response to Panel question No. 36, para. 218).
2445 County Equalization and Reassessment, S.C. Code, Title 12, chapter 43, (Exhibit EU-525),
section 12-43-220(a)(1).

(33)(a) All personal property including aircraft of an air carrier which operates an air
carrier hub terminal facility in this State for a period of ten consecutive years from the
date of qualification , if its qualifications are maintained. An air carrier hub terminal
facility is defined in Section 55-11-500.
(b) All aircraft, including associated personal property, owned by a company owning
aircraft meeting the requirements of Section 55 -11-500(a)(3)(i) without regard to the
other requirements of Section 55 -11-500. An aircraft qualifying for the exemption
allowed by this subitem may not be used by the operator of the aircraft as the basis
for an exemption pursuant to subitem (a) of this item.
8.980. The exemption set forth in secti on 12 -37-220(B)(33)(b) above was effected through an
amendment to section 12 -37-220 by H3482. 2446 It was signed into law on 2 June 2009 and was
expressed to apply to property tax years beginning after 2006. Its effect was to exempt from ad
valorem taxation all aircraft and associated personal property owned by a company owning two or
more specially equipped planes that are used for the transportation of specialized cargo (the LCF
property tax exemption).2447
8.981. Boeing employs "Dreamlifter" LCFs, modified 747-400 aircraft, to transport components of
the 787 Dreamliner from various manufacturing facilities to assembly lines in Everett, Washington,
and North Charleston, South Carolina. 2448 Boeing operates four such Dreamlifter LCFs from its
facility in North Charleston.2449 The European Union argues that Boeing has benefited from the LCF
property tax exemption set forth above since 2009, and that this constitutes a specific subsidy
within the meaning of Articles 1 and 2 of the SCM Agreement.
8.2.8.10.2 Main arguments of the parties
8.982. The European Union argues that the LCF property tax exemption is a financial contribution
by a government within the meaning of Article 1.1(a)(1)(ii), namely the foregoing of government
revenue otherwise due.2450 The European Union identifies the tax treatment a pplicable to Boeing's
LCFs in South Carolina as the exemption from property taxes for "specially equipped planes" used
to transport "specialized cargo", as well as associated personal property, set out in section 12 -37-
220(B)(33)(b) of the South Carolina C ode.2451 According to the European Union, the legislative
history of H3482 suggests that the reason for Boeing's tax treatment is to provide a major subsidy
to Boeing. The European Union identifies the benchmark tax treatment of comparable taxable
activity of comparable taxpayers as the tax treatment of aircraft ownership by a manufacturer or
any other taxpayer in South Carolina; namely, an assessment ratio of 10.5% under section 12-43-
220 of the South Carolina Code .2452 The European Union argues that a compariso n of the
benchmark tax treatment and the treatment received by Boeing under the LCF property tax
exemption, in light of the reasons for the LCF property tax exemption, demonstrates that the tax
treatment accorded to Boeing represents the foregoing of revenue otherwise due.2453

2446 South Carolina Act No. 45, S.C. Code, Acts 763 H3482 (2 June 2009), (Exhibit EU-522).
2447 See section 1 of South Carolina Act No. 45, S.C. Code, Acts 763 H3482 (2 June 2009), (Exhibit
EU-522), which amends S.C. Code section 12-37-220(B)(33)(b) to exempt from ad valorem taxes: "{a}ll
aircraft, including associated personal property, owned by a company owning aircraft meeting the
requirements of Section 55-11-500(a)(3)(i) without regard to the other requirements of Section 55-11-500".
Section 55-11-500(a)(3)(i), which was enacted in 2005 to expand the definition of an "air carrier hub terminal
facility" for purposes of South Carolina's air hub bonds legislation, to include an airport terminal facility from
which an air carrier operates "two or more specially equipped planes that are … used for the transportation of
specialized cargo". (See South Carolina Act No. 33, R34 H3234 (2005), (Exhibit EU-1387)).
2448 Boeing 747 Dreamlifter Fact Sheet, available at
<http://www.boeing.com/commercial/787family/dreamlifter_fact.html>, accessed 1 September 2016, (Exhibit
EU-443).
2449 South Carolina Department of Revenue, Boeing Applications for Property Tax Exemptions,
28 April 2010, (Exhibit EU-521).
2450 European Union's first written submission, para. 646.
2451 European Union's first written submission, para. 647.
2452 The European Union further specifies that the benchmark property tax treatment of aircraft in South
Carolina is the same regardless of whether the owner is a manufacturer or other type of taxpayer.
(European Union's first written submission, para. 648; second written submission, para. 685 and fn 1150).
2453 European Union's first written submission, para. 649.

8.983. The European Union argues that the LCF property tax exemption provides Boeing with
benefits on non -market terms, and therefore confers a benefi t within the meaning of
Article 1.1(b).2454
8.984. The European Union argues that the LCF property tax exemption is specific within the
meaning of Articles 2.1(a) and 2.1(c) on a number of grounds. First, the LCF property tax
exemption is specific within the meaning of Article 2.1(a) since H3482 explicitly limits the
exemption to an industry or group of en terprises, namely "compan{ies} owning aircraft meeting
the requirements of Section 55 -11-500(a)(3)(i)".2455 Second, the LCF property tax exemption is
specific within the meaning of Article 2.1(c) since, to the best of the European Union's knowledge,
Boeing is the only beneficiary of this subsidy. 2456 In any event, the exemption is de facto specific
since the United States itself confirms that the subsidy has been used by only a limited number of
certain enterprises.2457 Third, the European Union argues that the LCF property tax exemption falls
under the provisions of Article 3, and is therefore deemed to be specific pursuant to Article 2.3.
8.985. The United States argues that the European Union has failed to demonstrate that the LCF
property tax exemption amounts to govern ment revenue foregon e within the meaning of
Article 1.1(a)(1)(ii), and in any case, overestimates th e value of any such exemption. Moreover,
the LCF property tax exemption is not specific within the meaning of Article 2.
8.986. The United States argues that the European Union has failed to identify any statements in
the legislative history of H3482 that establish that it was intended to benefit Boeing. 2458
Furthermore, the European Union fails to carry out the comparison of taxpayers in the context of
the tax system since it ignores the availability of equivalent treatment to other entities in the
state.2459 In addition, as a factual matter, the European Union overstates the value of the LCF
property tax exemption.
8.987. As to whether the LCF property tax exemption is specific, the United States argues that the
specificity analysis should be carried out at the level of South Carolina 's property tax exemptions
collectively. Indeed, the LCF property tax exemption is part of South Carolina 's larger efforts to
ensure that the Sta te's tax structure does not impede investment and other economic activity
within the State. 2460 On this basis, the United States argues that, as a group, South Carolina 's
property tax exemptions are not specific within the meaning of Article 2.1(a) since they are not
explicitly limited to certain enterprises. With respect to the text of the LCF property tax exemption
in particular, the mere requirement that a company own a certain number of certain aircraft in
order to take advantage of a tax exemption for tho se aircraft is not an express limitation to any
particular industry or group of enterprises. 2461 The United States contends that the LCF property
tax exemption is non-specific under Article 2.1(b) on the basis that the exemption is statutory and
there is no d iscretion involved on the part of any government entity as to whether to grant the
exemption or not. 2462 Finally, the LCF property tax exemption is not de facto specific under
Article 2.1(c). Property tax exemptions are widely available and widely used in South Carolina. The
property tax exemption provided in section 12 -37-220-(B)(33) of the South Carolina Code in
particular has been used by the United Parcel Service, Air South, and Boeing.2463

2454 European Union's first written submission, para. 651.
2455 European Union's first written submission, para. 653; second written submission, para. 697.
2456 European Union's first written submission, para. 654.
2457 The European Union notes that, in response to a Panel question under Article 13 of the DSU, the
United States stated that the property tax exemptions under subsections (a) and (b) of
section 12-37-220(B)(33), concerning the LCF property tax exemption as well as a property tax exemption for
air carriers which operate an air carrier hub terminal facility, have been used by three entities in total,
including Boeing. (European Union's first written submission, para. 655; second written submission,
para. 698).
2458 United States' comments on European Union's response to Panel question No. 113, paras. 209-212.
2459 United States' first written submission, paras. 609 and 610; second written submission, para. 570.
2460 Furthermore, South Carolina property tax exemptions are all contained in the South Carolina tax
code and expressed as exemptions to the general rate set out in that code. (United States' first written
submission, para. 652).

8.2.8.10.3 Evaluation by the Panel
8.2.8.10.3.1 Whether there is a financial contribution
8.988. The question before the Panel is whether the LCF property tax exemption involves a
financial contribution in the form of the foregoing of revenue otherwise due, within the meaning of
Article 1.1(a)(1)(ii) of the SCM Agreement.
8.989. As in the case of the FILOT agreements challenged in this proceeding, the parties structure
their arguments according to the three -step analysis set out by the Appellate Body in the original
proceeding for determining the existence of revenue foregone. As we have explained in that
context, we consider it essential to look at the broader legal rationale underlying this analysis
before studying its specific stages. 2464 In particular, the Appellate Body has observed that the
foregoing of revenue otherwise due implies that less revenue has bee n raised by the government
than would have been raised in a different situation, and crucially that "the word 'foregone'
suggests that the government has given up an entitlement to raise revenue that it could
'otherwise' have raised".2465 This entitlement does not exist in the abstract, and must therefore be
assessed against some defined, normative benchmark.2466
8.990. Assessing the LCF property tax exemption in light of the guidance provided by the
Appellate Body, we are of the view that this measure is a financial co ntribution within the meaning
of Article 1.1(a)(1)(ii) because it is an instance of a government giving up an entitlement to raise
revenue that it could otherwise have raised. The very nature of the challenged measure as a tax
exemption suggests that it is an instance of the taxing authority giving up an entitlement to raise
revenue that it could otherwise have raised under the South Carolina property tax rules.
8.991. Our tentative conclusion that the LCF property tax exemption amounts to revenue
foregone finds further support in the application of the three-step analysis set out by the Appellate
Body in the original proceeding.
8.992. The European Union argues that the benchmark tax treatment of comparable taxable
activity of comparable taxpayers is the "tax treatment of aircraft in South Carolina " which is
subject to a property tax assessment ratio of 10.5%, whether owned by manufacturers or other
taxpayers.2467 The United States responds that the European Union fails to consider the availability
of equivalent treatment t o other entities in the state, without however specifying what this
equivalent treatment is. 2468 We consider the benchmark identified by the European Union to be
reasonable and appropriate, particularly in the absence of any alternative proposed by the United
States.
8.993. As to the tax treatment of aircraft in South Carolina, we note that subparagraph 33(a) of
section 12-37-220(B) provides an exemption in respect of aircraft of an air carrier which operates
an air carrier hub terminal facility for a period of 10 c onsecutive years. The analysis of the S outh
Carolina Office of Research and Statistics indicated that th is hub exemption "has not been used
very often"2469, suggesting that for the most part, aircraft in South Carolina are subject to property
taxes, either at the rate of 10.5% set forth in the South Carolina Constitution, or potentially at a
lower rate if the taxpayer in question has entered into a FILOT agreement covering its aircraft
pursuant to the various FILOT statutes.2470

2464 See paras. 8.868 and 8.869 above.
2465 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 806 (referring to Appellate
2466 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 806 (referring to Appellate
2467 European Union's first written submission, para. 648; second written submission, para. 685.
2468 United States' first written submission, paras. 609 and 610; second written submission, para. 570.
2469 South Carolina Office of Research and Statistics, Statement of Estimated Local Revenue Impact,
H.B. 3482, 12 May 2009, (Exhibit EU-529).
2470 We recall that Boeing, along with Vought and Global Aeronautica, was party to the 2006 Project
Emerald FILOT Agreement which, as explained in Section 8.2.8.7.1 above, exempted the project property from
ad valorem taxes in exchange for the payment of a negotiated "fee". Boeing LCFs are specifically identified in
the Project Emerald FILOT Agreement as items of project property that would be assessed at the rate provided
for under the fee agreement. However, unlike the other project property, which is subject to the 4%

8.994. With respect to the objective rea sons behind the challenged tax treatment, there is no
direct evidence before us that sets forth the objective reasons why the South Carolina legislature
amended section 12 -37-220(B)(33) in June 2009 to provide the additional LCF property tax
exemption. The tax treatment involves an exemption from ad valorem taxes in respect of Boeing's
LCFs and associated personal property , provided by virtue of section 12-37-220(B)(33)(b). The
exemption in question was ratified on 27 May 2009 and approved on 2 June 2009. It is expressed
to apply for property tax years beginning after 2006. 2471 The European Union argues that it can be
logically inferred that the amendment effected by H3482 was intended to subsidize Boeing through
a major property tax break connected to Boeing 's "Dreamlifter" LCFs "likely in order to signal
South Carolina's willingness to provide financial incentives to win the second 787 final assembly
line".2472
8.995. We note that the initial version of H3482 introduced into the South Carolina House of
Representatives in February 2009 would have exempted from property taxation all personal
property (including aircraft), owned by a company meet ing the requirements of
section 55-11-500(a)(3)(i).2473 Section 55 -11-500(a)(3)(i) refers to a certified or licensed air
carrier that operates two or more specially equipped planes that are used for the transportation of
"specialized air cargo". The South Carolina Office of Research and Statistics conducted an analysis
of the estimated revenue impact of the initial version of H3482 for the South Carolina Senate
Committee on Finance in May 2009. The analysis noted that there was at least one entity in South
Carolina that was known to qualify for this property tax exemption. However, there was no
definition of "specially equipped" or "specialized cargo".2474 While the South Carolina Department
of Revenue had informed the S outh Carolina Office of Research and Statistics that it would
"construe the specialized cargo provision very strictly ", the South Carolina Office of Research and
Statistics concluded that local property tax revenues could be affected because "it may be difficult
to narrow the scope of this exemption Statewide ", and all personal property would be
exempted.2475
8.996. The version of H3482 that was ratified and signed into law some two t o three weeks later
narrowed the scope of the LCF property tax exemption from "all personal property, including
aircraft" owned by a company owning two or more specially equipped planes used for the
transportation of specialized air cargo to "all aircraft, including associated personal property "
owned by such companies. In our view, the subsequent narrowing of the scope of the exemption
to aircraft (from all personal property), in light of the advice to the South Carolina Senate Finance
Committee that there was some uncertainty as to whether there would be more than one entity in
South Carolina that could potentially qualify for the property tax exemption given the absence of
definitions of "specially equipped" or "specialized cargo", supports a reasonable i nference that the
reason underlying the amendment to section 12 -37-220(B)(33) effected by H3482 was to provide
a tax exemption to the one entity in the State that was known to qualify for the exemption.
Moreover, we are satisfied on the balance of probabilities that Boeing was the one qualifying entity
referred to in the analysis of the S.C Office of Research and Statistics. Indeed, Boeing itself listed
the "100% abatement of the LCFs " as one of the components of South Carolina 's "incentive offer"
in a pres entation to Boeing 's Board of Directors regarding the Pro ject Gemini proposal in
October 2009, suggesting that Boeing at least considered itself to be that one entity. 2476 We
therefore conclude that the amendment effected by H3482 was intended to provide a pr operty tax
exemption in respect of Boeing's LCFs.
8.997. When we compare the LCF property tax exemption with the benchmark tax treatment of
aircraft in South Carolina, whether owned by manufacturers or other taxpayers, taking into
account the reasons behind the challenged tax treatment, we are satisfied that the State of South

assessment ratio under the FILOT agreement, the LCFs are subject to a 9.5% assessment ratio. (Project
Emerald FILOT Agreement, (Exhibit EU-556), section 4.1).
2471 South Carolina Act No. 45, S.C. Code, Acts 763 H3482 (2 June 2009), (Exhibit EU-522), section 3.
2472 European Union's first written submission, para. 647; response to Panel question No. 113,
para. 204.
2473 See South Carolina H3482, as introduced (10 February 2009), (Exhibit EU-520), section 1.
2474 South Carolina Office of Research and Statistics, Statement of Estimated Local Revenue Impact,
H.B. 3482, 12 May 2009, (Exhibit EU-529).
2475 South Carolina Office of Research and Statistics, Statement of Estimated Local Revenue Impact,
H.B. 3482, 12 May 2009, (Exhibit EU-529).
2476 Boeing Board of Directors, "Gemini Update", Presentation, 19 October 2009, (Exhibit USA-323),
slide NLRB-004283.

Carolina is foregoing property taxes that would otherwise be due in relation to the LCFs owned by
Boeing in South Carolina. We conclude that the European Union has established that the
LCF property tax exemption in section 12 -37-220(B)(33)(b) of the South Carolina Code
involves a financial contribution within the meaning of Article 1.1(a) (1)(ii) of the SCM
Agreement.
8.2.8.10.3.2 Whether there is a benefit
8.998. While the United States argues that the European Union overvalues the amount of the LCF
property tax exemption2477, it does not appear to contest the European Union 's argument that the
exemption confers a benefit within the meaning of Article 1.1(b). In light of our finding on financial
contribution above, we find that the LCF pr operty tax exemption in
section 12-37-220(B)(33)(b) of the South Carolina Code confers a benefit within the
meaning of Article 1.1(b) of the SCM Agreement.2478
8.2.8.10.3.3 Whether the subsidy is specific
8.999. The parties inter alia disagree on whether the subsidy provided through the LCF property
tax exemption is specific within the meaning of Article 2.1(c). The European Union 's position is
that the subsidy is de facto specific because Boeing is the only known beneficiary of the subsidy,
and even the "hub exemption" set forth in section 12-37-220(B)(33)(a) of the South Carolina Code
is used only by two enterprises besides Boeing, both of which are air transport companies and thus
would constitute "certain enterprises" within the meaning of Article 2.1. The United States' position
is that the LCF property tax exemption is part of a broader programme of property tax exemptions
set out in section 12 -37-220 of the South Carolina Code as a whole, and that specificity must
therefore be assessed at the level of that programme. When viewed in that proper context, the
subsidy provided through the LCF property tax exemption is not specific within the meaning of
Article 2.1(c).
8.1000. For the reasons detailed below, we consider that the European Union has established that
the subsidy provided through the LCF property tax exemption is de facto specific within the
meaning of Article 2.1(c). The United States has provided little argumentation or evidence in
support of its assertion that specificity in relation to the LCF prope rty tax exemption should be
assessed at the level of a broader subsidy scheme. In particular, we do not consider that the
United States has adequately substantiated its argument that the LCF property tax exemption is
part of South Carolina 's larger efforts to ensure that the South Carolina's tax structure does not
impede investment and other economic activity within the state.2479
8.1001. We note that there are many exemptions provided in section 12 -37-220 of the South
Carolina Code, which vary widely in nature, and appear to pursue a number of purposes, some of
which are not obviously related to the promotion of investment and other economic activity. 2480
The South Carolina Department of Revenue groups the various exemptions under such diverse
categories such as: "Manufacturing Exemptions ", "Research and Development Exemptions ",
"Corporate Headquarters, Corporate Office Facility, and Distribution Facility Exemptions ",
"Exemptions for Inventory and Intangibles ", "Exemption for Personal Property in Transit ",
"Pollution Con trol Exemption ", "Environmental Cleanup Exemption ", "Fire Sprinkler System
Exemption", and "Other Particular Business Exemptions ".2481 The LCF property tax exemption is
included under "Other Particular Business Exemptions ".2482 The other "particular business
exemptions" listed in this category of property tax exemptions seem to have few "links or

2477 In particular, the parties disagree on how many LCFs Boeing sought the LCF exemption for in 2009.
See Section 8.2.8.10.4 below.
2478 Also see para. 8.885 above on tax reductions conferring a benefit.
2479 United States' first written submission, para. 652.
2480 For example, section 12-37-220 provides exemptions from property taxes for, among other things,
properties used for public purposes and owned by the State, counties, municipalities, school districts,
charitable institutions such as hospitals and aged care institutions, public libraries, for certain types of private
property held by eligible individuals, and for property owned and used for particular purposes by certain
non-profit organizations such as The Boy Scouts of America, The Girl Scouts of America, the Young Women's
Christian Association, Young Men's Christian Association, and The Salvation Army.
2481 South Carolina Tax Incentives, (Exhibit EU-494), pp. 141-163.
2482 South Carolina Tax Incentives, (Exhibit EU-494), pp. 162 and 163.

commonalities"2483 between them. We are not persuaded that the LCF property tax exemption can
be considered to be part of a broader programme of property tax exem ptions set out in
section 12-37-220 of the South Carolina Code such that we should treat the whole of section 12 -
37-220 of the South Carolina Code as the "proper subsidy scheme " for purposes of our analysis
under Article 2.1(c). 2484 We will therefore carry out the spec ificity analysis at the level of the
challenged LCF property tax exemption.
8.1002. The only other argument made by the United States in support of its position that the
subsidy provided through the LCF property tax exemption is not specific within the meaning of
Article 2.1(c) is the assertion in its first written submission that "the property tax exemption
provided in Section 12 -37-220(B)(33)" has been used by United Parcel Service and Air South in
addition to Boeing.2485 As previously explained, the LCF property tax exemption that is the focus of
the European Union 's subsidy claim is the exemption set forth in subparagraph (33)(b) of
section 12-37-220(B), which is the subparagraph added through an amendment effected by
H3482. The United States ' response does not cl arify whether United Parcel Service and Air South
used the LCF property tax exemption in subparagraph (33)(b) or the "hub exemption" provided in
subparagraph (33)(a). Moreover, the European Union argues that the United States' assertion is
contradicted by the response received by the European Union from the South Carolina Department
of Revenue to a request it made in July 2012 under the South Carolina Freedom of Information Act
for any applications by a taxpayer for tax exemptions provided in South Carolina Code section 12-
37-220(B)(33)(a) or (b), because this response identifies only applications made by Boeing. 2486 It
is conceivable that United Parcel Service and Air South requested the tax exemptions after the
date of the European Union 's request under the South Carolina Freedom of Information Act to the
South Carolina Department of Revenue but prior to February 2013, when the United States
provided its response to the Panel 's request for information. However, the United States does not
pursue this line of argument in its second written submission. The United States does not offer any
response in that submission to the assertion of the European Union that the information provided
by the South Carolina Department of Revenue indicates that applications for tax e xemptions
provided for in South Carolina Code section 12-37-220(B)(33)(a) or (b) had been received only
from Boeing. The only argument of the United States in its second written submission with respect
to whether the subsidy provided through the LCF proper ty tax exem ption is specific under
Article 2.1(c) is that "property tax exemptions in general are widely available and widely used in
South Carolina"2487, an argument that depends on treating the LCF property tax exemption as part
of a broader property tax ex emption scheme. We have rejected that argument as insufficiently
substantiated.
8.1003. We therefore find that the evidence before us supports the argument of the
European Union that Boeing has been the only user of the LCF property tax exemption provided for
in South Carolina Code section 12-37-220(B)(33)(b). In our view the subsidy provided through the
LCF tax exemption is specific within the meaning of Article 2.1(c) because of the "use of {the}
subsidy programme by a limited number of certain enterprises". We n ote that there is evidence to
support the view that the LCF property tax exemption was tailored specifically for Boeing. 2488 To
find a subsidy specific within the meaning of Article 2.1(c) where the subsidy has been used by
only one company and the evidence s uggests that the subsidy was tailored specifically for that
company is consistent with the approach taken by the original panel in finding that certain
subsidies provided to Boeing under the Illinois Corporate Headquarters Relocation Act were specific
under Article 2.1(c). 2489 We also recall, in this regard, our observations above on the meaning of
the phrase "use of a subsidy programme by a limited number of certain enterprises" in
Article 2.1(c). We are satisfied that the fact that only Boeing has used the s ubsidy provided
through the LCF property tax exemption clearly indicates the existence of a limitation of access to
the subsidy. In making this finding that the subsidy at issue here is specific within the meaning of

2483 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 851.
2484 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 752 and 753.
2485 United States' first written submission, para. 656 (referring to United States' response to the Panel's
request for information pursuant to Article 13 of the DSU, dated 28 February 2013, (Exhibit USA-198) (BCI),
para. 162).
2486 European Union's second written submission, para. 698; and South Carolina Department of Revenue
FOIA Correspondence, 5 July 2012, (Exhibit EU-1124).
2487 United States' second written submission, para. 580.
2488 See para. 8.996 above.
2489 Panel Report, US – Large Civil Aircraft (2nd complaint), paras,. 7.918 and 7.920. See also
para. 8.1046 below.

the second sentence of Article 2.1(c) on the grounds that it has been used by "a limited number of
certain enterprises" we have also consider ed the last sentence of Article 2.1(c), which requires
that account be taken of "the extent of diversification of economic activities within the jurisdict ion
of the granting authority, as well as of the length of time during which the subsidy programme has
been in operation". We see no basis in the facts before us to support an argument that ,
notwithstanding that the subsidy provided through the LCF tax exe mption has been used by only
one company, the subsidy should not be considered to be specific because of the limited extent of
diversification of economic activities in South Carolina or the limited length of time during which
the programme has been in ope ration. We note that the United States does not make any such
argument.
8.1004. We therefore conclude that the European Union has established that the subsidy
provided through the LCF property tax exemption is de facto specific within the meaning
of Article 2.1(c) of the SCM Agreement. Having found that the subsidy is specific within
the meaning of Article 2.1(c), we do not consider it necessary to address the
parties' arguments under Articles 2.1(a) and 2.1(b).2490
8.1005. Finally, we note that the European Union also argues that the subsidy provided to Boeing
through the LCF property tax exemption is specific pursuant to Article 2.3 of the SCM Agreement.
Article 2.3 provides that "{a}ny subsidy falling under the provisions of Article 3 shall be deemed to
be specific". We rej ect this argument because in Section 10 of this Report we find that the
European Union has failed to establish that any subsidy at issue in this proceeding is prohibited by
Articles 3.1 and 3.2 of the SCM Agreement.
8.2.8.10.4 The amount of the subsidy
8.1006. The parties disagree on the amount of the subsidy to Boeing 's LCA division from the LCF
property tax exemption. Their disagreement focuses on the number of Boeing LCF s in operation
and subject to the exemption in 2009, as well as the rate of de preciation used by the
European Union in its amount calculation. The European Union estimates the amount of the
financial contribution conferred by the LCF property tax exemption, which in the case of foregoing
of revenue otherwise due corresponds to the amount of the subsidy, at USD 25.82 million between
2013 and 2015.2491 This amount was calculated on the basis of depreciated estimates of the value
of each of Boeing 's four tax -exempt LCF s at the time they entered into service. 2492 The
United States argues that the European Union has sig nificantly overstated the amount of the
financial contribution because it has erroneously assumed that three LCF s were subject to South
Carolina property tax in 2009, when there is no basis to conclude that Boeing operated more than
a single LCF in 2009. 2493 The United States argues that the European Union's calculation in fact
understates the initial values to Boeing of each LCF 2494, and disregards the actual LCF values
provided by the United States.2495 In addition, the United States argues that the European Union
has arbitrarily selected a 5% rate of depreciation to estimate the value of the LCFs in future
years.2496 The United States provides an estimate of the value to Boeing of the LCF property tax
exemption as USD [***] between 2012 and 2014.2497
8.1007. The parties first disagree on the number of Boeing LCF s in operation in 2009 and subject
to the challenged tax exemption in that year. The European Union explains that its position that
three LCFs were in operation in 2009 is based on the Expert Report of Mr Hugh McTeague 2498,
which in turn relies on Individual Aircraft Reports from ACAS, an industry database. 2499 The

2490 See Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.928.
2491 South Carolina Subsidies to Boeing's LCA Division, (Exhibit EU-39), p. 4. Also see European Union's
first written submission, para. 650.
2492 European Union's first written submission, para. 650 and fn 1473; also see para. 652 and fn 1476;
and H. McTeague, Aircraft Valuation for a Boeing B747-400 LCF ("Dreamlifter"), (21 November 2012), (Exhibit
EU-27); and South Carolina Subsidies to Boeing's LCA Division, (Exhibit EU-39), p. 4.
2493 United States' first written submission, para. 613.
2494 United States' first written submission, para. 612.
2495 United States' second written submission, para. 573.
2496 United States' first written submission, para. 612.
2497 Boeing "But-For" LCF Exemption Value and Depreciation Information, (Exhibit USA-336) (BCI).
2498 H. McTeague, Aircraft Valuation for a Boeing B747-400 LCF ("Dreamlifter"), (21 November 2012),
(Exhibit EU-27).
2499 ACAS Individual Aircraft Reports on Boeing's Large Cargo Freighters, (Exhibit EU-1125).

information in the ACAS reports is consistent with information contained in Boeing 's tax exemption
applications for 2010 and 2011 2500, as well as with statements of Boe ing officials. 2501 The
European Union explains that it has not used the figures provided by the United States in response
to the Panel 's request for information pursuant to Article 13 of the DSU because [***].
Furthermore, the valuations provided by the Unite d States do not indicate a source for the listed
figures, lack markings indicating an official government document, and do not associate listed
values with particular LCFs.2502
8.1008. We do not find that the European Union 's reliance on the information contained in
Boeing's tax exemption application for 2010 lend s support to its position that three LCF s were in
operation in 2009. The European Union explains in its second written submission that it was
limited to relying on Boeing 's 2010 and 2011 applications because these were the only ones
provided to it through its request under South Carolina 's Freedom of Information Act. 2503 The tax
exemption application for 2010 indicates that [***].2504 We agree with the United States that this
reveals nothing about the number of LCF s for which Boeing requested an exemption in 2009. 2505
The only information shown by [***].2506 This cannot serve as support for the proposition that
three LCFs were in operation that year.
8.1009. However, through other evidence it relies on, the European Union has est ablished that
three LCFs were indeed in operation in 2009. The European Union 's subsidy estimate at page 4 of
Exhibit EU -39 identifies the three LCF s that were allegedly in operation and subject to the
exemption in 2009 as the aircraft with registration nu mbers N747BC, N780BA, and N249BA.
According to the ACAS reports on which the European Union 's Expert Report relies, the LCF
N747BC was converted to a freighter in 2006, and after having its operational role changed to
"research/development" in 2006, had it s operational role changed to "freighter" in 2007.2507 The
LCF N780BA was converted to a freighter and had its operational role changed to "freighter" in
20072508, while the LCF N249BA was converted to a freighter and had its operational role changed
to "freighter" in 2008. 2509 This information from the ACAS reports is corroborated by certain
statements by a Boeing official. A Vice President of Marketing for Boeing Commercial Airplanes
stated in a blog post dated June 2008 that a third LCF Dreamlifter "will enter into service by early
July" 20082510, to accompany the "first two " that "have been in use since 2007 ".2511 The dates
referred to in these statements are in line with the information from the ACAS reports, which show
that the operational roles of the LCF s with regi stration numbers N747BC and N780BA were
changed to "freighter" in 2007, while the change for N249BA was made in 2008. This information
suggests to us that by 2009, there were indeed three Boeing LCFs in operation.
8.1010. The United States has failed to rebut the case made by the European Union in support of
its position that three LCF s were in operation in 2009. The e vidence submitted by the
United States in response to Panel question No. 144 and intended to settle the question of how
many LCFs were in operation in 2009 fails in its task. We agree with the European Union that it is
not clear that Exhibit USA -5282512 is, in fact, Boeing 's 2009 application for the LCF property tax
exemption. It is unclear whether the property listed in that exhibit is an airplane. In B oeing's
applications for 2010 and 2011, the subject property is identified by vehicle identification numbers

2500 South Carolina Department of Revenue, Boeing Applications for Property Tax Exemptions,
28 April 2010, (Exhibit EU-521).
2501 R. Tinseth, Boeing Commercial Airplanes, "Three of four", Randy's Journal blog post, 12 June 2008,
(Exhibit EU-1126).
2502 European Union's second written submission, para. 689.
2503 European Union's second written submission, para. 687.
2504 European Union's first written submission, para. 644 and fn 1466.
2505 United States' first written submission, para. 613.
2506 See South Carolina Department of Revenue, Boeing Applications for Property Tax Exemptions,
28 April 2010, (Exhibit EU-521), pdf p. 2.
2507 ACAS Individual Aircraft Reports on Boeing's Large Cargo Freighters, (Exhibit EU-1125), p. 12.
2508 ACAS Individual Aircraft Reports on Boeing's Large Cargo Freighters, (Exhibit EU-1125), p. 7.
2509 ACAS Individual Aircraft Reports on Boeing's Large Cargo Freighters, (Exhibit EU-1125), p. 2.
2510 R. Tinseth, Boeing Commercial Airplanes, "Three of four", Randy's Journal blog post, 12 June 2008,
(Exhibit EU-1126).
2511 R. Tinseth, Boeing Commercial Airplanes, "Three of four", Randy's Journal blog post, 12 June 2008,
(Exhibit EU-1126).
2512 While the United States refers to Exhibit USA-530 (BCI) in its response to Panel question No. 144,
para. 295, we understand the correct reference to be to Exhibit USA-528 (BCI). (See European Union's
comment on United States' response to Panel question No. 144, fn 572).

matching FAA registration numbers for Boeing LCF, the type of LCF and the make "747". Exhibit
USA-528 instead reads [***2513]. The European Union further notes that the application pre-dates
the enactment of the LCF tax exemption legislation, and therefore seems to concern some other
exemption.2514
8.1011. Other evidence provided by the United States also fails to rebut the case made by the
European Union. We agr ee with the European Union that Exhibit USA -222, entitled "LCF Values",
lacks any indication of the source of the listed figures. 2515 Exhibit USA-336 provided by the
United States in its second written submission, entitled "Boeing 'But For' LCF Exemption Value and
Depreciation Information"2516 and described as "a spreadsheet provided by Boeing's Corporate Tax
Department"2517, fails to lend support to the United States ' position. The United States contends
that the exhibit reconfirms the original information provided in response to the Panel 's request for
information pursuant to Article 13 of the DSU 2518, namely Exhibit USA -222. However, we have
difficulty seeing how Exhibit USA-336 confirms the information in Exhibit USA-222, when the
information seems rather contradict ory: in Exhibit USA-222, values are shown [***], whereas in
Exhibit USA-336 values are shown [***]. The latter exhibit states that only one LCF had its first
year of exemption in 2009, and that [***] The Exhibit does not explain this statement further,
nor has the United States explained or argued this anywhere in its submissions. To us, Exhibit
USA-336 seems to concede that [***]. However, this is not an argument the United States has
made anywhere in its submissions.
8.1012. In sum, we take the view that the Uni ted States has failed to rebut the case made by the
European Union that three Boeing LCF s were in operation and subject to the LCF property tax
exemption in 2009.
8.1013. The second point of disagreement between the parties concerns the depreciation rate
used by t he European Union in its amount calculation. Section 12-37-930 of the South Carolina
Code provides that "{t}he fair market value for vehicles, watercraft, and aircraft must be based on
values derived from a nationally recognized publication of vehicle valu ations, except that the value
may not exceed ninety-five percent of the prior year's value."2519 The European Union argues that,
lacking published values for Boeing 's unique customised LCF s, it used the valuation method
provided in South Carolina tax law, namely 95% of the previous year's value, which it considers to
be the least arbitrary basis for assessing depreciation based on publicly available information. 2520
The United States argues that the European Union assumes the lowest possible depreciation rate
to be applicable to the LCFs, without providing any explanation of why that figure was chosen and
why it should be considered an accurate depreciation rate for LCF s. Thus, even aside from the fact
that the Panel has actual depreciated figures in Exhibit USA -222 (BCI), the European Union has
failed to provide an estimate upon which the Panel can reasonably rely.2521
8.1014. While the United States objects to the depreciation rate selected by the European Union,
it does not propose any more reasonable rate of depreciation for the Panel to use instead. While
Exhibit USA-336 (BCI), submitted by the United States in its second written submission, [***],
the United States fails to explain this statement any further.
8.1015. In light of the fact that the depreciation rate used by the E uropean Union is authorised
under South Carolina tax law, and the United States has failed to provide a more reasonable rate
of depreciation, or a more reasonable life -time for the asset over which to apply depreciation, we
are of the view that the 5% rate proposed by the European Union is a reasonable rate of
depreciation.

2513 South Carolina Department of Revenue, Boeing Application for Property Tax Exemption, PT-401,
2009, (Exhibit USA-528) (BCI).
2514 European Union's comment on United States' response to Panel question No. 144, paras. 387-390.
2515 European Union's second written submission, para. 689.
2516 There is no indication what "But-For" refers to.
2517 United States' second written submission, para. 572.
2518 United States' second written submission, para. 574.
2519 Assessment of Property Taxes, S.C. Code, Title 12, chapter 37, (Exhibit EU-523), section 12-37-
930.
2520 European Union's second written submission, para. 690.
2521 United States' first written submission, para. 614; second written submission, paras. 573 and 574.
Also see para. 8.1011 above.

8.1016. We therefore consider the European Union 's estimate of the amount of the subsidy at
USD 25.82 million between 2013 and 2015 to be reasonable.2522
8.2.8.10.5 Conclusion
8.1017. In light of our above findings, we conclude that the European Union has established that
the property tax exemption for Boeing's large cargo freighters provided in South Carolina Code
section 12-37-220(B)(33)(b) involves a specific subsidy within the meaning of Articles 1 and 2 of
the SCM Agreement, in the amount of USD 25.82 million between 2013 and 2015.
8.2.8.11 Whether the sales and use tax exemptions for aircraft fuel, computer
equipment, and construction materials are specific subsidies to Boeing
8.2.8.11.1 Introduction
8.1018. In paragraph 24 of its panel re quest, the European Union identifies as among the Project
Gemini-related subsidies presently benefiting Boeing:
Exemptions from state sales and use taxes for aircraft fuel, computer equipment, and
construction materials, established by Sections 2, 3, and 4 of H3130, respectively, and
codified at S.C. Code § 12-36-2120(9)(e) and (f), (65)(b), and (67).
8.1019. The European Union argues that these above -referenced provisions exempt Boeing 's
purchases of aircraft fuel, computer equipment , and construction materials fr om South Carolina
and local sales and use tax, and thereby constitute a specific subsidy to Boeing within the meaning
of Articles 1 and 2 of the SCM Agreement.
8.1020. Retail sales and retail purchases of tangible personal property are subject to South
Carolina sales and use tax, respectively. A 6% tax applies to gross proceeds of sales by persons
engaged in the business of selling tangible personal property at retail in South Carolina 2523, as well
as to the sales price of tangible personal property purchased at reta il for use, storage, or other
consumption in the state. 2524 Local governments also have the authority to impose certain
additional local sales and use taxes. 2525 South Carolina tax legislation nonetheless provides
numerous exclusions and exemptions from sales and use taxes.2526
8.1021. H3130, signed into law on 30 October 2009, created three sales and use tax exemptions
with respect to: ( a) fuel sold to manufacturers, electric power companies, and transportation
companies for "the generation of motive power for test flights of aircraft by the manufacturer of
the aircraft" and for "the transportation of an aircraft prior to its completion from one facility of the
manufacturer of the aircraft to another facility of the manufacturer of the aircraft, not including the
transportation of major component parts for construction or assembly, or the transportation of
personnel"2527; (b) the sales of "computer equipment … used in connection with a manufacturing
facility"2528; and ( c) the sales of "construction materials used in the constructi on of a new or
expanded single manufacturing facility ".2529 These permanent exemptions, effective from
November 2009, are available to taxpayers that: ( a) invest at least USD 750 million in real or
personal property in a single manufacturing facility over a seven-year period; (b) create 3,800 full-

2522 We therefore do not consider it necessary to address the European Union's request for the Panel to
"draw reasonable inferences". (European Union's second written submission, para. 691).
2523 The South Carolina Sales and Use Tax Act, S.C. Code, Title 12, chapter 36, (Exhibit EU-493),
sections 12-36-910(A) and 12-36-1110.
2524 The South Carolina Sales and Use Tax Act, S.C. Code, Title 12, chapter 36, (Exhibit EU-493),
sections 12-36-1110 and 12-36-1310.
2525 See South Carolina Tax Incentives, (Exhibit EU-494), p. 207.
2526 See, generally, The South Carolina Sales and Use Tax Act, S.C. Code, Title 12, chapter 36, (Exhibit
EU-493), section 12-36-2120(1)-(80). Also see South Carolina Tax Incentives, (Exhibit EU-494), pp. 210, 212,
and 213.
2527 H3130, section 2, enacted as The South Carolina Sales and Use Tax Act, S. C. Code, Title 12,
chapter 36, (Exhibit EU-493), sections 12-36-2120(9)(e) and (f).
2528 H3130, section 3, enacted as The South Carolina Sales and Use Tax Act, S.C. Code, Title 12,
chapter 36, (Exhibit EU-493), section 12-36-2120(65)(B).
2529 H3130, section 4, enacted as The South Carolina Sales and Use Tax Act, S.C. Code, Title 12,
chapter 36, (Exhibit EU-493), section 12-36-2120(67).

time new jobs at the manufacturing facility over the seven -year period 2530; and ( c) notify the
South Carolina Department of Revenue of their intent to use th e exemption prior to
15 October 2015.2531
8.2.8.11.2 Main arguments of the parties
8.1022. The European Union argues that the sales and use tax exemptions for aircraft fuel,
computer equipment, and construction materials, enacted as part of H3130, are a specific subsidy
within the meaning of Articles 1 and 2.
8.1023. The European Union argues tha t the sales and use tax exemptions for aircraft fuel,
computer equipment, and construction materials, enacted as part of H3130, involve a financial
contribution by a government within the meaning of Article 1.1(a)(1)(ii), namely the foregoing of
government revenue otherwise due. In its argumentation, the European Union follows the
three-step approach to analysing claims under Article 1.1(a)(1)(ii) set out by the Appellate Body in
the original proceeding. 2532 First, the European Union identifies the tax treatme nt applicable to
goods purchased by Boeing in South Carolina (or outside of South Carolina for use within South
Carolina) as a permanent exemption from sales and use taxes for three types of goods, namely
aircraft fuel, computer equipment, and construction materials.2533 The reason for this tax
treatment; namely, to reduce Boeing 's South Carolina tax liability , is evident from the legislative
context in which the exemptions were adopt ed, as well as their terms and conditions. 2534 Second,
the European Union identi fies the benchmark tax treatment of comparable taxable activity of
comparable taxpayers as the tax treatment of purchases of aircraft fuel, computer equipment, or
construction materials by any other manufacturer in South Carolina, that is a sales and use t ax
rate of 7% at state -level and 8% in Charleston County. 2535 Third, a comparison of this benchmark
tax treatment with the treatment received by Boeing, in light of the reasons for enacting the
exemptions, clearly shows the foregoing of government revenue oth erwise due. 2536 The
European Union estimates the amount of the financial contribution at USD 49.14 million between
2010 and 2035.2537
8.1024. The European Union argues that the challenged tax exemptions confer a benefit within
the meaning of Article 1.1(b).2538
8.1025. The European Union also argues that the challenged tax exemptions are specific within
the meaning of Articles 2.1(a) and 2.1(c). First, the exemptions are de jure specific within the
meaning of Article 2.1(a) since the statutory language establishing these exemptio ns explicitly
restricts the recipients to certain enterprises, namely those with Boeing 's precise investment
profile.2539 Second, the tax exemptions are de facto specific within the meaning of Article 2.1(c)

2530 The South Carolina Sales and Use Tax Act, S.C. Code, Title 12, chapter 36, (Exhibit EU-493),
sections 12-36-2120(9)(E)(i) and (ii), (9)(F)(i) and (ii), 65(B)(i) and (ii), and 67(i) and (ii).
2531 South Carolina Act No. 124, S.C. Code, Acts 1092, H3130 (30 October 2009), (Exhibit EU-466),
sections 2(B), 3(B), and 4(B). Also see South Carolina Tax Incentives, (Exhibit EU-494), pp. 215, 217, and
218. We note that the exemption on construction materials was effectively subsumed in July 2011 by a
previously enacted exemption for construction materials used in the construction of a single manufacturing or
distribution facility that invests at least USD 100 million over 18 months at a single site in South Carolina. (See
S.C. Code, section 12-36-2120(67)). Also see European Union's first written submission, fn 1389; and United
2532 European Union's first written submission, para. 594 (referring to Appellate Body Report, US – Large
Civil Aircraft (2nd complaint), paras. 812-814).
2533 European Union's first written submission, para. 595.
2534 European Union's first written submission, para. 596; second written submission, para. 644.
2535 European Union's first written submission, paras. 597 and 588; second written submission,
paras. 645 and 646.
2536 European Union's first written submission, para. 598.
2537 European Union's first written submission, paras. 599-601; second written submission,
paras. 647-651. The European Union argues that its estimate takes into account the fact that the challenged
exemption for construction materials under section 12-36-2120(67) of the South Carolina Code was effectively
subsumed by another exemption in July 2011 subject to different eligibility criteria. (See European Union's
second written submission, fn 1089. See also European Union's second written submission, para. 652; and
comments on United States' response to Panel question No. 150, paras. 26 and 27).
2538 European Union's first written submission, paras. 602 and 603 (referring to Panel Report, US – FSC,
para. 7.103). The European Union is of the view that the entirety of the financial contribution can be
considered to confer a benefit to Boeing. (European Union's first written submission, para. 603).
2539 European Union's first written submission, para. 604; second written submission, para. 660.

since, to the best of the European Union 's knowledge, Boeing is the only taxpayer to benefit from
these exemptions.2540 Third, the European Union rejects the United States' claim that Article 2.1(b)
shows that the exemptions are not specific, since the very specific and narrow criteria governing
eligibility for the exemptions clearly favour certain enterprises over others.2541 The European Union
also argues that the Panel should assess the challenged exemptions individually, rather than as
part of a broader single programme as argued by the United States.2542
8.1026. The United States argues that the European Union fail s to establish the existence of a
financial contribution with respect to the sales and use tax exemptions for aircraft fuel, computer
equipment, and construction materials, enacted as part of H3130 . Moreover, the European Union
overstates any financial contribution and benefit provided by the exemptions, and does not
demonstrate that they are specific.
8.1027. The United States argues that the European Union has not met its burden of proof for
establishing the existence of a financial contribution, since it fails in its application of the Appellate
Body's three -step analysis for determining the existence of revenue foregone. 2543 First, the
European Union fails to identify the tax treatment applicable to Boeing 's sales and use taxes,
because it restricts its examination to the specific exemptions for fuel, computer equipment, and
construction materials, and fails to address the reason for applying those exemptions in the full
context of the South Carolina sales and use tax system and the availability of equivalent treatment
to numerous other entities in the state.2544 Second, the European Union fails in the identification of
the tax treatment of sales and use taxes of comparably situated taxpayers, by making the
unsupported assertion that there are no comparable taxpayers. Third, the European Union fails to
carry out a comparison of Boeing 's tax treatment and that of other comparably situated taxpayers
in the context of an examination of the structure of the domestic tax regime a nd its organising
principles.2545 Notwithstanding the above, the European Union overstates the value of the
challenged exemptions to Boeing, since it does not even refer to the actual figures provided by the
United States in response to the Panel 's request for information pursuant to Article 13 of the DSU,
and disregards the availability of other sales and use tax exemptions to Boeing.2546
8.1028. The United States also argues that the challenged tax exemptions are not specific within
the meaning of Article 2. First, th e sales and use tax exemptions are not specific within the
meaning of Article 2.1(a) since they are not explicitly limited to ce rtain enterprises. The
European Union does not in fact claim that the exemptions are explicitly limited to Boeing or to
aerospace manufacturing, but instead claims that they are limited to enterprises with Boeing 's
investment profile.2547 Second, an analysis under Article 2.1(b) confirms that the exemptions are
not specific, since they are available to any manufacturer meeting the "objective criteria " on
notification, investment, and job creation. These criteria are automatic and strictly adhered to. 2548
Third, the challenged exemptions are not specific within the meaning of Article 2.1(c). 2549 In
addition to the above, the European Union's specificity claims under both Articles 2.1(a) and 2.1(c)
ignore the fact that the challenged exemptions form part of a scheme to provide widely available
exemptions to a variety of industries in order to ensure that the state 's tax structure does not
impede investment and other economic activities.2550 Finally, in response to the Panel's request for
information pursuant to Article 13 of the DSU, the United States indicated that taxpayers other

2540 European Union's first written submission, para. 605.
2541 European Union's second written submission, fn 1107.
2542 European Union's second written submission, paras. 656-659 (referring to Appellate Body Report,
US – Large Civil Aircraft (2nd complaint), paras. 849 and 851).
2543 United States' first written submission, para. 587 (referring to Appellate Body Report, US – Large
Civil Aircraft (2nd complaint), paras. 812-814).
2545 United States' first written submission, para. 588.
2546 United States' first written submission, paras. 589-597; second written submission, paras. 584-590.
2547 United States' first written submission, para. 658.
2549 United States' first written submission, para. 661.
2550 United States' first written submission, paras. 591 and 657-661 (referring in particular to Panel
Report, US – Large Civil Aircraft (2nd complaint), para. 7.198).

than Boeing have notified the South Carolina Department of Revenue of their intention to use the
challenged tax exemptions.2551
8.2.8.11.3 Evaluation by the Panel
8.2.8.11.3.1 Whether there is a financial contribution
8.1029. The first question before the Panel is whether the sales and use tax exemptions for
aircraft fuel, computer equipment , and construct ion materials, enacted as part of H3130,
constitute a financial contribution through the foregoing of government revenue that is otherwise
due, within the meaning of Article 1.1(a)(1)(ii). The European Union 's position is that these
exemptions were specifi cally designed to exempt Boeing 's purchases of aircraft fuel, computer
equipment, and building materials from normal rates of South Carolina and local sales and use tax.
The United States ' position is that the European Union fails to consider the availabil ity of
equivalent treatment to numerous other entities in the state.
8.1030. As in the case of the FILOT agreements and the LCF property tax exemption challenged in
this proceeding, the parties structure their arguments according to the three -step analysis set out
by the Appellate Body in the original proceeding for determining when revenue that is otherwise
due has been foregone . As we have explained in more detail in the context of the FILOT
agreements, we consider it essential to look at the broader legal ratio nale underlying this analysis
before studying its specific stages. 2552 In particular, the Appellate Body has observed that the
foregoing of revenue otherwise due implies that less revenue has been raised by the government
than would have been raised in a diff erent situation, and crucially that "the word 'foregone'
suggests that the government has given up an entitlement to raise revenue that it could
'otherwise' have raised".2553 This entitlement does not exist in the abstract, and must therefore be
assessed against some defined, normative benchmark.2554
8.1031. Assessing the challenged sales and use tax exemptions in light of the guidance provided
by the Appellate Body, we are of the view that these measure s involve a financial contribution
within the meaning of Article 1.1 (a)(1)(ii), because they are instances of a government giving up
an entitlement to raise revenue that it could otherwise have raised. As in the case of the LCF
property tax exemption 2555, the very nature of the challenged measures as tax exemptions
suggests that they are instances of the taxing authority giving up an entitlement to raise revenue
that it could otherwise have raised under the South Carolina sales and use tax rules. Furthermore,
similar to the Boeing F ILOT Agreement and the Project Emerald F ILOT Agreement challenged in
this proceeding, the sales and use tax exemptions for aircraft fuel, computer equipment , and
construction materials are conditional tax incentives available to companies able and willing to
make investments of a certain magnitude in the State of South Carolina. They embody a quid pro
quo arrangement whereby an entity is granted some form of tax advantage in exchange for
fulfilling set requirements, and conversely a taxing authority relinquishes an existing entitlement to
raise revenue that it could otherwise raise where an entity fulfils the set requirements.2556
8.1032. Our tentative conclusion that the challenged sales and use tax exemptions amount to
revenue foregone finds further support in the application of the three -step analysis set out by the
Appellate Body in the original proceeding. Both parties refer extensively to this analysis, but
disagree on its application to the present situation.
8.1033. First, the parties disagree on the framing of the relevant tax treatment applicable to
Boeing, as well as the reasons behind that treatment. The Appellate Body stated in the original
proceeding, in the context of income tax, that the first step in determining the existence of the
foregoing of government revenue otherwise due entails "identify{ing} the tax treatment that

2551 United States' response to the Panel's request for information pursuant to Article 13 of the DSU,
dated 28 February 2013, response to question No. 72, para. 155; first written submission, paras. 662 and 663,
and fn 1025.
2552 See paras. 8.868 and 8.869 above.
2553 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 806 (referring to Appellate
2554 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 806 (referring to Appellate
2555 See para. 8.990 above.
2556 See para. 8.873 above.

applies to the income of the alleged recipients. Identifying such tax treatment will entail
consideration of the objective reasons behind that treatment and, where it involves a change in a
Member's tax rules, an assessment of the reaso ns underlying that change ".2557 The
European Union identifies the tax treatment applicable to goods purchased by Boeing in South
Carolina (or outside of South Carolina for use within South Carolina) as a permanent exemption
from sales and use taxes for three types of goods, namely aircraft fuel, computer equipment, and
construction materials.2558 The European Union argues that the reasons for this tax treatment are
to materially reduce the expense to Boeing of constructing those portions of Project Gemini not
already provided by South Carolina, outfitting the facilities with the computer equipment necessary
for a state -of-the-art LCA production facility, and flying the finished 787 aircraft to be painted at
Boeing's facility in Amarillo, Texas, and back. These rea sons are evident from the following: the
exemptions were enacted as part of H3130, the Boeing incentive legislation; the eligibility criteria
for the exemptions match Boeing 's investment and job creation commitments in South Carolina;
the exemptions are on ly available for a limited period of time; and the exemptions are tailored to
the specific needs of Boeing 's manufacturing activities in South Carolina. 2559 By contrast, the
United States takes the view that the European Union construes the object of the reve nue
foregone analysis overly narrowly by restricting its examination to the exemptions for fuel,
computers, and construction materials2560, and merely assumes that South Carolina sought to give
incentives to Boeing without considering the availability of equivalent treatment to numerous other
entities in the state.2561
8.1034. We consider the proper object of the revenue foregone analysis to be the tax treatment
that applies to Boeing's purchases of aircraft fuel, computer equipment, and construction materials
in South C arolina (or outside of South Carolina for use within South Carolina), namely a
permanent exemption from sales and use taxes by virtue of the three exemptions enacted as part
of H3130. Indeed, the evidence before the Panel shows that Boeing has notified the South Carolina
Department of Revenue of its intention to use all three exemptions 2562, and has been granted
exemptions for such purchases. 2563 As a result, all of Boeing 's purchases of computer equipment
are exempt from sales and use tax by virtue of section 12 -36-2120(65)(b) of the South Carolina
Code; its purchases of construction materials used in the construction of a new or expanded single
manufacturing facility are exempt by virtue of section 12 -36-2120(67); and its purchases of
aircraft fuel are exempt by virtue of sections 12 -36-2120(9)(e) and (f). We understand such
exemptions to be permanent on account of Boeing having fulfilled the investment, job creation and
notification requirements. There is no evidence before us that Boeing has used any sales and use
tax exemptions for aircraft fuel, computer equipment or construction materials other than those
challenged in this proceeding.
8.1035. Furthermore, with respect to the objective reasons behind this treatment, there is
evidence on the record before us to suppor t the European Union 's position that the sales and use
tax exemptions for aircraft fuel, computer equipment, and construction materials were intended to
reduce Boeing's tax liability. In particular, we note that the eligibility criteria for the exemptions,
namely a minimum investment of USD 750 million and the creation of a minimum of 3.800
full-time jobs at a single manufacturing facility over a seven -year period, precisely match the
commitments made by Boeing to South Carolina. Furthermore, the exemption on aircraft fuel,
which applies to "the generation of motive power for test flights of aircraft by the manufacturer "
and to "the transportation of an aircraft prior to its completion from one facility of the
manufacturer of the aircraft to another facility of the manufacturer of the aircraft, not including the
transportation of major component parts for construction or assembly, or the transportation of
personnel" seem tailor-made to the circumstances of Boeing's operations in South Carolina. Added
to the above circumstances is the fact that the exemptions on aircraft fuel, computer equipment,
and construction materials, while being permanent, are only available between November 2009
and October 2015. Moreover, certain statements by South Carolina authoritie s support this view.
Indeed, a statement of the South Carolina Board of Economic Advisors observes, in the context of

2557 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 812.
2558 European Union's first written submission, para. 595; second written submission, para. 644.
2559 European Union's first written submission, para. 596; second written submission, para. 644.
2560 See United States' first written submission, para. 588; second written submission, para. 583.
2561 United States' first written submission, para. 588.
2562 In November 2009 for construction materials, in June 2010 for computer equipment, and in
March 2011 for aircraft fuel. (See South Carolina Department of Revenue Notifications, (Exhibit US-13-292)
(BCI)).
2563 South Carolina Department of Revenue Exemptions, (Exhibit US-13-293) (BCI).

sections on all three exemptions, that "{s}ince we are not currently collecting any tax revenue
from a manufacturer that meets these criteria, this section is not expected to reduce state General
Fund revenue in FY2009 -10." This statement was made at the time that H3130 was passed, just
prior to the establishment of Project Gemini. 2564 The European Union also highlights a statement
by the then-Governor of South Carolina in the press to the effect that Boeing would receive "some
sales-tax exemptions specific to the company", adding that "{t}here are some special incentives in
terms of exemptions that were important to make the case for South Caro lina versus other
places".2565 Finally, we note that a letter from Boeing notifying the South Carolina Department of
Revenue of its intention to use the exemption relating to con struction materials in November 2009
suggests a link between Boeing 's decision to locate operations in South Carolina and a sales tax
incentive.2566
8.1036. Second, the parties disagree on the identification of the benchmark tax treatment for
comparison. The Appellate Body stated in the original proceeding, in the context of income tax,
that dete rmining the existence of the foregoing of government revenue otherwise due entails
"identify{ing} a benchmark for comparison – that is, the tax treatment of comparable income of
comparably situated taxpayers".2567 The European Union argues that the benchmark tax treatment
is the tax treatment of purchases of aircraft fuel, computer equipment , and construction materials
by any other manufacturer in South Carolina, which is the application of South Carolina 's normal
rates of state and local sales and use tax. The United States rejects the European Union's position,
and seems to suggest that other comparable taxpayers have been granted similar treatment , by
referring to prior incentive packages granted to large companies investing in South Carolina.2568
8.1037. We do not agr ee with the United States ' position, but rather consider the appropriate
comparator to be the tax treatment applicable to purchases of aircraft fuel, computer equipment ,
and construction materials by other manufacturers in South Carolina (or for use in Sou th
Carolina). We see a parallel between the United States ' arguments here and with respect to the
FILOT agreements discussed in Section 8.2.8.7 above. As in the case of the FILOT agreements, the
United States considers that "comparably situated taxpayers" are other large industrial taxpayers
in South Carolina. 2569 As we explain in that context, we find problematic the circularity of the
United States' argument that "comparably situated taxpayers" are other taxpayers eligible for th e
same favourable treatment because they meet the same eligibility requirements. This would mean
that the group of comparably si tuated taxpayers is defined by the criteria a ttached to the very
measure that is alleged to give rise to the foregoing of government revenue otherwise due. We are
of the view that the United States' approach goes against the guidance provided by the Appellate
Body of comparable situations in the context of revenue foregone . The comparison suggested by
the United States between the tax treatment of one individual taxpayer under a challenged
measure and the treatment of other taxpayers who qualify for the same tax treatment is at odds
with cases in which the Appellate Body has articulated the comparability test, which examined
measures applicable to a more abstractly identified group of taxpayers, in contrast with the very
same narrow benchmark suggested by the United States.2570
8.1038. Turning to the tax treatment applicable to purchases of aircraft fuel, computer
equipment, and construction m aterials by other manufacturers in South Carolina (or for use in
South Carolina), we observe on the one hand that South Carolina state law imposes a sales and
use tax rate of 6% on sales and purchases in South Carolina, or for consumption in South Carolina
(while also granting local governments the authority to impose certain additional local sales and

2564 South Carolina Board of Economic Advisors, Statement of Estimated State Revenue Impact,
H.B.3130, 27 October 2009, (Exhibit EU-507), pdf pp. 3 and 4. Also see European Union's first written
submission, para. 605.
2565 G. Ratnam, "Boeing Incentives for South Carolina Plant May Be $400 Million", Bloomberg,
20 November 2009 (Exhibit EU-508), pdf p. 2.
2566 South Carolina Department of Revenue Notifications, (Exhibit US-13-292) (BCI), pdf p. 3: "I am
writing to confirm my understanding that The Boeing Company's … official announcement to the Governor and
state of South Carolina on Wednesday October 28th 2009 regarding the selection of Charleston, SC, as the
home for the second manufacturing line of the 787 serves as Boeing's notification under the requirements of
amended Section 12-36-2120(67) of the 1976 Code of our intention to utilize the sales tax incentive under this
section."
2567 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 813.
2568 United States' first written submission, para. 588 (referring to section III.K.2.a of the first written
submission). Also see European Union's second written submission, fn 1073.
2569 United States' first written submission, para. 588.
2570 See paras. 8.877-8.880 above.

use taxes). On the other hand, the United States has presented some evidence of other
exemptions contained in section 12 -36-2120 of the South Carolina Code that could potentially
apply to purchases of aircraft fuel, computer equipment, and construction materials by other
manufacturers in South Carolina (or for use in South Carolina).2571 However, the United States has
not explained why such other exemptions would constitute the appropriate benchmark tax
treatment. In particular, the United States has provided no reasoning to support a finding that the
appropriate benchmark tax treatment for assessing a tax exemption should be other tax
exemptions. Furthermore, the European Union correctly observes that some of the exemptions
referred to by the United States have a narrower application than the exemptions challenged in
this proceeding.2572 In light of our review of the relevant tax structure and principles, we consider
the appropriate benchmark tax treatment to be the sales and use tax rates imposed by the State
of South Carolina and local governments.
8.1039. The third and final step of the Appellate Body's three-step analysis concerns a comparison
of the challenged tax treat ment with the benchmark tax treatment, in light of the reasons for the
challenged treatment. 2573 In this instance, a comparison of Boeing 's tax treatment under the
challenged sales and use tax exemptions, taking into account the reasons for that treatment; i.e. a
permanent exemption from sales and use taxes on purchases of aircraft fuel, computer equipment,
and construction materials , with the benchmark tax treatment indicates the foregoing of
government revenue otherwise due.
8.1040. We therefore find that the sales and use tax exemptions for aircraft fuel,
computer equipment, and construction materials, enacted as part of H3130, each involve
a financial contribution within the meaning of Article 1.1(a) (1)(ii) of the SCM
Agreement.
8.2.8.11.3.2 Whether there is a benefit
8.1041. While the parties disagree on the amount of the sales and use tax exemptions for aircraft
fuel, computer equipment , and construction materials 2574, the United States does not appear to
contest the European Union 's argument that the sales and use tax exemptions confer a benefit
within the meaning of Article 1.1(b). In light of our finding on financial contribution above, we
therefore find that the sales and use tax exemptions for aircraft fuel, computer
equipment, and construction materials, enacted as part of H3130, c onfer a benefit
within the meaning of Article 1.1(b) of the SCM Agreement.2575
8.2.8.11.3.3 Whether the subsidy is specific
8.1042. With respect to whether the subsidy provided by the sales and use tax exemptions for
aircraft fuel, computer equipment and construction materials is specific within the meaning of
Article 2.1, the parties mainly disagree on the level at which the analysis should be conducted. The
United States argues that the specificity determination should be carried out at the level of South
Carolina sales and use tax exemptions collectively, because the exemptions challenged by the
European Union form part of a scheme to provide widely available exemptions to a variety of
industries in order to ensure that the state 's tax structure does not impede investment and ot her
economic activities. When viewed in this context, it is clear that these exemptions are not specific
within the meaning of Article 2 of the SCM Agreement. 2576 The Eu ropean Union rejects the
United States' position on the existence of a broader single prog ramme, pointing to the lack of
links or commonalities between exemptions. Instead, it argues that the various exemptions

2571 United States' response to Panel question No. 150, paras. 20-22.
2572 See European Union's comments on United States' response to Panel question No. 150,
paras. 26-27; as well as State of South Carolina, Department of Revenue, S.C. Revenue Ruling #04-7, (Exhibit
EU-1438), pp. 3 and 13; and State of South Carolina, Department of Revenue, S.C. Revenue Ruling #13-3,
(Exhibit EU-1439), p. 3.
2573 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 814.
2574 See United States' first written submission, paras. 589-598; second written submission,
paras. 584-590.
2575 Also see para. 8.885 above on tax reductions conferring a benefit.
2576 United States' first written submission, paras. 657, 660, and 661.

contained in South Carolina tax law are separate exemptions that favour certain enterprises
through selective eligibility.2577
8.1043. As already explained above2578, the Appellate Body emphasized in the original proceeding
the need for a specificity inquiry to take into account the broader legislative framework within
which a measure has been adopted.2579 With respect to how to determine whether a subsidy forms
part of a broader programme, the Appellate Body observed the following in the original
proceeding:
Determining whether multiple subsidies are part of the same subsidy is not always a
clear-cut exercise. As we have explained, it requires careful sc rutiny of the relevant
legislation – whether set out in one or several instruments – or the pronouncements
of the granting authority(ies) to determine whether the subsidies are provided
pursuant to the same subsidy scheme. Another factor that may be consid ered is
whether there is an overarching purpose behind the subsidies. Of course, this
overarching purpose must be something more concrete than a vague policy of
providing assistance or promoting economic growth.2580
The Appellate Body further observed that "where multiple subsidies are part of the same subsidy
scheme, one would expect to find links or commonalities between those subsidies".2581
8.1044. In light of our review of the evidence before us, we disagree with the United States'
position that specificity should b e assessed at the level of all sales and use tax exemptions
contained in South Carolina legislation. We see no single "overarching purpose"2582, and few "links
or commonalities "2583 in the sales and use tax exemptions in section 12 -36-2120 of the South
Carolina Code. These exemptions are numerous and varied, and seem to serve a number of
purposes. South Carolina sales and use tax law contains over 80 full exemptions. For the purposes
of a South Carolina Department of Revenue tax manual, these exemptions are divid ed into six
broad categories, namely: ( a) government -related exemptions (e.g. material necessary to
assemble missiles) 2584; ( b) business -related exemptions (including the three challenged
exemptions); ( c) agricultural exemptions (e.g. fuel used to cure agricu ltural products) 2585; ( d)
educational exemptions (e.g. meals or food used in furnishing meals to K -12 students in
schools)2586; (e) general public good exemptions (e.g. concession sales by non -profit organisations
at festivals)2587; and (f) alternative energy exemp tions (e.g. building material used to construct a
new or renovated building in a research district and machinery or equipment located in a research
district).2588 With just under 40 exemptions, business-related exemptions are the largest category.
These exemptions range from the fairly broad (e.g. exemption for depreciable assets as part of a
sale of an entire business)2589 to the very specific (e.g. exemption for sweetgrass baskets made by

2577 European Union's second written submission, paras. 656-659 (referring to Appellate Body Report,
US – Large Civil Aircraft (2nd complaint), paras. 849 and 851).
2578 See Section 8.2.8.6.3.3 above.
2579 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 750 and 753. See also
Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.565.
2580 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 752.
2581 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 851.
2582 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 752.
2583 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 851.
2584 The South Carolina Sales and Use Tax Act, S.C. Code, Title 12, chapter 36, (Exhibit EU-493),
section 12-36-2120(22).
2585 The South Carolina Sales and Use Tax Act, S.C. Code, Title 12, chapter 36, (Exhibit EU-493),
section 12-36-2120(18).
2586 The South Carolina Sales and Use Tax Act, S.C. Code, Title 12, chapter 36, (Exhibit EU-493),
section 12-36-2120(10)(a).
2587 The South Carolina Sales and Use Tax Act, S.C. Code, Title 12, chapter 36, (Exhibit EU-493),
section 12-36-2120(39).
2588 The South Carolina Sales and Use Tax Act, S.C. Code, Title 12, chapter 36, (Exhibit EU-493),
section 12-36-2120(72).
2589 The South Carolina Sales and Use Tax Act, S.C. Code, Title 12, chapter 36, (Exhibit EU-493),
section 12-36-2120(42).

artists of South Carolina using locally grown sweetgrass). 2590 In total, ten of these exemptions
contain investment and job requirements.2591
8.1045. Nonetheless, we also see that a subset of the exemptions contained in
section 12-36-2120 of the South Carolina Code appears to have certain "links and commonalities"
with the three sales and us e tax exemptions challenged in this proceeding. 2592 Certain of these
exemptions operate in a similar manner to the three challenged exemptions, as they are subject to
precise investment requirements (different from those under the challenged exemptions): the
exemption for "material handling systems … used in the operation of a … manufacturing facility " is
subject to an investment of USD 35 million over a five -year period and notification to the South
Carolina Department of Revenue 2593, while the exemption effecti ve as of July 2011 for
"construction materials used in the construction of a new or expanded single manufacturing or

2590 The South Carolina Sales and Use Tax Act, S.C. Code, Title 12, chapter 36, (Exhibit EU-493),
section 12-36-2120(64).
2591 In addition to the three challenged exemptions, see S.C. Code section 12-36-2120(51), providing an
exemption for material handling systems and material handling equipment used in the operation of a
distribution facility or a manufacturing facility of a taxpayer that invests at least USD 35 million in South
Carolina; S.C. Code section 12-36-2120(65) (apparently enacted by H3130), providing an exemption for
computer equipment used in connection with, and electricity and certain fuel used by, a technology intensive
facility that invests USD 300 million over five years, creates at least 100 new jobs during the five years with a
certain average compensation, and spends at least 60% of the USD 300 million investment on computer
equipment; S.C. Code section 12-36-2120(67) (apparently enacted by H3130), providing an exemption for
construction materials used in the construction of a single manufacturing or distribution facility, or one that
serves as both, that invests at least USD 100 million at a single site in South Carolina over an 18-month
period; S.C. Code section 12-36-2120(73), providing an exemption for amusement park rides and associated
parts, machinery and equipment, requiring an investment of USD 250 million and the creation of 250 full-time
jobs and 500 part-time jobs or seasonal jobs over a five-year period; S.C. Code section 12-36-2120(78),
providing an exemption for materials and electricity used in the operation of a facility researching and testing
the impact of natural hazards, requiring an investment of USD 20 million over a three-year period; and S.C.
Code section 12-36-2120(79), providing an exemption for computer equipment, software and electricity used
within a datacenter, requiring a taxpayer to invest at least USD 50 million in real or personal property or both
over a five-year period, or several taxpayers to invest at least USD 75 million in such property over the same
period, creating and maintaining at least 25 full-time jobs with a certain average compensation, and subject to
certain notification requirements and deadlines. (The South Carolina Sales and Use Tax Act, S.C. Code,
Title 12, chapter 36, (Exhibit EU-493)). Also see S.C. Code section 12-62-30, providing an exemption for
tangible personal property purchased by a certified motion picture production company for use in connection
with the filming or production of motion pictures in South Carolina for a company planning to spend at least
USD 250,000 in South Carolina within a consecutive twelve-month period (referred to in South Carolina Tax
Incentives, (Exhibit EU-494), p. 219).
2592 With respect to fuel, South Carolina tax legislation provides exemptions from sales and use taxes for
fuel sold to manufacturers for "the generation of heat or power used in manufacturing tangible personal
property for sale", "the generation of electric power or energy for use in manufacturing tangible personal
property for sale", and "the generation of motive power for transportation". (The South Carolina Sales and Use
Tax Act, S.C. Code, Title 12, chapter 36, (Exhibit EU-493), section 12-36-2120(9)(b)-(d); see United States'
first written submission, para. 659). With respect to computer equipment, South Carolina tax law provides at
least four other exemptions, namely: (a) an exemption for "machines used in manufacturing … tangible
personal property for sale" (S.C. Code § 12-36-2120(17) (Exhibit EU-493), section 12-36-2120(17); see
United States' response to Panel question No. 150, para. 21); (b) an exemption for "material handling systems
… used in the operation of a … manufacturing facility", subject to an investment of USD 35 million over a five-
year period and notification to the South Carolina Department of Revenue (The South Carolina Sales and Use
Tax Act, S.C. Code, Title 12, chapter 36, (Exhibit EU-493), section 12-36-2120(51); see United States'
response to Panel question No. 150, para. 21); (c) an exemption from sales and use taxes for "machines used
in research and development", being defined as "machines used directly and primarily in research and
development, in the experimental or laboratory sense, of new products, new uses for existing products, or
improvement of existing products" (The South Carolina Sales and Use Tax Act, S.C. Code, Title 12, chapter 36,
(Exhibit EU-493), section 12-36-2120(56); United States' first written submission, para. 598, and response to
Panel question No. 150, paras. 21 and 22); and (d) an exemption for "original or replacement computers,
computer equipment, and computer hardware and software purchases used within a datacenter" (The South
Carolina Sales and Use Tax Act, S.C. Code, Title 12, chapter 36, (Exhibit EU-493), section 12-36-2120(79);
United States' response to Panel question No. 150, para. 21). With respect to construction materials, we recall
that the challenged exemption was effectively subsumed in July 2011 by another exemption applying to
"construction materials used in the construction of a new or expanded single manufacturing or distribution
facility" subject to different eligibility criteria, namely a capital investment of USD 100 million in real and
personal property at a single site in South Carolina over an eighteen-month period. (The South Carolina Sales
and Use Tax Act, S.C. Code, Title 12, chapter 36, (Exhibit EU-493), section 12-36-2120(67)).
2593 The South Carolina Sales and Use Tax Act, S.C. Code, Title 12, chapter 36, (Exhibit EU-493),
section 12-36-2120(51).

distribution facility " is subject to an investment of USD 100 million at a single site over an
eighteen-month period. 2594 Despite this, we see no single "overarching purpose " in these
exemptions. Rather than creating a coherent programme, these exemptions appear to form a
patchwork of more or less narrowly defined exemptions. We have therefore decided to carry out
the specificity analysis at the level of the challenged sales and use tax exemptions.
8.1046. Assessing specificity at the level of the sales and use tax exemptions on aircraft fuel,
computer equipment, and construction materials, enacted through H3130, we are of the view that
the challenged exemptions are specific within the meaning of Article 2.1(c) because of "the use of
{the} subsidy programme by a limited number of certain enterprises" . While the United States
argues that an unidentified number of other taxpayers have notified the South Car olina
Department of Revenue of their intention to use the challenged tax exemptions, there is no
evidence before the Panel that these exemptions have been used by any entity other than
Boeing.2595 We therefore find that the European Union has established that Boeing has been the
only recipient of the subsidies provided through the sales and use tax exemptions at issue. This is
unsurprising since there is evidence to support the view that the challenged exemptions were
tailored specifically for Boeing: the elig ibility criteria for the three challenged exemptions precisely
match Boeing's South Carolina commitments; the exemptions themselves seem tailor -made to the
circumstances of Boeing 's operations in South Carolina; the notification deadlines for the use of
the exemptions are set to coincide with the beginning of Boeing 's Gemini operations in South
Carolina; and certain statements by South Carolina authorities suggest that the exemptions were
designed for Boeing.2596 We consider our finding to be in line with that of the panel in the original
proceeding concerning the Illinois Corporate Headquarters Relocation Act. Indeed, the requirement
of a high revenue threshold meant that Boeing was the only company to meet the eligibility
criteria for certain incentives provi ded by the Act. 2597 The panel also noted that the narrow time
window for applying for incentives under the Act only reinforced its finding that the incentives were
designed specifically for Boeing.2598
8.1047. We also recall, in this regard, our observations above in p aragraph 8.898 on the meaning
of the phrase "use of a subsidy programme by a limited number of certain enterprises". We are
satisfied that the fact that only Boeing has used the subsidies provided through the sales and use
tax exemptions clearly indicates the existence of a limitation of access to the subsidies.
8.1048. In making this finding that the subsidies are specific within the meaning of Article 2.1(c)
on the grounds that they have been used by "a limited number of certain enter prises" we have
also considered the last sentence of Article 2.1(c), which requires that account be taken of "the
extent of diversification of economic activities within the jurisdiction of the granting authority, as
well as the length of time during which the subsidy programme has been in operation". We see no
basis in the facts before us to support an argument that notwithstanding that the subsidies have
been used by only one company, they should not be considered to be specific because of the
limited extent of diversification of economic activities in South Carolina or the limited length of
time during which the subsidies programmes have been in operation. 2599 We note that the
United States does not make any such argument. Having found the challenged exempt ions to be
specific within the meaning of Article 2.1(c), we do not consider it necessary to address the
parties' arguments under Articles 2.1(a) and 2.1(b).2600
8.1049. We therefore conclude that the European Union has established that the subsid y
provided through t he sales and use tax exemptions on aircraft fuel, computer
equipment, and construction materials enacted through H3130 is specific within the

2594 The South Carolina Sales and Use Tax Act, S.C. Code, Title 12, chapter 36, (Exhibit EU-493),
section 12-36-2120(67).
2595 See United States' response to the Panel's request for information pursuant to Article 13 of the DSU,
dated 28 February 2013, response to question No. 72, para. 155; first written submission, paras. 662 and 663,
and fn 1025; and European Union's second written submission, para. 661.
2596 See para. 8.1035 above.
2597 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.918.
2598 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.923 and 7.919.
2599 If anything, with regard to the duration during which the subsidy programmes have been in
operation we consider that the fact that the notification deadlines for the use of the exemptions are set to
coincide with the beginning of Boeing's Gemini operations in South Carolina is further support for our finding
that the subsidies are specific in fact.
2600 See Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.928.

meaning of Article 2.1 (c) of the SCM Agreement. Having found that the subsidy is
specific within the meaning of A rticle 2.1(c), we do not consider it necessary to address
the parties' arguments under Articles 2.1(a) and 2.1(b).2601
8.1050. Finally, we note that the European Union also argues that the subsid y provided through
the sales and use tax exemptions is specific pursuant to Article 2. 3 of the SCM Agreement.
Article 2.3 provides that "{a}ny subsidy falling under the provisions of Article 3 shall be deemed to
be specific". We reject this argument because in Section 10 of this Report we find that the
European Union has failed to establish that any subsidy at issue in this proce eding is prohibited by
Articles 3.1 and 3.2 of the SCM Agreement.
8.2.8.11.4 The amount of the subsidy
8.1051. The parties disagree on the amount of the subsidy to Boeing's LCA division from the sales
and use tax exemptio ns for aircraft fuel, construction materials, and computer equipment. The
European Union estimates the amount of the financial contribution conferred by the tax
exemptions, which in the case of the foregoing of revenue otherwise due corresponds to the
amount of the subsidy, at USD 49.14 million between 2010 and 2035 2602, or USD 2.25 million
between 2013 and 2015.2603 In arriving at its estimate , the European Union estimates the portion
of costs attributable to purchases of construction materials and computer equi pment in Boeing 's
reported investment in new buildings, machinery, and equipment in South Carolina.
8.1052. The United States argues that the European Union 's estimate is speculative and
unsupported, overvalues the alleged subsidy 2604, and fails to even refer to the actual figures
provided by the United States. 2605 The United States estimates the amount of the subsidy at
[***] in the period 2010-2012.2606. It does not provide an estimate of the future projected value
of the subsidy in the post-2012 period.
8.1053. As to the diverg ences in the parties' amount estimates for the 2010 -2012 period, t he
disagreement stems primarily from the method used by the European Union in estimating the
amount of the subsidy and its rejection of the estimate provided by the United States in response
to the Panel's request for information pursuant to Article 13 of the DSU. 2607 The European Union's
estimate of the subsidy (a total of USD 49.14 million between 2010 and 2035 )2608 represents the
sum of an estimated amount of USD 31.14 million in the period 2010 -2011, and USD 18 million in
the period 2012-2035. In a first phase of its estimate, the European Union estimates the amount
of the subsidy for the period 2010 -2011 to be at least USD 31.14 million. 2609 Based on a
declaration by an employee of the European Aeonautics Defence and Space Company N.V. (EADS),
the European Union considers the costs of construction materials and computer equipment to
represent [***] of the overall cost of buildings, and [***] of the overall cost of machinery and
equipment, respectiv ely.2610 According to the cost -benefit analysis of the South Carolina
Department of Commerce, Boeing 's total investment of USD 1 billion in Project Gemini includes

2601 See Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.928.
2602 European Union's first written submission, paras. 599-601; second written submission,
paras. 647-651.
2603 South Carolina Subsidies to Boeing's LCA Division, (Exhibit EU-39), p. 1.
2604 United States' first written submission, para. 598.
2605 United States' first written submission, paras. 590-597.
2606 United States' response to the Panel's request for information pursuant to Article 13 of the DSU,
dated 28 February 2013, response to question No. 73, para. 156; first written submission, para. 590.
2607 The Panel had asked the United States, in question 73 of its request for information pursuant to
Article 13 of the DSU, to "indicate, with supporting documents, the annual value to Boeing of each tax
exemption listed in question 71" which had listed the three sales and use tax exemptions, and to "provide
current projections of the annual value of each of these tax exemptions for future years". The United States
responded with estimated values to Boeing of the listed tax exemptions for the tax years 2010, 2011 and
2012, and advised that it "is not aware of existing future projections". (United States' response to the Panel's
request for information pursuant to Article 13 of the DSU, dated 28 February 2013, response to question
No. 73, para. 156).
2608 European Union's first written submission, paras. 599-601; second written submission,
paras. 647-651.
2609 European Union's first written submission, para. 600; also see South Carolina Subsidies to Boeing's
LCA Division, (Exhibit EU-39), p. 3.
2610 Declaration of Patrick Libralesso, EADS General Procurement, 26 February 2013, (Exhibit EU-26)
(BCI).

USD 625.3 million in new buildings and USD 400 million in machinery and equipment 2611,
accordingly yielding a construction materials cost of [***] and a computer equipment cost of
[***]. The European Union estimates that half of these purchases were made in Charleston
County, subject to an average 8% sales and use tax rate, and half made elsewhere in S outh
Carolina, subject to a 7% tax rate. 2612 Applying these tax rates equally to the construction
materials and computer equipment costs, the total amount of the tax exemption for construction
materials is at least [***] and the total amount of the tax exempt ion for computer equipment is
at least [***], or at least USD 31.14 million in total over the period 2010 -2011, which
corresponds to Boeing 's timeline for construction and operation of the 787 final assembly and
delivery facility.2613
8.1054. Nonetheless, the European Union considers the figure of USD 31.14 million in the period
2010-2011 underestimates the total amount of the subsidy, since this amount does not include
sales and use tax exemptions for purchases of aircraft fuel, which the European Union is unable to
estimate. Furthermore, the amount does not account for Boeing 's subsequent capital investments
in South Carolina, including new facilities and the expansion of existing facilities. Thus, in a second
phase, the European Union calculates the subsidy to represent an additional amount of at least
USD 18 million in the period 2012-2035. The European Union argues that, in the absence of better
information, Boeing can be assumed to continue to spend USD 10 million each year on goods
subject to the two 2614 sales and u se tax exemptions, thereby benefit ing from a subsidy of
USD 750,000 each year. Over the 25 -year useful life of the Gemini facilities, this amounts to an
additional subsidy of USD 18 million. Combining both phases of its estimate, the European Union
estimates the amount of the subsidy at USD 49.14 million between 2010 and 2035.2615
8.1055. The United States objects in particular to the second phase of the European Union 's
subsidy estimate: whereas the European Union 's estimate for the period 2010 -2011 has some
grounding in evidence, albeit incorrect and based on unwarranted assumptions, its estimate for
the period 2012 -2035 is a complete fiction. 2616 With respect to the period 2010 -2011, the
European Union's estimate is based on the unsupported assumption that Boeing 's investment of
USD 1 billion was entirely made in the years 2010 -2011, as well as a summary statement by a
Boeing competitor on the proportion of costs allocated to construction materials and computer
equipment.2617 With respect to the period 2012 -2035, the Unite d States argues that the
European Union, rather than trying to estimate the value of any alleged further investments by
Boeing, arbitrarily selects the figure of USD 10 million as representing Boeing's annual
expenditures for 2012 to 2035, making no effort to explain how this figure was derived, or how it

2611 South Carolina Department of Commerce, Cost-Benefit Analysis, The Boeing Company, Charleston
County, (Exhibit EU-499), p. 1. The South Carolina Department of Commerce and the South Carolina Board of
Economic Advisors agree in their respective cost-benefit analyses of Project Gemini that Boeing's capital
investment amounts to approximately USD 1 billion. However, where the analyses diverge, the European Union
considers the figures provided by the South Carolina Department of Commerce to be more accurate. Neither
analysis includes the challenged sales and use tax exemptions. (See European Union's first written submission,
para. 599).
2612 European Union's first written submission, para. 599.
2613 European Union's first written submission, para. 600; also see South Carolina Subsidies to Boeing's
LCA Division, (Exhibit EU-39), p. 3.
2614 While the European Union refers to the three sales and use tax exemptions in its first written
submission when discussing the post-2011 period, it states in its second written submission that this was a
simple drafting error since the European Union does not contest that the challenged exemption for construction
materials was effectively subsumed by the exemption in section 12-36-2120(67) of the S.C. Code as of
July 2011. (See European Union's second written submission, fn 1089).
2615 European Union's first written submission, para. 601; second written submission, para. 651. The
European Union states that it does not rely on the estimate provided by the United States because of the
United States' alleged failure to adequately respond to the Panel's request for information pursuant Article 13
of the DSU. The United States provided, without any supporting documentation, estimated values for the three
sales and use tax exemptions from 2010 to 2012 which are based on what the European Union considers is the
unsupported assumption that materials and labour each account for half of Boeing's total construction costs.
(European Union's second written submission, para. 648 and fn 1081). The European Union requests the Panel,
to the extent necessary, to draw appropriate inferences from the United States' alleged non-cooperation in the
information-gathering process. (European Union's second written submission, para. 649).
2617 United States' first written submission, paras. 592 and 593. The United States notes that the
European Union decided to rely on the guesswork of an EADS employee even before it had received the
United States' answer to the Panel's request for information under Article 13 DSU. (United States' second
written submission, para. 586).

reflects Boeing's current or future investment plans.2618 While the European Union claims that it is
relying on this figure in the absence of better information, the absence of information does not
justify resorting to wholly arbitrary figures. 2619 Moreover, while the European Union acknowledges
that the challenged sales and use tax exemption for construction materials, which constitutes the
major component of the subsidy amount for 2010 and 2011, was effectively subsumed by another
exemption as of July 2011, it still estimates an amount for this exemption throughout the period
2012-2035.2620
8.1056. We first consider the European Union 's estimate of the amount of the subsidy for the
period 2010 -2011, as well as the estimate provided by the United States for the period 2010 -
2012. For the reasons detailed below, we are of the view that the United States' estimate is a
reasonable approximation of the amount of the subsidy for 2010-2012, since it is corroborated by
other evidence before the Panel. The record before us includes two separate cost -benefit analyses
of Project Gemini, the first prepared by the South Carolina Department of Commerce and
undated2621, the second prepared by the South Carolina Board of Economic Advisors, addr essed to
Senator Hugh K. Leatherman Sr. and dated 8 October 2009. 2622 The European Union relies on the
former, stating that it is more accurate regarding the actual terms of Boeing 's investment since
the South Carolina Department of Commerce is the lead state agency for attracting economic
development projects and was primarily responsible for negotiating the Project Gemini incentive
package with Boeing. In contrast, the Board of Economic Advisors analysed a hypothetical capital
investment project by a manufac turing project based on specific characteristics described in a
state senator 's analysis request. 2623 The two cost -benefit analyses mainly diverge in their
respective allocations of Boeing 's USD 1 billion investment to new buildings on the one hand, and
machinery and equipment on the other. Under the heading "Announced Capital Investment ", the
analysis of the South Carolina Department of Commerce allocates USD 625.3 million to new
buildings and USD 400 million to machinery and equipment. Under the same heading , the analysis
of the Economic Board of Advisors allocates USD 250 million to new buildings and USD 731 million
to machinery and equipment.2624 Notwithstanding the European Union's reasons for relying on the
figures provided by the South Carolina Department o f Commerce, which the United States does
not contest, we observe that applying the European Union 's assumptions 2625 to the figures
provided by the South Carolina Board of Economic Advisers leads to a subsidy amount of
USD 16.7 million for the period 2010 -2011, or USD 8.35 million in each of those years. While we
acknowledge that the United States ' amount estimat e varies year-on-year, the average annual
amount of subsidy estimated by the United States is [***].2626 This annual amount estimate is
within a very close range to that resulting from the application of the European Union 's calculation
method to the estimates provided by the South Carolina Board of Economic Advisors. We therefore

2618 United States' second written submission, para. 588.
2619 United States' first written submission, para. 595.
2620 United States' first written submission, paras. 596 and 597; second written submission, paras. 589
and 590.
2621 South Carolina Department of Commerce, Cost-Benefit Analysis, The Boeing Company, Charleston
County, (Exhibit EU-499).
2622 Letter from W. C. Gillespie, South Carolina Board of Economic Advisors, to Senator H. K.
Leatherman, Cost-Benefit Analysis, 8 October 2009, (Exhibit EU-498).
2623 European Union's first written submission, para. 599. See Letter from W. C. Gillespie, South Carolina
Board of Economic Advisors, to Senator H. K. Leatherman, Cost-Benefit Analysis, 8 October 2009, (Exhibit
EU-498), p. 1.
2624 Letter from W. C. Gillespie, South Carolina Board of Economic Advisors, to Senator H. K.
Leatherman, Cost-Benefit Analysis, 8 October 2009, (Exhibit EU-498), p. 2. The evidence on the record does
not allow the Panel to determine what the actual allocation was. We note that the exhibit Boeing Investment in
South Carolina (2010-3Q2012), (Exhibit USA-324) (BCI) aggregates expenditure on the Final Assembly and
Delivery Facility and site work. Also see United States' response to Panel question No. 128, para. 265.
2625 The European Union's assumptions are that [***] % of building costs is made up by construction
materials, while [***] % of machinery and equipment costs is made up by computer equipment, and that
purchases are made half in Charleston County, subject to a tax rate of 8%, and half in South Carolina, subject
to a tax rate of 7%. See European Union's first written submission, para. 599. The United States objects to the
European Union's estimate of the proportions of costs allocated to construction materials and computer
equipment merely on the basis that the Declaration of Patrick Libralesso is cursory. (See United States' first
written submission, para. 593). However, we note that the United States itself estimates the cost of
construction materials to account for [***] of total construction costs. (United States' response to the Panel's
request for information pursuant to Article 13 of the DSU, dated 28 February 2013, response to question
No. 73, para. 156).
2626 United States' response to the Panel's request for information pursuant to Article 13 of the DSU,
dated 28 February 2013, response to question No. 73, para. 156; first written submission, para. 590.

consider that the United States' estimate of the amount of the subsidy as [***] over the period
2010-2012 is reasonable.
8.1057. As to the estimated amount of the subsidy for the post -2012 period, we note that the
United States does not provide an estimate, and the European Union's projections are based on a
methodology that the United Sta tes alleges involves the arbitrary selection of USD 10 million as
the annual amount of Boeing investment expenditures in South Carolina in the 2012 -2035 period.
We agree that the European Union has provided no support for its selection of the figure of
USD 10 million in Boeing spending in each year from 2012 to 2035 , although we note that the
United States does not suggest any alternative amount of Boeing's projected spending on which to
base an estimate of the amount of the subsidy to Boeing in the post-2012 period. Having reviewed
the record however, we are satisfied that the European Union's estimate of the annual amount of
the subsidy in the post -2012 period; i.e. USD 750,000, is corroborated by other evidence and is
therefore a reasonable approximation of the annual amount of the subsidy for the 2013 -2015
period. The European Union submitted as an exhibit a 2010 report prepared by an economic
consulting firm on behalf of The Alliance for South Carolina's Future, entitled "The Economic
Impact of Boeing in South Carolina". 2627 In this report, the authors provide an estimate of the
state component of the Project Gemini incentive package, including an estimate of the total
amount of the "Statutory Sales Tax Incentives", which it estimates at USD 41 million. 2628 We
acknowledge that a significant portion of Boeing's expenditures would have been made early on in
the construction of the Gemini facilities and infrastructure. We therefore deduct from this figure
the United States' estimate of USD [***] for the period 2010-2012. If we allocate the remainder
(USD [***]) over the average 25-year useful life of the Gemini facilities and infrastructure2629, we
arrive at an average annual subsidy amount of USD [***]. This figure is sufficiently close to the
European Union's annual estimate of USD 750,000, which is in turn the basis for its estimate of
USD 2.25 million in the period 2013-2015.
8.1058. We therefore consider the European Union's estimate of the amount of the
subsidy as USD 2.25 million over the period 2013-2015 is reasonable.2630
8.2.8.11.5 Conclusion
8.1059. In light of the findings above, we conclude that the European Union has established that
the sales and use tax exemptions for aircraft fuel, computer equipment, and construction
materials, provided in South Carolina Code sections 12-36-2120(9)(e) and (f), (65)(b), and (67)
involve a specific subsidy within the meaning of Articles 1 and 2 of the SCM Agreement, in the
amount of USD 2.25 million between 2013 and 2015.
8.2.8.12 Whether the workforce recruitment, training and development programme
provided to Boeing is a specific subsidy to Boeing
8.2.8.12.1 Introduction
8.1060. In paragraph 24 of its panel request, the European Union identifies as one of the Project
Gemini-related subsidies presently benefiting Boeing:
Establishment of workforce recruitment, training and deve lopment programs for
Boeing.
8.1061. The European Union argues that the workforce recruitment, training, and development
programmes provided to Boeing through the South Carolina Technical College System (Boeing

2627 Alliance for South Carolina's Future, The Economic Impact of Boeing in South Carolina, (May 2010),
(Exhibit EU-489).
2628 See Alliance for South Carolina's Future, The Economic Impact of Boeing in South Carolina,
(May 2010), (Exhibit EU-489), p. 12.
2629 Beyond noting in the context of other South Carolina measures that the 25-year average useful life
of the facilities used by the European Union is shorter than the actual useful life of the facilities and
infrastructure, which ranges from ten to 40 years, the United States does not appear to object to the use of
this period of time. (See United States' first written submission, fns 904 and 923).
2630 In light of our conclusion, we do not consider it necessary to address the European Union's request
for the Panel to "draw appropriate inferences". (European Union's second written submission, para. 649).

workforce programme) constitute a specific subsidy to Boeing within the meaning of Articles 1 and
2 of the SCM Agreement.
8.1062. The Boeing workforce programme challenged by the European Union is delivered as part
of the South Carolina Technical College System 's job training programme (readySC). The readySC
programme has provided customised training for new and expanding business and industry in
South Carolina since 1961. 2631 The Boeing workforce programme consists of South Carolina
recruiting and training assemblers/fabricators for Boeing 's 787 final assembly and del ivery facility
at no cost to Boeing. The multi -phase training provided under the challenged programme spans
the identification and selection of eligible candidates to training an FAA -certified workforce capable
of assembling the 787 's composite -material fu selage. Between the fiscal year 2009 -2010 and
February 2013, over 2 ,660 Boeing employees have been trained through the challenged
programme, while a total of 3,600 Boeing employees will be trained under the programme.2632
8.2.8.12.2 Main arguments of the parties
8.1063. The European Union argues that the Boeing workforce programme, provided through
readySC, constitutes a specific subsidy within the meaning of Articles 1 and 2 of the SCM
Agreement. The programme involves a government provision of goods or services other than
general infrastructure within the meaning of Article 1.1(a)(1)(iii). Since Boeing would otherwise
have to pay for the selection, training and development of its workforce on market terms, the
programme provided at no cost to Boeing confers a benefit within the meaning of
Article 1.1(b).2633 The programme is also specific within the meaning of Articles 2.1(a) and 2.1(c) ,
since the South Carolina Budget and Control Board provided special funding earmarked for
Boeing's workforce programme, and Boeing is the predomina nt user of the subsidy and receives a
disproportionately large amount of the subsidy.2634
8.1064. The United States argues that the European Union has failed to demonstrate that the
Boeing workforce programme constitutes a financial contribution or confers a benefit 2635, and that
in any event the programme is not specific within the meaning of Article 2.1. The readySC
programme is broadly available and has been widely used throughout the economy of South
Carolina, Boeing is neither the main or most frequent user of the p rogramme, nor is there any
indication that discretion has been exercised in a manner indicating specificity.2636
8.2.8.12.3 Evaluation by the Panel
8.2.8.12.3.1 Whether there is a financial contribution and a benefit
8.1065. The first question before the Panel is whether the Boeing workfo rce programme
constitutes a financial contribution through the provision of government services, within the
meaning of Article 1.1(a)(1)(iii). The European Union 's position is that the Boeing workforce
programme, provided through readySC, provides free ser vices including screening and training of
applicants that Boeing would otherwise have to pay for itself.2637 The United States' position is that
the European Union provides only a cursory analysis in support of its financial contribution claim,
and has therefore failed to demonstrate the existence of a financial contribution.2638
8.1066. In light of the uncontested evidence before us that South Carolina provides free
workforce screening, training and development services to Boeing under the readySC

2631 readySC, "About Us", available at <www.readysc.org/about.htm>, accessed 1 September 2016,
(Exhibit USA-240).
2632 United States' response to the Panel's request for information pursuant to Article 13 of the DSU,
dated 28 February 2013, response to question No. 77, paras. 163-169; and European Union's first written
submission, paras. 657-660. Also see S. Wilhelm, "Charleston, High-flying efforts to build a Boeing jet work
force", Puget Sound Business Journal, 3 June 2011, (Exhibit EU-530).
2633 European Union's first written submission, paras. 662-666; second written submission,
paras. 699-701.
2634 European Union's first written submission, paras. 667 and 668; second written submission,
paras. 702 and 703.
2636 United States' first written submission, paras. 647-651; second written submission, paras. 600-604.
2637 European Union's first written submission, para. 663.
2638 United States' second written submission, para. 599.

programme2639, which Boeing would otherwise have to acquire at market rates, we find that the
Boeing workforce programme involves a financial contribution within the meaning of
Article 1.1(a)(1)(iii) and confers a benefit within the meaning of Article 1.1(b).
8.2.8.12.3.2 Whether the subsidy is specific
8.1067. With respect to specificity, the first issue raised by the parties' arguments is whether the
subsidy provided through the Boeing workforce programme is specifi c within the meaning of
Article 2.1(a). In support of its argument that the Boeing wo rkforce programme, provided through
readySC, involves a subsidy that is specific within the meaning of Article 2.1(a), the
European Union asserts that the South Carolina State Budget and Control Board enacted a special
resolution to provide special funding to the State Board for Technical and Comprehensive
Education for readySC, expressly earmarked for carrying out the Boeing workforce training,
recruitment, and development programme. 2640 The United St ates counters that the
European Union has failed to articul ate how this information is releva nt to an analysis under
Article 2.1(a).2641
8.1068. For the reasons detailed below, we conclude that the European Union has failed to
establish that the subsidy provided through the Boeing workforce programme is specific within the
meaning of Article 2.1(a). The European Unions ' sole argument in support of its position that the
subsidy provided through the Boeing workforce programme is specific under Article 2.1(a) is based
on a resolution adjusting the amount of funding appropriated to the Center for Accelerated
Technology Training (CATT) Program as a consequence of expenditures anticipated in relation to
Boeing's South Carolina operations. The resolution adopted on 23 February 2010 by the South
Carolina Budget and Control Board appro ved "an adjustment in state general fund appropriations
within the Center for Accelerated Technology Training Program at the State Board for Technical
and Comprehensive Education not to exceed $3,100,000".2642 The Board adopted this resolution in
response to a notification from the State Board for Technical and Comprehensive Education "of an
additional need in the CATT budget for FY 2009 -10 estimated at between $2,203,505 and
$3,100,000".2643 The need for this adjustment reflected "anticipated CATT expenditures f or the
Boeing Project which are estimated at $3,100,000 for the remainder of FY 2009 -10. This
USD 3.1 million includes expenses for training classes such as staffing, material and supplies,
testing and operations".2644
8.1069. However, since the evidence before the Panel shows that the measure at issue is
provided pursuant to a pre -existing broader subsidy programme 2645, the relevant question under
Article 2.1(a) is whether access to that subsidy programme is explicitly limited. The fact that the
resolution cited by the European Union adjusts appropriations to accommodate one specific
application of this broader programme is not evidence that access to the scheme as a whole is
explicitly limited to certain enterprises. In fact, the evidence indicates that no such limitat ion
exists. The resolution itself notes that the CATT Program "designs, develops and conducts training
for individuals seeking to fill jobs being created by new and expanding industries ".2646 Similarly,
the provision in the FY 2009-2010 Appropriation Act pursuant to which the resolution was adopted
states that "it is the intent of the General Assembly that the State Board for Technical and
Comprehensive Education expend whatever funds as are necessary to provide direct training for
new and expanding business o r industry".2647 There is nothing to suggest that the applicability of
this provision in the FY 2009 -2010 Appropriation Act is limited to certain enterprises. Aside from

2639 See, in particular, United States' response to the Panel's request for information pursuant to
Article 13 of the DSU, dated 28 February 2013, response to question No. 77, paras. 163-169.
2640 European Union's first written submission, para. 667; second written submission, para. 702.
2641 United States' first written submission, para. 648.
2642 State Budget and Control Board, Meeting Agenda, Regular Session Item No. 2, 23 February 2010,
(Exhibit EU-537), pdf p. 2.
2643 State Budget and Control Board, Meeting Agenda, Regular Session Item No. 2, 23 February 2010,
(Exhibit EU-537), pdf p. 2.
2644 State Budget and Control Board, Meeting Agenda, Regular Session Item No. 2, 23 February 2010,
(Exhibit EU-537), pdf p. 2.
2645 See, in particular, readySC, "About Us", available at <www.readysc.org/about.htm>, accessed
1 September 2016, (Exhibit USA-240); and readySC, Annual Report, FY 2010-2011, (Exhibit USA-225).
2646 State Budget and Control Board, Meeting Agenda, Regular Session Item No. 2, 23 February 2010,
(Exhibit EU-537), pdf p. 2. (emphasis added)
2647 State Budget and Control Board, Meeting Agenda, Regular Session Item No. 2, 23 February 2010,
(Exhibit EU-537), pdf p. 9. (emphasis added)

its argument based on the resolution of 23 February 2010, the European Union has advanced no
other argument to show that the eligibility for the workforce development programme is expressly
limited to certain enterprises. We therefore find the European Union has failed to establish that the
subsidy provided through the workforce development programme is specific within the meaning of
Article 2.1(a).2648
8.1070. The second issue raised by the parties ' arguments is whether the subsidy provided
through the Boeing workforce programme is specific within the meaning of Article 2.1(c). The
European Union argues that the challenged programme is specifi c within the meaning of
Article 2.1(c) on the grounds that Boeing is the predominant user of the subsidy and receives a
disproportionately large amount of the subsidy. In this respect the European Union contends that
the Boeing workforce programme accounted for more than one -third of all readySC expenditures
in 2010, that the training programme includes a focus on Boeing -specific job skills in the first
phase and is provided directly to post -hire Boeing employees in a third phase. Moreover, the
European Union argues that the granting authority has exercised its discretion in a manner
favouring Boeing, including by providing a more extensive set of services to Boeing and conducting
training on processes and equipment unique to Boeing.2649
8.1071. The United States counters that readySC, through which the Boeing workforce
programme is provided, is not used by a limited number of certain enterprises but rather works
with a number of businesses and industries in any given year. In fi scal year 2010-2011, readySC
trained 5 ,872 workers for 73 companies, and 4 ,400 workers for 82 companies in the following
fiscal year. While readySC will train 3 ,600 workers for Boeing in total, it has trained 270 ,000
workers during the course of its existe nce.2650 Similarly, Boeing is not the predominant user of the
programme, since Boeing 's usage of the programme over the course of any particular year does
not make it the main or most frequent user of a long -established programme.2651 Finally, the fact
that readySC conducts training on processes and equipment unique to Boeing is no indication that
discretion has been exercised in a manner indicating specificity, since the programme provides
training and skills that are designed for the particular needs of all participating companies.2652
8.1072. For the reasons detailed below, we consider that the European Union has failed to
establish that the subsidy provided through the Boeing workforce programme is specific within the
meaning of Article 2.1(c). In light of the fact that the readySC programme has existed for over half
a century, we do not see any evidence before us to suggest that the programme is used by a
limited number of certain enterprises, that it is predominantly used by certain enterprises, that
disproportionately large amounts of subsidy have been granted to certain enterprises, or that
discretion has been exercised by the granting authority in a manner indicating specificity. In
particular, the fact that in one year of the programme 's over fifty -year existence , Boeing
accounted for more than one-third of all readySC expenditures, does not demonstrate that Boeing
is the predominant user of readySC, or that it receives a disproportionately large amount of the
subsidy. The European Union furthermore fails to conduct the kind of disproportionality analysis
that accords with the framework set out by the Appellate Body in the original proceeding. 2653
Moreover, the European Union has not established that discretion was exercised so as to limit
access to the subsidy programme to certain enterprises: the fact that the training focuses on
Boeing job skills and is provided directly to post -hire Boeing employees is irrelevant as an
indication of de facto specificity. The European Union further fails to provide any empirical
evidence in support of its contention that the services provided to Boeing were more extensive
than those provided to other firms. We therefore find that the European Union has failed to
establish that the subsidy provided through the Boeing workforce programme is specific
within the meaning of Article 2.1(c).

2648 We note that in the original proceeding the panel found certain Washington State job training
incentives to be a specific subsidy, within the meaning of Article 2.1(a) of the SCM Agreement. (See Panel
Report, US – Large Civil Aircraft (2nd complaint), paras. 7.568-7.572 and 7.590-7.594). However, the measure
at issue in that proceeding was not part of a pre-existing broader scheme, as is the case in this proceeding.
2649 European Union's first written submission, para. 668.
2651 United States' first written submission, para. 650 (referring to Panel Report, US – Large Civil Aircraft
2652 United States' first written submission, para. 651; second written submission, paras. 603 and 604.
2653 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 879.

8.1073. Finally, we note that the European Union also argues that the subsid y provided to Boeing
through the Boeing workforce programme is specific pursuant to Article 2.3 of the SCM Agreement.
Article 2.3 provides that "{a}ny subsidy falling under the provisions of Article 3 shall be deemed to
be specific". We reject this argument because in Section 10 of this Report we find that the
European Union has failed to establish that any subsidy at issue in this proceedin g is prohibited by
Articles 3.1 and 3.2 of the SCM Agreement.
8.2.8.12.4 Conclusion
8.1074. In light of our above findings, we conclude that the European Union has failed to establish
that the workforce recruitment, training, and development programme involves a specific sub sidy
within the meaning of Articles 1 and 2 of the SCM Agreement.
8.3 Summary of the Panel 's conclusions as to whether the United States has failed to
withdraw the subsidy within the meaning of Article 7.8 of the SCM Agreement
8.1075. In Section 8.1 of the Report, we evaluate whether the United States has failed to
withdraw the subsidy through the modifications it made to the particular pre -2007 NASA and DOD
aeronautics R&D measures that were the subject of the DSB recommendations and rulin gs. As a
result of our evaluation, we f ind that the European Union has established that the amendments
made by the United States through the Boeing Patent Licence Agreements to the terms of the pre -
2007 NASA procurement contracts and DOD assistance instruments do not constitute a withdrawal
of the subsidy within the meaning of Article 7.8 of the SCM Agreement. With respect to the pre -
2007 Space Act Agreements, we f ind that the European Union has established that the United
States, having taken no action in respect of those instruments, has failed to withdraw the subsidy
within the meaning of Article 7.8 of the SCM Agreement.
8.1076. In Section 8.2 of the Report , we evaluate whether the United States has failed to
withdraw the subsidy by granting or maintaining post-2006 measures alleged to constitute specific
subsidies within the meaning of Article 1 and 2 of the SCM Agreement. As a result of our
evaluation, we f ind that the European Union has established that the following measures invol ve
specific subsidies within the meaning of Articles 1 and 2 of the SCM Agreement, and that by
granting or maintaining these specific subsidies after the end of the implementation period, the
United States has failed to withdraw the subsidy within the mean ing of Article 7.8 of the SCM
Agreement:
a. certain transactions between NASA and Boeing pursuant to post -2006 NASA
procurement contracts, cooperative agreements, and Space Act Agreements ; while we
are unable to estimate the amount of the subsidy on the basis of the evidence on the
record, to the extent it is relevant to the Panel's a ssessment of whether the
United States has withdrawn the subsidy , or taken appropriate steps to remove the
adverse effects, within the meaning of Article 7.8 of the SC M Agreement, we find the
United States' estimate of the amount of the financial contribution at [***] between
2007 and 2012 to be the most credible estimate (Section 8.2.2);
b. certain transactions between DOD and Boeing pursuant to post -2006 DOD assistance
instruments; while we are unable to estimate the amount of the subsidy on the basis of
the evidence on the record, to the extent that it is relevant, we find the United States'
estimate of the amount of the financial contribution at [***] between 2007 and 2012 to
be the most credible estimate (Section 8.2.3);
c. transactions pursuant to the Boeing CLEEN Agreement; while we are unable to estimate
the amount of the subsidy on the basis of the evidence on the record, to the extent that
it is relevant, we find the European Uni on's estimate of th e amount of the financial
contribution at USD 27.99 million between 2010 and 2014 to be a credible estimate
(Section 8.2.4);
d. Washington State B&O tax rate reduction for the aerospace industry, in the amount of
USD 325 million between 2013 and 2015 (Section 8.2.7);

e. Washington State B&O tax credits for preproduction/aerospace product development, as
amended by section 7 of SSB 6828, in the amount of [***] between 2013 and 2015
(Section 8.2.7);
f. Washington State B&O tax credit for property ta xes, as amended by HB 2466 to include
leasehold excise taxes, in the amount of [***] between 2013 and 2015 (Section 8.2.7);
g. Washington State sales and use tax exemptions for computer software, hardware, and
peripherals, in the amount of [***] between 2013 and 2015 (Section 8.2.7);
h. City of Everett B&O tax rate reduction, in the amount of USD 54.1 million between 2013
and 2015 (Section 8.2.7);
i. payments by South Carolina pursuant to commitments made in the Project Gemini
Agreement to compensate Boeing for a portion of the costs incurred by Boeing in respect
of the construction of the Project Gemini facilities and infrastructure through air hub
bond proceeds, in the amount of USD 50 million (Section 8.2.8.6);
j. South Carolina property tax exemption for Boeing's large cargo freighters, in the amount
of USD 25.82 million between 2013 and 2015 (Section 8.2.8.10); and
k. South Carolina sales and use tax exemptions for aircraft fuel, computer equipment , and
construction materials, in the amount of USD 2.25 million between 2013 and 201 5
(Section 8.2.8.11).
8.1077. We also find that the European Union has failed to establish that the following measures
involve specific subsidies within the meaning of Articles 1 and 2 of the SCM Agreement, and that
the European Union has consequently failed to establish that by granting or maintaining these
specific subsidies after the end of the implementation p eriod, the United States has failed to
withdraw the subsidy within the meaning of Article 7.8 of the SCM Agreement:
a. certain transactions between DOD and Boeing pursuant to pre-2007 and post-2006 DOD
procurement contracts, on the grounds that, assuming arguendo that these measures
involve financial contributio ns within the meaning of Article 1.1(a)(1) of the SCM
Agreement, the European Union has failed to establish that they confer a benefit within
the meaning of Article 1.1(b) of the SCM Agreement (Section 8.2.3);
b. tax exemptions and exclusions under FSC/ETI legislation and successor legislation, on
the grounds that the European Union has failed to establish that Boeing actually received
the FSC/ETI tax benefits after 2006, and that the measure therefore involves a financial
contribution within the meaning of Article 1.1(a)(1)(ii ) of the SCM Agreement
(Section 8.2.5);
c. tax abatements provided through IRBs issued by the City of Wichita, on the grounds that
these tax abatements are no longer specific within the meaning of Article 2.1(c) of t he
SCM Agreement and, as a result, the measure is no longer subject to the provisions of
the SCM Agreement on actionable subsidies (Section 8.2.6);
d. South Carolina sublease of the Project Site, on the grounds that the European Union has
failed to establish that the sublease involves a subsidy to Boeing (Section 8.2.8.5);
e. alleged provision by South Carolina of Gemini and Emerald facilities and infrastructure,
on the grounds that the European Union has failed to establish that th is measure
involves a financial contribution within the meaning of Article 1.1(a)(1)(iii) of the SCM
Agreement (Section 8.2.8.6);
f. South Carolin a fee -in-lieu-of taxes arrangements set forth in the Boeing F ILOT
Agreement and Project Emerald F ILOT Agreement, on the grounds that the
European Union has failed to establish that the subsidy provided through these
arrangements is specific within the mean ing of Article 2 of the SCM Agreement
(Section 8.2.8.7);

g. South Carolina corporate income tax credits in connection with the designation of the
Project Gemini and Project Emerald facilities and infrastructure as part of the same
multi-county industrial park , on the grounds that the European Union has failed to
establish that the subsidy provided through the tax credits is specific within the meaning
of Article 2 of the SCM Agreement (Section 8.2.8.8);
h. South Carolina Income Allocation and Apportionment Agreement, on the grounds that
the European Union has failed to establish that the agreement involves a financial
contribution within the meaning of Article 1.1(a)(1)(ii ) of the SCM Agreement
(Section 8.2.8.9); and
i. South Carolina workforce recruitment, training and development programme, on the
grounds that the European Union has failed to establish that the subsidy provided
through this programme is specific within the meaning of Article 2 of the SCM Agreement
(Section 8.2.8.12).
9 WHETHER THE UNITED ST ATES HAS FA ILED TO TAKE APPROPR IATE STEPS TO
REMOVE THE ADVERSE E FFECTS, WITHIN THE MEANING O F ARTICLE 7.8 OF THE SCM
AGREEMENT
9.1 Introduction
9.1. In this Section of the Re port, we assess whether the United States has failed to take
appropriate step s to remove the advers e effects , within the meaning of Article 7.8 of the SCM
Agreement, in relation to the measures that we have ruled are within the scope of this proceeding,
and which are specific subsidies that have not been withdrawn for purposes of Article 7.8.
9.2. The European Union argues that the subsidies that the United States has failed to withdraw,
and which it grants and maintains at the end of the implementation period , cause present adverse
effects, in the form of certain kinds of serious prejudice to the interests of the European Union ,
within the meaning of Articles 5(c) and 6.3 of the SCM Agreement, after the end of the
implementation period. Accordingly, the United States has failed to comply with the DSB
recommendations and rulings and has acted inconsistently wi th Articles 5, 6, and 7.8 of the SCM
Agreement. The United States argues that it has withdrawn the subsidy in relation to the three
measures the subject of the DSB recommendations and rulings of any significance (the NASA
procurement contracts, DOD assista nce instruments, and the FSC/ETI subsidies) and that the
minor subsidies (Washington State B&O tax rate reduction and tax abatements provided through
the City of Wichita IRBs) are not of a magnitude that they could plausibly cause adverse
effects.2654 The European Union therefore does not establish its case that "the United States grants
and maintains subsidies to Boeing after the end of the implementation period that cause present
adverse effects."2655
9.3. In Section 6, we explain that, in light of how the European Union has framed its case, our
task in this proceeding is to determine, for the subsidies that the United States has failed to
withdraw after the end of the implementation period, whether the subsidies cause present adverse
effects, in the form of certain kinds of serious prejudice to the interests of the European Union,
within the meaning of Articles 5(c) and 6.3 of the SCM Agreement.
9.4. With respect to subsidies to the 787 and 777X alleged to affect the A350XWB and A330, the
European Union argues2656:
a. That the combined effects of certain aeronautics R&D subsidies that improve the quality
and accelerate the launch and delivery positions of the 787 fami ly and 777X, and other

2654 United States' Compliance Communication, paras. 9-11; first written submission, para. 679.
Moreover, with respect to the tax abatements related to the City of Wichita IRBs, the United States argues that
it has withdrawn the subsidy because it is no longer specific. (United States' opening statement at the meeting
with the Panel, paras. 94 and 99).
2655 United States' first written submission, para. 679 (quoting European Union's first written
submission, para. 790).
2656 European Union's first written submission, section VII.H.

subsidies that enable Boeing to lower the prices of these aircraft , collectively, are a
genuine and substantial cause of:
i. Significant lost sales of the A350XWB, within the meaning of Article 6.3(c) of the
SCM Agreement, and threat thereof.
ii. Impedance of imports of the A350XWB to the United States, within the meaning of
Article 6.3(a) of the SCM Agreement, and threat thereof.
iii. Impedance of exports of the A350XWB , within the meaning of Article 6.3(b) of the
SCM Agreement to various third-country markets, and threat thereof.2657
iv. Significant price suppression of the A350XWB, within the meaning of Article 6.3(c) of
the SCM Agreement, and threat thereof.
b. That the original adverse effects of the pre-2007 aeronautics R&D subsidies in respect of
the A330 and Original A350 continue in the post-implementation period as:
i. Significant price suppression of the A 330 through orders of A330 LCA placed during
the 2004-2006 reference period (owing to deliveries of those aircraft occurring later,
along with the prices fixed at that time through options and purchase rights
exercised later, as well as "follow-on" orders based on A330 pricing expecta tions
from 2004-2006); and post-2006 A330 orders by all other customers.
ii. Significant price suppression of the A350XWB ( based on Original A350 orders
converted to A350XWB orders and on new A350XWB orders).
iii. Significant lost sales of the A350XWB, in that the adverse effects arising from sales
of the 787 that were the basis for lost sales findings for the Original A350 (and also
the other alleged Original A350 lost sales that were not resolved) in the original
proceeding, continue a t present to the extent those aircraft have not yet been
delivered.
iv. Significant lost sales of the A350XWB after the original reference period (i.e.
post-2006), to the extent that the relevant Boeing LCA remain undelivered.
v. Threat of impedance of exports of the A350XWB resulting from 787 deliveries, the
result of Original A350 lost sales in the original reference period, occurring in the
post-implementation period.
9.5. With respect to subsidies to the 737 MAX alleged to affect the A320neo, the European Union
argues that the combined effects of: (a) certain aeronautics R&D subsidies that enhance the
quality and enable the earlier availabil ity of the 737 MAX ; and (b) other subsidies that enable
Boeing to lower the prices of the 737 MAX, collectively, are a genuine and substantial cause of2658:
a. Significant lost sales of A320neo , within the meaning of Article 6.3(c) of the SCM
Agreement, and threat thereof.
b. Threat of impedance of future A320neo imports to the United States market , within the
meaning of Article 6.3(a) of the SCM Agreement, and threat of impedance of future
A320neo exports to various third-country markets, within the meaning of Article 6.3(b)
of the SCM Agreement.

2657 Based on the causal mechanisms that the European Union argues indicate higher counterfactual
sales volumes and market shares for Airbus, absent the U.S. subsidies, and on evidence of alleged lost sales of
Airbus LCA in relevant country markets, as well as evidence that in the European Union's view demonstrates
that Boeing is projected to make significantly more than 50% of present and future deliveries of "new
technology, twin-aisle" aircraft into these markets. (European Union's first written submission, paras. 1592,
1593, 1598, and 1599; second written submission, paras. 1551-1553 and 1560-1563; and response to Panel
question No. 169, paras. 468, 469, 476, and 477).
2658 European Union's first written submission, section VII .I.

c. Significant price suppression of the A320neo , within the meaning of Article 6.3(c) of the
SCM Agreement, and threat thereof.
9.6. With respect to subsidies to the 737NG alleged to affect the A320ceo , the European Union
argues that the subsidie s that enable Boeing to lower the prices of the 737NG, collectively, are a
genuine and substantial cause of2659:
a. Significant lost sales of the A320ceo , within the meaning of Article 6.3(c) of the SCM
Agreement, and threat thereof.
b. Displacement, impedance , and/or threat s thereof, of A320ceo imports to the United
States market , within the meaning of Article 6.3(a) of the SCM Agreement, and of
A320ceo exports to various third country markets , within the meaning of Article 6.3(b)
of the SCM Agreement.
c. Significant price suppression of the A320ceo, and threat thereof.
9.7. As in the original proceeding, the European Union's seriou s prejudice arguments focus on the
effects of the subsidies on Airbus' prices and sales through their effects on Boeing's product
development and prices.2660 Accordingly, with the exception of an additional argument regarding
the continuation of the original adverse effects of the pre -2007 aeronautics R&D subsidies
described in item (b) in paragraph 9.14 below, the European Union's serious prejudice claims
under Article 6.3 involve two phases of analysis:
a. how certain subsidies aff ected Boeing's product development behaviour (for subsidies
alleged to operate through a "technology causal mechanism"), and how certain other
subsidies affected Boeing's LCA pricing behaviour (for subsidies alleged to operate
through a "price causal mechanism"); and
b. how the effects of the subsidies on Boeing's product development and pricing collectively
thereby affect Airbus sales and prices in the post -implementation period, as empirically
demonstrated on the basis of the evidence of Boeing and Airbus prices and sales.
9.8. The parties' arguments on whether the United States has taken appropriate steps to remove
the adverse effects , within the meaning of Article 7.8 of the SCM Agreement , reveal significant
disagreement on a number of issues. They disagree , for example, on the delineation of the
relevant product markets for analysing the European Union's serious prejudice claims, and more
particularly, whether the A330 and 777 compete with the "new technology" wide -body, twin-aisle
LCA (i.e. the 787, 777X and A 350XWB), and whether the A320ceo and 737NG compete with the
"new technology" single-aisle, narrow-body LCA (i.e. the 737 MAX and A320neo).
9.9. The parties also disagree as to how the various subsidies should be collectively assessed for
purposes of determining whether they are a genuine and substantial cause of serious prejudice, as
well as the standard for determining whether subsidies are a genuine cause of serious prejudice.
9.10. The parties disagree on whether the aeronautics R&D subsidies that are alleged to o perate
through a technology causal mechanism do in fact affect Boeing's product development of LC A in
the post-implementation period, as well as how that evaluation should be undertaken. They also
disagree as to the operation of the post -2006 subsidies, an d more particularly, whether such
subsidies, in light of their magnitude, structure and operation, and the relevant conditions of
competition, do in fact affect Boeing's LCA pricing behaviour in a manner that renders them
capable of causing the various Article 6.3 market phenomena.

2659 European Union's first written submission, section VII.J.
2660 See Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1657. The European Union
explains that, in following a "unitary" approach to demonstrating the adverse effects of the subsidies, it first
sets out the nature of the subsidies and how they affect, in light of the conditions of competition, the
commercial behaviour of Boeing. On that basis, the European Union then seeks to establish the particular
market phenomena in Article 6.3 for the various Airbus products and the markets in which they compete.
(European Union's first written submission, para. 796).

9.11. The European Union generally presents arguments concerning the effects of the subsidies
on Boeing's product development and pricing behaviour on a horizontal basis. This means that the
European Union seeks to demonstrate that the pre-2007 aeronautics R&D subsidies affect Boeing's
product development , and that the post -2006 subsidies affect Boeing's LCA pricing behaviour 2661,
based on the nature of the particular subsidy or group of subsidies at issue, rather than the
particular Boeing LCA said to be subsidized by the various subsidies in combination. 2662 Based on
conclusions that the European Union draws from the effects of the subsidies at issue on Boeing's
technology development and pricing behaviour, respectively, the European Union then presents
arguments that , collectively, the subsidies adversely impact competing Airbus LCA in the
post-implementation period.
9.12. The Panel has decided to address the European Union's arguments concerning the effects of
the various subsidies on Boeing's product development and pricing behaviour in the context of the
particular LCA product markets and the particular Boeing LCA that are said to benefit from the
subsidies. It is only in the context of the particular LCA and product markets that the Panel is able
to meaningfully evaluate whether subsidies that may, in the abstract, be argued to affect Boeing's
product development and pricing behaviour, do in fact have those alleged effects in relation to
particular Boeing LCA. Once we determine that a subsidy or aggregated group of subsidies has
affected the technological development or prices of a particular Boeing LCA family, we then
consider how such effects have impacted the sales and prices of the competing Airbus aircraft in
that product market.
9.13. In Section 9.2 we begin by addressing various factors that provide necessary background
for our consideration of the case: (a) developments in the LCA industry since the original
proceeding and the implications of these developments f or the appropriate LCA product market
delineation in this proceeding; (b) the concept of price in the context of the LCA markets and the
way in which airframe manufacturers such as Boeing set their LCA prices; (c) the standard of
causation and related issu e of the subsidies that may appropriately be aggregated in order to
assess their effects in an integrated manner; and (d) the relevant time -period over which to
assess whether the non -withdrawn subsidies cause serious prejudice in the post -implementation
period.
9.14. We then address, i n Section 9.3, whether subsidies benefiting the 787 and 777X cause
serious prejudice in respect of the A350XWB and A330. Accordingly, we evaluate both aspects of
the European Union's serious prejudice case concerning the A350XWB and A330: (a) whether the
combined effects of: (i) pre-2007 and certain post-2006 aeronautics R&D subsidies alleged to
accelerate the launch and delivery positions of the 787 family and 777X , and (ii) the post -2006
subsidies alleged to enable Boeing to lower its prices, collectively, are a genuine and substantial
cause of various forms of serious prejudice in respect of the A350XWB and A330 in the post -
implementation period; and (b) whether the original adverse effects of the pre -2007 aeronautics
R&D subsidies on the A330 and Original A350 continue into the post -implementation period as
serious prejudice to the interests of the European Union in respect of the A350XWB and A330.
9.15. In Section 9.4 we address whether subsidies benefiting the 737 MAX and 737NG cause
serious prejudice in respect of the A320neo and A320ceo, respectively. This involves a
consideration of whether: (a) the combined effects of: (i) certain aeronautics R&D subsidies
alleged to improve the quality and accelerate the launch and delivery positions of the 737 MAX ,
and (ii) the post-2006 subsidies alleged to enable Boeing to lower its 737 MAX prices, collectively,
are a genuine and substantial cause of various forms of ser ious prejudice in relation to the
A320neo in the post -implementation period ; and (b) the post -2006 subsidies alleged to enable
Boeing to lower its 737NG prices, collectively, are a genuine and substantial cause of various forms
of serious prejudice in relation to the A320ceo in the post-implementation period.

2661 With the exception of a relatively small number of individual post-2006 aeronautics R&D subsidies,
which according to the European Union, operate through a technology causal mechanism in the same manner
as the pre-2007 aeronautics R&D subsidies. See paras. 9.85, 9.198, 9.199, 9.356, and 9.357 below.
2662 See e.g. European Union's first written submission, section VII.E (Technology Causal Mechanism)
and section VII.F (The U.S. Subsidies Cause Adverse Effects Through a Price Causal Mechanism) (dealing in a
horizontal fashion with the arguments concerning the technology causal mechanism and price causal
mechanism), compared to section VII.H (Effects of U.S. Subsidies Benefiting the 787 and 777X on the A330
and A350XWB), section VII.I (Effects of U.S. Subsidies Benefiting the 737 MAX on the A320neo), and
section VII.J (Effects of the U.S. Subsidies Benefiting the 737NG on the A320ceo) (dealing with the collective
effects of all of the subsidies benefiting the various Boeing aircraft on the competing Airbus aircraft).

9.2 Preliminary considerations relevant to the Pan el's evaluation of the
European Union's serious prejudice case
9.2.1 Developments in the LCA industry since the original proceeding and their
implications for the identification of the relevant LCA product markets
9.16. In this Section, we describe developments in the LCA industry since the original proceeding
in order to determine whether the Panel should assess the competitive impact of U.S. subsidies
benefiting certain Boeing LCA on the basis of the LCA product markets identified by the original
panel, or on the basis of differently delineated product markets. The two main issues that arise are
whether current conditions of competition mean that existing and new tech nology aircraft of
similar capacity, range and maximum take -off weight (MTOW) no longer exercise meaningful
competitive constraints upon one another, and are more appropriately considered to occupy
distinct product markets, and whether the trend towards la rger variants of wide -body, twin-aisle
LCA means that it is no longer meaningful to apply the 200 -300 seat and 300 -400 seat product
market delineation that the original panel adopted.
9.17. In the original proceeding, the panel described certain key features of the LCA markets in
which Boeing and Airbus LCA compete. According to the European Union, f or the most part, these
features remain unchanged. 2663 Thus, the LCA industry is effectively a competitive, supply -side
duopoly, in which Boeing and Airbus are the only manufacturers of LCA. 2664 Boeing and Airbus
each holds significant market share and possess es a degree of market power, meaning that each
manufacturer's decisions regarding the supply and pricing of its products have the ability to
influence the pricing of the other, and more generally, the market price for LCA.2665 Overall market
demand for LCA is understood to be fairly inelastic with respect to price, due to the lack of viable
alternatives to LCA and the cost of the aircraft itself representing only a small p ortion of total
airline operating costs. However, individual firms, such as Boeing and Airbus, face elastic demand
for their individual LCA products, given the ability of customers to negotiate significant discounts
on LCA, exploiting the substitutability of aircraft from the two suppliers.2666
9.18. Technological innovation is a crucial element of competition between LCA manufacturers.2667
The marketing life of an aircraft is determined largely by the life of the technology that defines the
model. Once the technology is superseded, the LCA manufacturer will no longer be able to sell the
model without making major capital investments to incorporate the latest available
technologies.2668
9.19. Given the enormous costs associated with the development of a new LCA family, both
Airbus and Boeing are necessarily limited in the number of different LCA families (including size
variants within an LCA family) that they are able to offer customers. Each LCA family, therefore, is
ideally optimised in terms of size and range (among other fa ctors) to cover as wide a base of
customer needs as possible. B oth Airbus and Boeing design the physical characteristics of their
LCA families in consultation with , and according to the needs of , airlines and leasing companies,
and as a result have develop ed broadly similar LCA families with overlapping physical
characteristics and customer end -uses.2669 Airbus and Boeing each offers a full line of LCA, and
both manufacturers source material and technology worldwide, often from the same suppliers. 2670
At the same time, Airbus and Boeing compete by differentiating their aircraft, optimising new size
variants to fill existing gaps in the market.

2663 European Union's first written submission, para. 839.
2664 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1688; and Appellate Body Report, US
– Large Civil Aircraft (2nd complaint), para. 903. While certain manufacturers other than Boeing and Airbus
have attempted to produce single-aisle LCA (notably Bombardier, Embraer, Comac, and United Aircraft
Corporation), their market shares and product ranges are limited.
2665 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1688; and Appellate Body Report, US
2666 Moreover, used aircraft can represent a viable alternative for some customers also, contributing to
pressure on LCA manufacturers to price their new LCA near competitive levels. (M. Baye, NERA, Response to
the EU's Allegations Regarding the Nature and Effect of U.S. Aeronautics R&D Subsidies to Boeing
(6 October 2015) (Baye Report), (Exhibit USA-581), para. 9 and fn 6).
2667 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1769.
2668 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1651.
2669 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 903.
2670 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 903.

9.20. Aircraft acquisitions form the key element of an airline's business and strategic plan. 2671
Every LCA sales campaign involve s a unique focus on the needs of the particular airline or leasing
company. Airlines generally evaluate the competing Airbus and Boeing offers according to factors
such as price and pricing expectations, direct operating costs, capacity differences, dates of
delivery, options, asset value expectations, residual value assumptions, disposal of used aircraft,
the "family concept", engine manufacturers, guarantees, support, financing, cost of change , and
cost of diversifying and subjective factors. 2672 While diffe rences in price, capacity and direct
operating costs generally are the most significant factors that determine the outcome of an LCA
sales campaign, the significance of those factors in any LCA sales campaign varies depending on
the fleet and business plans of the customer, and its strategic goals.2673
9.21. During an LCA sales campaign, the customer will conduct its own technical and economic
evaluations of each LCA manufacturer's proposal, and assess the total cost and anticipated
revenue stream presented by the particular proposal. This evaluation involves arriving at an
estimate of the present value of costs associated with the acquisition of a new fleet of aircraft (e.g.
price, maintenance costs, direct and indirect operating costs, financing, training costs) a gainst the
present value of the revenue stream that would be expected to be generated by the proposed
fleet. The resultant calcul ation is the net present value (NPV) to the customer. Price concessions
made by the manufacturer can offset disadvantages assoc iated with certain "non -price" factors
that are part of the NPV calculation, but offsetting certain non -price factors through price
concessions can, in certain cases, be costly.2674
9.22. In the original proceeding, the panel found that the market for LCA is a glo bal market
geographically, and neither party disputes that this remains the case. 2675 The European
Communities had presented its original case on the basis that there were five LCA product
markets, of which the following three LCA product markets and aircraft were relevant to its
claims2676:
a. Single-aisle aircraft with a capacity of approximately 100 to 200 passengers in a
two-class configuration, and a short to medium range. The relevant Boeing and Airbus
aircraft in this LCA product market were the 737NG and A3 20ceo families of LCA,
respectively.
b. Wide-body aircraft with a capacity of approximately 200 to 300 passengers in a
three-class configuration, and a medium to long or ultra-long range. The relevant Boeing
aircraft in this LCA product market were the 767 an d the 787 -8. The relevant Airbus
aircraft in this LCA product market were the A330 and A350XWB-800.

2671 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1693. Airlines either purchase new
LCA outright from Boeing or Airbus, finance purchases through instruments such as finance leases, lease the
aircraft that they operate, or purchase used aircraft from other airlines or leasing companies.
2672 Statement of C. Mourey, "Current Competitive Conditions in the LCA Industry", 27 March 2013
(Mourey Statement), (Exhibit EU-34) (BCI), para. 44. The "family concept" refers to LCA manufacturers'
practice of offering several derivatives of one base LCA, generally with limited differences in the airframe
(aside from its length), on-board systems, cockpits and handling qualities. This concept reduces costs by
allowing flight crews to operate a range of LCA, since the training and licensing requirements qualify crews to
shift from one aircraft to another within the same family. (Mourey Statement, (Exhibit EU-34) (BCI), para. 55).
The subjective factors that influence an airline customer or leasing company's evaluation of Airbus and Boeing
offers include the impact on the image of an airline of flying a particular LCA, value of product features such as
cabin width and aesthetics, the long-term viability of the product and manufacturer, long-term risks of new
technologies and materials and risks associated with a single engine choice. (Mourey Statement, (Exhibit
EU-34) (BCI), para. 61).
2673 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1694. Direct operating costs include
fuel burn, maintenance costs, user charges (e.g. take-off, landing, and navigation fees), and costs for crew.
According the Airbus' Christophe Mourey, direct costs are almost always among the crucial factors analysed by
airlines in purchasing LCA. Together with the capital costs of the aircraft, direct costs determine the cost basis
of the airline, and thus have a significant impact on its profitability. (Mourey Statement, (Exhibit EU-34) (BCI),
para. 47).
2674 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1694.
2675 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1671.
2676 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1669 and 7.1670. The two other
LCA product markets not relevant to the original proceeding are: (a) wide-body aircraft with a capacity of 400
to 500 passengers in a three-class configuration (or the respective cargo equivalent) and a long range; and (b)
super wide-body aircraft with a capacity in excess of 500 passengers in a three-class configuration (or the
respective cargo equivalent), and a long range.

c. Wide-body aircraft with a capacity of approximately 300 to 400 passengers in a
three-class configuration, and a long or ultra -long range. The relevant Boein g aircraft in
this LCA product market were the 777 family of LCA. The relevant Airbus aircraft in this
LCA product market were the A340 and A350XWB-900 and A350XWB-1000 families.
9.23. The panel evaluated the European Communities' serious prejudice claims on the basis of the
LCA product markets it had identified and the three groups of "subsidized" Boeing LCA which
corresponded to three groups of Airbus "like" products in each product market. 2677 Neither party
appealed this aspect of the original panel's serious pre judice evaluation and the Appellate Body
considered the European Union's appeal on the basis of these LCA product markets. Since 2006
(the end of the reference period in the original proceeding) there have been important
developments in the LCA product mar kets; notably, the launch of new single -aisle and wide-body
LCA incorporating new generation technologies, which are intended ev entually to supersede
existing current generation aircraft marketed by both Boeing and Airbus.
9.24. With regard to wide -body LCA, Bo eing continues to produce the 767, although it receives
limited orders. 2678 Airbus continues to produce the A330, which has two size variants, the
A330-200 and the A330-300.2679 As described in the original proceeding, the 787 programme was
launched by Boeing in 2004, and in response, Airbus launche d the A350XWB programme in
late 2006.2680 The 787 family has three size variants; the 787 -8, which is the Boeing aircraft
closest in size (as represented by maximum seat number) to the A3 30-200, while the 787 -9 is
closest in size to the A330 -300. The 787 -10, launched in June 2013, is close in size to the 777 -
200ER which, along with the 777 -300ER, is in the process of being replaced by two larger size
variants, the 777 -8X and the 777 -9X.2681 The A350XWB family also has three s ize variants, the
A350XWB-800, the A350XWB -900, and the A350XWB -1000. The A350XWB -1000 is roughly
equivalent in size to the new 777 -8X, the A350XWB-900 to the 787-10 (and the 777-200ER), and
the A350XWB-800 to the 787-9.2682 The 777X was formally launched in November 2013, although
Boeing has had authorization to offer the 777X in sales campaigns and take commitments to
purchase since May 2013. 2683 The new 777 -9X (which is replacing the 777 -300ER) has no
equivalently-sized Airbus competitor.2684
9.25. Table 4 below provides a comparison of the existing and new technology Airbus and Boeing
wide-body, twin-aisle LCA at issue in this proceeding, based on seating capacity, MTOW, range and
list price.

2677 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1672.
2678 According to Christophe Mourey, the 767 averages eight aircraft per year since the beginning of
2007, although the Tanker version of the 767 recently won a major contract from the U.S. Air Force. (Mourey
Statement, (Exhibit EU-34) (BCI), para. 95). Boeing's 767 assembly line includes a 767 derivative to support
the military aircraft refuelling tanker programme. In its 2014 Annual Report, Boeing reported that in
October 2014 it increased its combined tanker and commercial production rate from 1 to 1.5 per month and
planned to increase to two per month in 2016. (Subsidies to Boeing's LCA Division (2013-2014 Update),
(Exhibit EU-1451), annex A: Boeing's Annual Report on Form 10-K for the fiscal year ended
31 December, 2014, p. 28).
2679 While the original panel found, among other things, that A330 prices and sales in the 2004-2006
reference period were adversely affected by the launch of the 787 in 2004, in more recent years the A330
appears to have enjoyed significant sales. (See Mourey Statement, (Exhibit EU-34) (BCI), paras. 97 and 116).
Further, Airbus launched the A330neo family (comprising the A330-800neo and A330-900neo), a re-engined
version of the A330 which features certain other incremental innovations. (See Airbus Press Release, "Airbus
launches the A330neo", 14 July 2014, (Exhibit EU-1667)). At the time of launch in July 2014, Airbus expected
that deliveries of the A330neo would start in the final quarter of 2017.
2680 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1777.
2681 D. Tsang, "Boeing 777X & 787-10X unfazed by 787 battery woes", Aspire Aviation,
14 February 2013, (Exhibit EU-611); and "787-10 to come later than suggested", Leeham, News and
Comment, 14 August 2012, (Exhibit EU-612).
2682 Boeing Press Release, "Boeing Launches 777X with Record-Breaking Orders and Commitments",
17 November 2013, (Exhibit EU-1299), p. 2.
2683 D. Gates, "Boeing to offer 777X for sale as launch nears", Seattle Times, 1 May 2013, (Exhibit
EU-1300).
2684 Boeing Press Release, "Boeing Launches 777X with Record-Breaking Orders and Commitments",
17 November 2013, (Exhibit EU-1299), p. 2.

Table 4: Airbus and Boeing wide-body, twin-aisle aircraft compared on the basis of
seating capacity, MTOW, range and price2685
LCA model Seats MTOW (t) Range
(nautical miles)
List price
(USD millions)
787-8 246 227.93 7,350 206.8

A330-200 246 238.00 6,850 208.6

A350XWB-800

276 259.00 8,200 245.5
787-9 280 247.21 7,600 243.6

A330-300 300 235.00 5,600 231.1

777-200ER 302 297.55 7,350 258.8

A350XWB-900 315 268.0 7,750

277.7
787-10 300-330 250.8 7,000 290

777-300ER 360 351.53 7,650 315

A350XWB-1000 369 308.0 8,000

320.6
777X (8) 350 315 9,300 349.8

777X (9) 400 344 8,200 377.2

9.26. There have also been developments in the single -aisle LCA offered by Boeing and Airbus,
driven largely by advances in engine technologies. In December 2010, Airbus launched a
re-engined A320 f amily aircraft (A319, A320, and A321 models) as a new engine option (neo)
family. First deliveries were scheduled for October 2015. Some eight months later, in August 2011,
Boeing launched an allegedly similarly fuel -efficient, improved version of its 737N G family with
new engines, the 737 MAX family, with first deliveries scheduled for 2017.2686
9.27. The European Union argues that there have been a number of other developments in the
LCA markets since 2006 that complement the launches of the new generations of LC A and impact
the competitive relationships among the relevant Boeing and Airbus LCA, warranting a different
delineation of the relevant LCA product m arkets from that adopted by the panel in the original
proceeding.2687 More specifically, the European Union po ints to rising fuel prices, which have
incentivized airlines to update their older fleets with new, more technologically advanced , fuel
efficient aircraft. New technology aircraft, however, are only available for deliveries in the long -
term, whereas exist ing technology aircraf t are still available for short -term delivery needs. 2688
Further, increasing congestion and slot constraints at hub airports, resulting from growing air

2685 The data in Table 4 above is compiled from the following evidence; seating capacity: Boeing Press
Release, "Boeing Launches 787 -10 Dreamliner", 18 June 2013, (Exhibit EU -1159) for 787-10; Boeing website,
"777X Gallery Experience", "777X Details & Specifications", (Exhibit EU -1302) for 777X8 and 9; and Mourey
Statement, (Exhibit EU-34) (BCI) for all other LCA models; MTOW: D. Tsang, "Boeing 777X & 787-10X unfazed
by 787 battery woes", aspire aviation , 14 February 2013, (Exhibit EU -611) for 787 -10, 777X8 and 9; and
Mourey Statement, (Exhibit EU -34) (BCI) for all other LCA models; range: Boeing Press Release, "Boeing
Launches 787 -10 Dreamliner", 18 Jun e 2013, (Exhibit EU -1159) for 787 -10; Boeing website, "777X Gallery
Experience", "777X Details & Specifications", (Exhibit EU -1302) for 777X8 and 9; and Mourey Statement,
(Exhibit EU-34) (BCI) for all other LCA models; and list price: Boeing Press Release, "Boeing Launches New
Commercial Airplane; Highlights Innovation, Efficiency and Partnerships a t 2013 Paris Air Show",
20 June 2013, (EU -1184) for 787 -10 (2013 list price), obtained by dividing approximate list price values of
orders by number of aircraft ordered; Boeing website, "777X Gallery Experience", "777X Details &
Specifications", (Exhibit EU-1302) for 777X8 and 9 (2013 list prices); Boeing List Prices, (EU -1210) for 787-8,
787-9, 777 -200ER, and 777 -300ER (2012 list prices); and European Union's f irst written submission,
paras. 907, 918, and 923 for all Airbus models (2012 list prices).
2686 Mourey Statement, (Exhibit EU-34) (BCI), para. 81.
2687 European Union's first written submission, paras. 888-893.
2688 European Union's first written submission, paras. 889 and 890; and Mourey Statement, (Exhibit
EU-34) (BCI), paras. 11-35.

traffic demand, have increased the attractiveness of larger aircraft within each of the aircraft
families.2689
9.28. The European Union argues that as a result of the foregoing developments in the LCA
industry since 2006, the Panel should examine its claims in this proceeding on the basis of seven
(rather than five) current global product markets. This product market delineation is based on the
proposition that existing technology aircraft, which are less fuel efficient but avail able for earlier
delivery, and new technology aircraft , which are more fuel efficient but may not be available for
delivery for many years, despite their similarities in seating capacity, range, and MTOW, in fact do
not exercise meaningful competitive constraints on one another, and therefore are more
appropriately considered to compete in distinct LCA product markets. 2690 The European Union's
proposed delineation of the relevant LCA product markets is depicted below:
Table 5: The European Union's proposed product market delineation
European Union's proposed product market delineation in this compliance proceeding2691
Relevant product market Airbus LCA Boeing LCA
Single-aisle
Existing technology/near-term delivery

A320ceo family 737NG family
Single-aisle
New technology/late-term delivery

A320neo family 737 MAX family
Medium-sized twin-aisle
Existing technology/near-term delivery

A330 family N/A
Medium- and large-sized twin-aisle
New technology/late-term delivery
A350XWB-800
A350XWB-900
A350XWB-1000
787-8
787-9
787-10
777X
Large-sized twin-aisle
Existing technology/near-term delivery
N/A 777

9.29. The dif ferences between the product market delineation relied on by the panel in the
original proceeding, and the European Union's proposed product market delineation in this
proceeding can be illustrated as follows:

2689 European Union's first written submission, para. 889; and Mourey Statement, (Exhibit EU-34) (BCI),
paras. 11-35.
2690 European Union's first written submission, paras. 901-905 and 910-914.
2691 Accordingly, the European Union considers that the 767, A340, and Original A350 are no longer in
any LCA product market.

Table 6: Comparison of the product market delineation in the original proceeding with
the European Union's proposed product market delineation
Product market delineation in the
original proceeding
European Union's proposed product market
delineation in the compliance proceeding
100-200 seat single-aisle LCA
Single-aisle
Existing technology/near-term delivery
Single-aisle
New technology/late-term delivery
200-300 seat wide-body LCA
Medium-sized twin-aisle
Existing technology/near-term delivery
Medium- and large-sized twin-aisle
New technology/late-term delivery
300-400 seat wide-body LCA
Large-sized twin-aisle
Existing technology/near-term delivery

9.30. As can be seen from the above table, the European Union's proposed LCA product market
delineation essentially means that the single-aisle LCA product market would be divided into two
product markets (one for older technology, current generation LCA, and one for new t echnology,
new generation LCA). The 200-300 seat and 300 -400 seat wide-body, twin-aisle product markets
would be combined but then distinguished on the basis of the technological generation and
delivery availability. In other words, the European Union's proposed market delineation for wide -
body, twin-aisle LCA groups current generation, existing technology LCA in a medium-sized wide-
body segment with current generation, existing technology LCA in a large -sized wide -body
segment, neither of which compete s with any new technology, wide -body aircraft, and a new
technology wide-body segment that covers both medium wide-body LCA and large wide-body LCA.
9.31. The United States does not agree that the European Union's proposed LCA product markets
are an accurate reflection of LCA competition and considers that the Panel would be justified in
rejecting the European Union's adve rse effects claims becau se they are not based on valid
markets, within the meaning of Articles 6.3(a) through (c) of the SCM Agreement.2692
9.32. The European Union's proposed product market delineation raises two issues. The first is
whether the Eu ropean Union has demonstrated that existing and new technology aircraft, which
have different levels of fuel efficiency, but which otherwise have similar range, seating capacity,
and MTOW, compete in separate product markets. The second is whether it is appropriate to
abandon the original panel's delineation of the wide -body, twin-aisle aircraft product markets as
comprising separate product markets for smaller- and larger-sized twin-aisle aircraft, in favour of
the European Union's new approach, which treats all of th e new technology wide-body, twin-aisle
aircraft, regardless of variations in size, range, and MTOW, as competing in the same product
market.
9.33. As the Appellate Body has explained, the concept of serious prejudice relates to, and arises
out of, competitive engag ement in a market. 2693 In other words, a subsidiz ed product can only
cause serious prejudice to another product if the two products in question compete in the same
market.2694 In this proceeding, the European Union argues that subsidies to certain Boeing LCA
families cause serious prejudice in respect of certain Airbus LCA families. In order to assess these
claims it is necessary to determine that the particular Boeing LCA identified by the European Union
as the relevant "subsidized product" in fact compete (or potentially compete) in the same product
market as the Airbus LCA to which they are alleged to have caused serious prejudic e. The

2692 United States' first written submission, para. 695.
2693 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1119.
2694 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1119.

Appellate Body has provided guidance on how different product markets might be identified,
explaining that "two products would be in the same market if they were engaged in actual or
potential competition in that market". 2695 The Appellate Body said that this would be the case
when two products are "sufficiently substitutable so as to create competitive constraints on each
other".2696 The European Union's proposed product market delineation therefore raises the
question of whether, due to developments in the conditions of c ompetition in the LCA markets,
existing technology and new technology LCA of similar capacity, range, and MTOW have ceased to
exercise competitive constraints on each other, and as such now compete in separate product
markets, justifying a departure from the product market delineation on which the original panel
and Appellate Body based their analyses and findings.
9.34. Our review of the evidence demonstrates that , among the various single -aisle LCA, and
among various twin -aisle LCA, there is a high degree of similarity between Airbus and Boeing
products regardless of whether they are current or new generation models.2697 Specifically, old and
new generation aircraft of similar capacity, range , and MTOW share close similarities in seat
number, MTOW, length and wing-span.2698 This is more pronounced for single -aisle LCA, but there
is nonetheless also sufficient overlap across all tw in-aisle LCA models. While such similarities
between LCA of themselves are not necessarily determinative of whether the LCA in question place
meaningful competitive constraints on each other, they may well be di spositive where those
similarities also point to the products serving the same purpose in terms of the routes and
passenger volumes for which they are suitable, because they suggest that those LCA would likely
meet the specific requirements of the same customers. We also note that the Appellate Body has
specifically pointed to physical similarities between LCA as a relevant factor when determining the
demand-side substitutability of different aircraft.2699
9.35. The European Union's argument that existing technology and new technology aircraft
occupy separate product markets relies primarily on the evidence of Christophe Mourey, Senior
Vice President Contracts at Airbus (the Mourey Statement ).2700 The Mourey Statement explains
that airlines purchase LCA for specific missio ns, based on the timing, range, and passen ger
demand in the airline's route network. The suitability of an LCA model for a specific mission
depends primarily on its direct operating costs, size and range. These qualitative and quantitative
differences and preferences are quantified into an NPV calculation, which represents a hypothetical
assessment of the stream of future revenues and costs over time of the aircraft performing that
specific mission. Airline customers and leasing companies compare the NPV rates of competing
Airbus and Boeing offers as part of their assessment of which aircraft manufacturer's offer will be
the more economical, and represent the best value over time.2701
9.36. The Mourey Statement undertakes an NPV analysis of different pairings of new technology
and existing technology aircra ft. Specifically, Mr Mourey calculates the NPV differences between,
respectively, the A320ceo versus the A320neo, and the A330 and A350XWB versus the 787, based
on an assumed common de livery date and a hypothetical typical mission . Mr Mourey concludes
that, when fuel costs are high , the NPV advantage of a new technology aircraft over its
equivalently-sized, existing technology counterpart is so significant that customers would "have a
clear preference" for the former. 2702 Mr Mourey then notes, however, that ne w technology aircraft
have later delivery availabilities than existing technology aircraft, and are therefore unable to fill
an airline's more immediate needs, for example to secure capacity until delivery positions for new
technology aircraft become avail able.2703 Mr Mourey argues that new technology a ircraft therefore

2695 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1122.
2696 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1120.
2697 See Mourey Statement, (Exhibit EU-34) (BCI).
2698 See Mourey Statement, (Exhibit EU-34) (BCI). See also Panel Report, EC and certain member States
– Large Civil Aircraft (Article 21.5 – US) at paras. 6.1239-6.1240 and 6.1286 (for single-aisle LCA) and
6.1295-6.1300 (for twin-aisle LCA). The panel in that case considered that, despite differences in maximum
flying range between existing technology and new technology single-aisle LCA, the evidence before it
suggested that the new generation single-aisle LCA are marketed as updated, more fuel-efficient versions of
their existing technology counterparts for the purpose of serving essentially the same missions already
operated by existing technology LCA, at paras. 6.1246 and 6.1248.
2699 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1134.
2700 Mourey Statement, (Exhibit EU-34) (BCI).
2701 Mourey Statement, (Exhibit EU-34) (BCI), para. 69.
2702 Mourey Statement, (Exhibit EU-34) (BCI), paras. 74-92 (comparing the A320neo and the A320ceo),
and 115-131 (comparing the A330 with the 787 and the A350XWB).
2703 Mourey Statement, (Exhibit EU-34) (BCI), paras. 91 and 122-127.

compete in a market for long-term delivery positions while existing technology ai rcraft compete
separately in a market for short-term delivery positions. As explained above, on the basis of thi s
analysis, the Eur opean Union considers that the new technology A320neo and the 737 MAX
compete against each other in one LCA product market, while the existing technology A320ceo and
the 737NG compete against each other in another LCA product market. Similarly, contrary to the
basis on which the panel found serious prejudice in respect of the A330 in the original proceeding,
the European Union considers that the existing technology A330 can no longer be said to compete
against the new technology 787 and now occupies an LCA product market of its own.
9.37. We do not consider that the evidence presented in the Mourey Statement demonstrates that
existing technology aircraft and new technology aircraft of similar capacity, range , and MTOW
compete in separate LCA product markets. First, the Mourey Statement's NPV analysis, which
purports to determine the value advantage of new technology aircraft over similarly -sized existing
technology aircraft, compares the aircraft only on the basis of the operating costs of flyin g typical
routes over time. Mr Mourey's analysis excludes factors such as delivery availability and fleet
commonality, which can also significantly affect the value of a particular offer. On the basis of
comparing operating costs alone, the NPV advantage o f new technology aircraft appear s
significant. It is th is degree of advantage that Mr Mourey argues cannot be offset by pricing
concessions on existing technology aircraft. By limiting the comparison to operating costs ,
however, Mr Mourey overstates the ad vantage that a new technology aircraft might have in an
actual sales campaign against an equivalently -sized, existing technology aircraft. 2704 If, for
example, the delivery availability of existing and new technology aircraft is taken into account, the
value advantage o f the new technology aircraft's lower operating costs would be offset by the
existing technology aircraft's earlier availability. Similarly, if an existing technology aircraft shared
commonality with a customer's fleet, this advantage would, at least partially, also offset a new
technology aircraft's operating cost advantage. Mr Mourey 's conclusion that the value difference
between existing and new technology aircraft cannot reasonably be offset by price concession s
assumes a value advantage in w hich no factors other than operating costs are taken into account
in a customer's assessment of the value differential offered by the two typ es of aircraft. This is not
the case. 2705 We therefore do not accept the fundamental premise underlying Mr Mourey's
argument, which is that the value advantage represented by a new technol ogy aircraft's lower
operating costs cannot be offset by pricing con cessions on equivalently -sized existing technology
aircraft.
9.38. Even if we were to accept that a new technology aircraft's operating cost advantage could
not be of fset by pricing concessions on existing technology aircraft, we do not consider that this
would necessarily demonstrate that the latter does not exercise competitive constraints on the
former.2706 The very fact of a new technology aircraft's better value assumes at least some cap on
its price, which must be defined in relation to its existing technology alternative.2707 If the prices of
a new technology aircraft increased beyond a certain point, it would cease to be the more
economical choice, despite its large operating cost advantage. 2708 The Mourey Statement
compartmentalizes the needs of LCA customers into existing technology, near -term availability
versus new technology, long-term availability in a way that in our view does not reflect the reality
of the markets. The European Union supports its case that subsidies to the various Boeing aircraft
cause serious prejudice to the European Union's interests in the post -implementation period by
reference to evidence of the comp etitive interactions between Boeing and Airbus in particular LCA
sales campaigns involving the 787, 777X, 737 MAX , and 737NG, on the one hand, and the
A350XWB, A320neo, and A320ceo, on the other, between 2007 and 2015. We discuss this sales

2704 See also Panel Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US),
paras. 6.1263-6.1269, 6.1288, and 6.1345.
2705 See para. 9.20 above.
2706 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1120.
2707 See also Panel Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US),
para. 6.1262.
2708 Indeed, there is evidence to suggest that Airbus set the prices of its new technology A320neo by
reference to the prices of its existing technology A320ceo. (S. Hamilton, "A320 NEO to have $7-8 million Price
Premium", Flight International, 23 August 2010, (Exhibit USA-361)). A 2013 article indicated that A320ceos
and 737NGs were being "massively discounted" owing to customer preference for the more fuel-efficient
versions of the A320neo and 737 MAX that were then in development. ("Le vrai prix des avions d'Airbus et de
Boeing", Challenges, 13 June 2013, (Exhibit EU-1709)). We note that Airbus marketing materials suggest that
the existing technology A330 is compared to the new technology 787. (See F. Bregier, "Airbus Results 2012,
Outlook 2013", Presentation at the Annual Press Conference, 17 January 2013, (Exhibit USA-296)).

campaign evidence in Sections 9.3.2.2 and 9.4.3 in connection with our evaluation of the European
Union's serious prejudice claims in the wide -body, twin-aisle, and narrow -body, single-aisle LCA
product markets, a s well as in an appendix to th e Report which is designated as HSBI (the HSBI
Appendix).2709 The sales campaign evidence shows that Airbus and Boeing will often offer a mix of
both old an d new technology LCA in individual sales campaigns, wherein existing tech nology
aircraft are operated as an interim solution, pending the delivery of new technology aircraft .2710 A
particularly attractive offer for the existing technology A320ceo, for example, will exercise
competitive constraints on Boeing's competing "package de al" comprising 737NGs and new
technology 737 MAXs. This is an example of existing technology aircraft exercising competitive
constraints on new technology aircraft.2711
9.39. In light of the foregoing, we consider that the Europe an 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.2712
9.40. Therefore, in evaluating the European Union's claims that the United States has failed to
remove the adverse effects, within the meaning of Article 7.8 of the SCM Agreement, because the
unwithdrawn subsidies cause present adverse effects , in the form of serious prejudice, after the
end of the implementation period, we treat the existing technology A320ceo and 737NG, as well as
the new technology A320neo and 737 MAX, as all competing in the same product market for
narrow-body, single-aisle aircraft. We similarly treat the existing technology A330 and 777 families
as competing with new technology twin-aisle, wide-body LCA of both Airbus (the A350XWB family)
and Boeing (the 787 and 777X families) and not in their own distinct monopoly product markets.
9.41. The second issue raised by the Euro pean Union's proposed product delineation is whether
the Panel should treat all of the wide -body, twin -aisle aircraft at issue in this proceeding,
regardless of variations in seating capacity, range, and MTOW, as competing in one wide -body,
twin-aisle product market, as the European Union does in respect of its proposed "medium - and
large-sized twin aisle, new technology" product market, or whethe r the variations in seating

2709 See Appendix 2.
2710 For single-aisle aircraft, seven of the sales campaigns submitted by the European Union involved
split offers across existing and new technology aircraft. These sales campaigns are discussed at the following
paragraphs of the HSBI Appendix (Appendix 2): 173-180; 181-187; 190-195; 196-201; 212-217; 218-223;
and 224-230. For twin-aisle aircraft, at least three of the sales campaigns submitted by the European Union
involved split offers across existing and new technology aircraft, including the sales campaigns discussed at the
following paragraphs of the HSBI Appendix (Appendix 2): 12-23; 24-30; and 51-60.
2711For a number of the sales campaigns which the European Union submits in support of its claims of
serious prejudice to Airbus new technology aircraft, the evidence specifically refers to aspects of the
existing-technology portion of Boeing's competing offer as posing a threat to Airbus' new-technology offer.
With respect to competition between current and new technology LCA in the single-aisle market, see e.g. the
sales campaign discussed at paras. 181-187 of the HSBI Appendix (Appendix 2) and [[HSBI]] (Exhibit
EU-898) (HSBI); the sales campaign discussed at paras. 190-195 of the HSBI Appendix (Appendix 2) and
[[HSBI]] (Exhibit EU-906) (HSBI); the sales campaign discussed at paras. 196-201 of the HSBI Appendix
(Appendix 2) (HSBI) and [[HSBI]] (Exhibit EU-924) (HSBI); the sales campaign discussed at paras. 212-217
of the HSBI Appendix (Appendix 2) and [[HSBI]] (Exhibit EU-952) (HSBI); and the sales campaign discussed
at paras. 218-223 of the HSBI Appendix (Appendix 2) and European Union's second written submission,
paras.1709-1711. With respect to competition between existing and new technology LCA in the twin-aisle
market, see e.g. the sales campaign discussed at paras. 63-65, 70-73, and 76 of the HSBI Appendix
(Appendix 2) and [[HSBI]] (Exhibit EU-845) (HSBI); the sales campaign discussed at paras. 128-134 of the
HSBI Appendix (Appendix 2) and [[HSBI]] (Exhibit EU-1484) (HSBI); and the sales campaign discussed in
[[HSBI]] (Exhibit EU-787) (HSBI).
2712 We note that the panel in EC and certain member States – Large Civil Aircraft (Article 21.5 – US)
similarly concluded, on the basis of, inter alia, evidence which was not before this Panel, 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 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
considered by that panel. (See Panel Report, EC and certain member States – Large Civil Aircraft (Article 21.5
– US), paras. 6.1286 and 6.1370). We reach our conclusions as to the appropriate delineation of LCA product
markets for purposes of this proceeding on the basis of the evidence before us as to the present conditions of
competition in the LCA product markets. We acknowledge that these conditions will continue to evolve. We
therefore do not rule out the possibility that, in time, existing technology LCA could move into distinct product
markets from their new technology counterparts.

capacity, range, and MTOW in fact warrant treating wide -body, twin-aisle aircraft, r egardless of
the vintage of their technologies, as competing in two or more distinct wide-body product markets.
9.42. We recall that the original panel, for purposes of evaluating the European Communities'
serious prejudice claims in the 2004-2006 period, had identified two relevant wide-body, twin-aisle
LCA product markets in that proceeding: A 200 -300 seat market and a 300 -400 seat market. 2713
Since the original proceeding, however, there has been a general shift toward s larger size variants
within aircraft famil ies for both Airbus and Boeing LCA. The consequence is that competition
among wide-body, twin-aisle aircraft no longer obviously o ccurs within the confines of a 200 -300
seat and 300-400 seat product market delineation. Further, as explained above, Boeing and Airbus
in fact compete by differentiating their aircraft and optimising new size -variants to fill existing
gaps in the market. As such, it is not the case that one Airbus wide -body, twin-aisle LCA family is
designed to compete primarily with an opposing Boeing wide-body, twin-aisle LCA family. Rather,
wide-body, twin -aisle families contain a number of variants that compete against variants from
one or more competing wide-body, twin-aisle LCA families, depending on the particular size of the
variants involved. For example, both the 787 and the A350XWB families include variant models
that cover a variety of seating capacity and range requirements from 246 seats to 369 seats. 2714
In light of these developments in the LCA markets since the 2004 -2006 period considered by the
original panel, we consider that it is no longer appropriate to base our evaluation of the
European Union's serious prejudice arguments involving wide-body, twin-aisle LCA on the 200-300
seat and 300-400 seat product market delineation used by the original panel and Appellate Body.
9.43. We note our earlier observation that, while there is overlap between twin -aisle models in
terms of capacity, range, MTOW, length and wing -span, there is generally greater variation in
these factors for wide -body, twin-aisle LCA compared to narrow -body, single-aisle LCA. Further,
our analysis of the sales campaign evidence suggests that, when purchasing wide-body, twin-aisle
LCA, customers separately categoriz e their needs according to medium -sized, twin -aisle aircraft
and larger -sized, twin-aisle aircraft, to the extent that they often effectively run two separate
competitions within the same sales campaign. 2715 Further, having reviewed the sales campaign
evidence for the wide -body, twin-aisle sales campaigns and the airc raft offered by each airframe
manufacturer to meet the customer's particular requirements, it seems that within the general
categories of medium -sized, twin-aisle aircraft and larger -sized, twin-aisle aircraft, the following
aircraft tend to be offered in competition with each other2716:
Table 7: Competitive relationships between different wide-body, twin-aisle LCA
Relevant product market Airbus LCA Boeing LCA
Medium-sized twin-aisle aircraft A330 family
A350XWB-800
787-8
787-9
Larger-sized twin-aisle aircraft A350XWB-900
A350XWB-1000
787-10
777-8X
777-9X
777 family

9.44. We cauti on that it is not possible to draw a brigh t-line distinction. Wide -body, twin -aisle
aircraft are differentiated products, and customers' requirements in terms of size, routes to be
served and availability vary considerably. It is ce rtainly possible that a larger medium -sized
aircraft (e.g. the 787 -9) could in some circumstances, depending on the particular needs of the

2713 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1669-7.1675; and Appellate Body
Report, US – Large Civil Aircraft (2nd complaint), para. 898.
2714 Table 4 Airbus and Boeing wide-body, twin-aisle aircraft compared on the basis of seating capacity,
MTOW, range and price.
2715 See e.g. the sales campaign discussed at paras. 136-141 of the HSBI Appendix (Appendix 2),
[[HSBI]] (Exhibit EU-1496) (HSBI), and [[HSBI]] (Exhibit EU-1498) (HSBI); the sales campaign discussed at
paras. 144-149 of the HSBI Appendix (Appendix 2) and European Union's response to Panel question No. 169,
para. 299; and the sales campaign discussed at paras. 152-158 of the HSBI Appendix (Appendix 2) and
[[HSBI]] (Exhibit EU-1533) (HSBI).
2716 See e.g. the split of aircraft considered "medium" and "larger" twin-aisle aircraft in the sales
campaigns discussed at paras. 135-142, 143-150, and 151-159, respectively, of the HSBI Appendix
(Appendix 2).

customer in terms of capacity and routes to be served, exercise meaningful compet itive
constraints on a smaller larger-sized aircraft (e.g. the A350XWB-900).
9.45. Nonetheless, we consider that the particular product market delineation identified in Table 7
above is supported by t he evidence before us, and provides a reasonable and adequate basis on
which to evaluate the European Union's serious prejudice claims. While we have departed from the
European Union's proposed product market delineation by rejecting the proposition that n ew
technology LCA do not compete in the same product ma rkets as their similarly -sized existing
technology counterparts, and by distinguishing competition between medium -sized twin-aisle LCA,
on the one hand, from competition between larger -sized twin-aisle on the other, we do not agree
with the United States that this justifies rejecting the European Union's adverse effects claims
owing to a failure to frame the serious prejudice allegatio ns on the basis of the correct markets ,
within the meaning of Articles 6.3(a) through (c) of the SCM Agreement.
9.46. As stated by the original panel and Appellate Body, "provided that the European
Communities demonstrated one of the alleged forms of serious prejudice in subparagraphs (a)
through (c) of Article 6.3 in relation t o a particular Boeing subsidi zed LCA and a corresponding
Airbus like product , it would establish serious pr ejudice for purposes of Article 5(c)".2717 The
European Union's serious prejudice case in this proceeding is that, among other things, subsidies
benefiting particular Boeing wide -body, twin -aisle family LCA cause serious prejudice to its
interests in respect of particular Airbus wide -body, twin -aisle family LCA. Specifically, the
European Union argues that the effect of the U.S. subsidies benefiting the 7 87 is serious prejudice
to its interests in respect of the A350XWB and the A330, while the effect of the U.S. subsidies
benefiting the 777X is serious prejudice to its interests in respect of the A350XWB. It is clear from
the product market deli neation in Table 7 above that certain size variations of the 787 compete
with certain size variations of the A350XWB and with the A330, while certain size variations of the
777X compete with certain size variations of the A350XWB. We consider that the European Union's
evidence satisfactorily demonstrates, for each of the pairings of Boeing and Airbus in the European
Union's serious prejudice case, that the relevant subsidi zed Boeing LCA compete against the
relevant, corresponding Airbus like product.
9.47. On the basis of the foregoing:
a. We consider that it has not been demonstrated that new technology LCA and existing
technology LCA of similar seating capacity, range, and MTOW compete in distinct LCA
product markets.
b. Therefore, we will evaluate th e European Union's claims regarding the effects of
subsidies to the 737 MAX on prices and sales of the A320neo, and the effects of
subsidies to the 737NG on prices and sales of the A320ceo , on the basis that these four
aircraft families all compete in a narrow-body, single-aisle aircraft LCA product market.
c. We will similarly treat the A330 and 777 as competing with new technology A350XWB,
787 and 777X family variants in the wide -body, twin -aisle LCA product markets. We
consider that it is possible to evalu ate the European Union's serious prejudice claims
involving wide -body, twin -aisle aircraft even thoug h we do not accept the
European Union's proposed delineation of the wide -body, twin -aisle markets, because
those claims are based on the notion that the 78 7 and 777X families compete with
variants of the A350XWB.2718

2717 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) para. 898, referring to Panel Report,
US – Large Civil Aircraft (2nd complaint), para. 7.1667. (emphasis added)
2718 We consider that the A330 (an existing technology aircraft) competes with the smaller-sized
variants of the 787 and is in the same LCA product market as smaller-sized variants of the A350XWB. For
reasons that we explain in fn 3173 below, however, our rejection of the European Union's argument that the
A330 occupies its own "medium-sized twin-aisle existing technology" LCA product market does not affect the
outcome of our analysis of the effects of the subsidies on the A330.

9.2.2 The different aspects of LCA prices and how LCA manufacturers such as Boeing set
LCA prices
9.48. As we explain in greater detail in Sections 9.3.2.2 and 9.4.3, the European Union argues
that the post -2006 subsidies that operate through a price causal mechanism enable Boeing to
lower the prices of its LCA in highly competitive LCA sales campaigns.2719 Our evaluation of these
arguments requires that w e first explain the various aspects of an LCA "price" as well as the
factors that influence the prices set by LCA manufacturers.
9.49. As explained in the original proceeding, the "net fly -away price" of an aircraft comprises the
"total aircraft price" less credits and price concessions offered by the LCA manufacturer (i.e. either
Boeing or Airbus), estimated engine manufacturer discounts and other discounts offered by
suppliers of buyer furnished equipment. Concessions provided by the engine manufacturers and
suppliers of buyer furnished equipment are negotiated between the customer and the supplier,
without the direct involvement of the LCA manufacturer. 2720 According to the
European Communities' expert in the original proceeding, pricing offered by engine manufac turers
and suppliers of buyer furnished equipment can have a significant impact on the net fly -away price
in a manner that is largely unknown to the LCA manufacturers.2721
9.50. The "total aircraft price" in turn, is composed of the airframe basic price plus charges for
changes to standard specifications, buyer furnished equipment, supplier furnished equipment and
the engine basic list price. 2722 LCA manufacturers publish annual "list" or "catalogue" basic
airframe prices for each model of LCA. List prices are not indi cative of the prices that airline
customers and leasing companies actually pay for the airframe, however. 2723 Indeed, there appear
to be no transparent, market prices for Boeing or Airbus LCA. Airframe prices are negotiated
individually with each customer in individual sales campaigns. Depending on the model of aircraft
and the closeness of competition of potential substitutes for the customer's requirements, the size
of the order and status of the customer, discounts from the published list prices can range f rom
35-40% to as much as 60%.2724
9.51. As previously mentioned, the European Union supports its case that subsidies to the various
Boeing aircraft cause serious prejudice to the European Union's interests in the post -
implementation period by reference to evidence of the competitive interactions between Boeing
and Airbus in particular LCA sales campaigns involving the 787, 777X, 737 MAX, and 737NG , on
the one hand, and the A350XWB, A320neo , and A320ceo, on the other, between 2007 and
2015.2725 Much of this evidence ha s been designated as HSBI by the European Union and the
United States, and we therefore discuss it in detail only in an HSBI Appendix (Appendix 2 of this
Report). The real "market price" of Boeing and Airbus LCA has been described as the best -kept
secret of the industry.2726

2719 The European Union explains that its challenge is confined to LCA sales campaigns that Boeing won
"which were characterised by particularly intense and close competition, and in which price, technology and
delivery dates played a substantial role in the purchase decision". (European Union's response to Panel
question No. 169, para. 174).
2720 Engines are the single most expensive component of an LCA, representing between 20 and 30% of
its total cost. (Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1690).
2721 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1693 and fn 3566.
2722 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1693.
2723 In a 2013 article, an aircraft industry analyst stated that a customer has never purchased an aircraft
at the list prices communicated by aircraft manufacturers. ("Le vrai prix des avions d'Airbus et de Boeing",
Challenges, 13 June 2013, (Exhibit EU-1709)). Moreover, the actual prices paid by customers on delivery will
be affected by an "escalation" of the negotiated price to adjust for changes in aerospace industry costs of
materials and labor between the date of order and date of delivery (which may be several years subsequent to
the date of order). ("Le vrai prix des avions d'Airbus et de Boeing", Challenges, 13 June 2013, (Exhibit
EU-1709)).
2724 Top tier Boeing customers, such as American Airlines, Delta Airlines, and Southwest Airlines,
reportedly obtain the benefits of Boeing's "most-favoured customer" clause, in which Boeing guarantees that
no other customer will obtain a lower price. "Launch" customers also are considered to generally obtain the
lowest prices because the first aircraft produced in an LCA programme are frequently overweight. ("Le vrai prix
des avions d'Airbus et de Boeing", Challenges, 13 June 2013, (Exhibit EU-1709)).
2725 See Appendix 2.
2726 "Le vrai prix des avions d'Airbus et de Boeing", Challenges, 13 June 2013, (Exhibit EU-1709).

9.52. The European Union argues that LCA sales are strongly determined by the dynamic nature
of competition, in which each manufacturer faces inter -temporal strategic constraints and trade -
offs, implying that current business decisions (e.g. on price and production) affect future demand
and supply conditions. 2727 Boeing and Airbus do not compete for specific orders with the sole
objective of maximizing their short-run profits, in the sense of the profits pertaining to those
specific orders. Rather, they compete and set their prices with a view to maximizing their overall
profits across their long-term sales activity.2728 The European Union asserts that pricing incentives
of LCA manufacturers like Boeing are therefore "co -determined by the necessity of having to
recoup massive fixed cost investments and by the prevailing conditions of competition" as well as
by the need to keep production lines running, cover recurring costs and maintain a steady stream
of cash flows2729:
As a result of these strictures, B oeing will decide to price extremely aggressively in
some sales campaigns (potentially below pure marginal costs, especially early -on in
the learning curve), while Boeing's pricing decisions in other campaigns allow it to
recoup some of its fixed investmen t costs (i.e., pricing substantially above marginal
costs). In any of these cases, Boeing must look at its costs holistically, and cannot
afford to be uniquely guided by marginal cost considerations.2730
9.53. In the original proceeding, the Appellate Body provided the following description of the
economics of LCA pricing, based on findings made by the panel and matters of common ground
between the parties:
The LCA market is a duopoly. Airbus and Boeing each holds a significant share of the
market and possesses a d egree of market power. Each manufacturer's decision
regarding the supply and pricing of its products has the ability to influence the pricing
of the other and, more generally, the market price.2731
…
LCA production involves substantial upfront development co sts over a period of
several years, with a return over a considerably longer period – 18 years, on average.
LCA production is generally characterized by steep learning curves. The production
costs of initial units of a new LCA model are much higher than the production costs of
subsequent units once the manufacturer has begun to realize learning curve
efficiencies. Because such efficiencies are factored into an LCA manufacturer's
projected costs at the time of the launch of the new aircraft programme ,
manufacturers price initial units of LCA as though they were already at the bottom of
the learning curve. At the time of launch, the manufacturer sets pricing targets for the
new aircraft that, over its projected life, must exceed the manufacturer's fully loaded
average production costs by an amount sufficient to justify the investment.2732
9.54. An empirical study of the commercial aircraft industry submitted by the European Union in
this proceeding indicates that production costs change drastically over time due to lea rning curve
efficiencies, while prices are quite "flat" for all products, suggesting that mark -ups move to offset
the movements in costs.2733

2727 European Union's comments on the United States' response to Panel question No. 158,
paras. 100-105. The European Union refers to economic literature indicating that prices in dynamic games are
typically set in a way that departs from short-run profit maximization because firms must account for the
impact of their current actions or omissions upon their future activity and profits. (European Union's comments
on the United States' response to Panel question No. 158, para. 106 fn 187; and C.L. Benkard, "A Dynamic
Analysis of the Market for Wide-Bodied Commercial Aircraft", Review of Economic Studies, Vol. 71 (2004),
(Exhibit EU-1697), pp. 581-611).
2728 European Union's comments on the United States' response to Panel question No. 158, para. 109.
2729 European Union's comments on the United States' response to Panel question No. 158, para. 121.
2730 European Union's comments on the United States' response to Panel question No. 158, para. 122.
(fn omitted)
2731 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 903. (fns omitted)
2732 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 905. (fns omitted)
2733 C.L. Benkard, "A Dynamic Analysis of the Market for Wide-Bodied Commercial Aircraft", Review of
Economic Studies, Vol. 71 (2004), (Exhibit EU-1697), p. 585.

9.55. There is also evidence in this proceeding regarding the Boeing 787 programme which
illustrates how the profitability of an LCA programme depends on the LCA manufacturer being able
to move down the learning curve and deliver subsequent units of LCA at a profit level that enables
it to recoup deferred production costs and ensure that, over the long -term, the programme is
sufficiently profitable to have justified the investment. In October 2015, Boeing was reported to
have accumulated some USD 32 billion in deferred production costs related to the 787 programme,
which it expected to recoup over the following six years by del ivering another 900 aircraft at an
average profit of more than USD 35 million per plane. 2734 Its deliveries in the second quarter of
2015 were estimated to represent a loss of approximately USD 25 million per aircraft. 2735 The
accumulated deferred costs for the 787 programme are projected to peak at USD 33 billion in late
2016, after which they are expected to decline, driving the per -unit costs of the aircraft down. 2736
The accumulated deferred losses do not include Boeing's original investment to develop the 787,
which has been estimated by analysts at an additional USD 20 billion or more. 2737 According to
industry analysts, Boeing has been able to continue producing the 787 because of its "cash cow"
programmes, i.e. the 737 and 777 programmes which, as mature program mes, have "produced
cash like mad" .2738 Indeed, it seems that certain aircraft programmes are "significant sources of
cash" for both Airbus and Boeing.2739
9.56. Finally, there is HSBI evidence before the Panel which suggests that LCA manufacturers
forecast costs and revenues for LCA programmes based on periodically revised cost, sales and
delivery expectations, in order to ensure that prices in individual sales and the programmes as a
whole remain profitable.2740
9.2.3 Standard of causation and aggregation of subsidies
9.57. We recall that, owing to the way that the European Union has chosen to demonstrate that
the United States has failed to comply with the DSB recommendations and rulings, in the sense of
failing to take appropriate steps to remove the adverse effects, the Panel is effectively evaluating a
new serious prejudi ce case under Article s 5 and 6.3 of the SCM Agreement . In other words, the
Panel is evaluating whether the European Union has demonstrated that, after the end of the
implementation period, the subsidies that th e United States has failed to withdraw, within the
meaning of Article 7.8, are causing serious prejudice, within the meaning of Articles 5(c) and 6.3
of the SCM Agreement.2741
9.58. With this in mind, we set forth our understanding of the requisite causal link between the
subsidies and the serious prejudice phenomena in Article 6.3, pursuant to Articles 5(c) and 6.3 of
the SCM Agreement.

2734 One analyst has calculated that Boeing would in fact need to sell the 787s it delivers after 2020 at a
profit of USD 50 million (representing a margin of more than 30%) in order for the overall programme to
return a "low single digit" profit. (D. Gates, "Will 787 program ever show an overall profit? Analysts grow more
sceptical", The Seattle Times, 17 October 2015, (Exhibit EU-1705), p. 6).
2735 D. Gates, "Will 787 program ever show an overall profit? Analysts grow more sceptical", The Seattle
Times, 17 October 2015, (Exhibit EU-1705). Indeed, this article refers to the views of several industry analysts
that Boeing's accumulated deferred losses on the 787 programme are now so large that it will not be possible
to avoid declaring a reach-forward loss, estimated by one analyst to be in the range of USD 5 billion.
2736 Boeing expects the model mix of 787s to shift to higher-priced 787-9s and 787-10s, which cost only
5 to 10% more than the original 787-8 but will represent 20 to 40% more revenue. (D. Gates, "Will 787
program ever show an overall profit? Analysts grow more sceptical", The Seattle Times, 17 October 2015,
(Exhibit EU-1705), p. 8).
2737 D. Gates, "Will 787 program ever show an overall profit? Analysts grow more sceptical", The Seattle
Times, 17 October 2015, (Exhibit EU-1705), p. 6.
2738 D. Gates, "Will 787 program ever show an overall profit? Analysts grow more sceptical", The Seattle
Times, 17 October 2015, (Exhibit EU-1705), p. 11. According to one industry analyst: "It's an extraordinarily
strong Boeing Co. that has coped with the disaster that is the 787 without running out of cash."
2739 "UPDATE 2 – Airbus debates new A320 output hike, suffers test glitch", Reuters, 28 May 2015
(Exhibit EU-1686), reporting that medium-haul planes are "significant sources of cash for both Airbus and
Boeing" and describing the A330 programme as "another cash cow" for Airbus.
2740 See European Union's response to Panel question No. 169, fn 729.
2741 See Section 6 above. See however, the European Union's "parallel" argument with respect to its
serious prejudice allegations concerning wide-body, twin-aisle LCA, discussed in Section 9.3.3, which seems to
be based on a different theory of what it means to remove the adverse effects for purposes of Article 7.8 of the
SCM Agreement; namely, that the adverse effects of the pre-2007 aeronautics R&D subsidies found to exist in
the original 2004-2006 reference period (in the form of certain kinds of serious prejudice) continue into the
post-implementation period.

9.59. The Appellate Body has consistently articulated the causal link required as "a genuine and
substantial relationship of cause and effect".2742 The subsidies must contribute, in a "genuine" and
"substantial" way, to producing or bri nging about one or more of the effects , or market
phenomena, identified in Article 6.3. The genuine nature of the causal link requires a complaining
party to show that the nexus between cause and effect is "real" or "true" . The substantial
component of the causal relationship concerns the relative importance of the causal agent (i.e. the
subsidies at issue) in bringing about the adverse effects in question.2743
9.60. One example of a situation in which the nexus between cause and effect was not sufficiently
real or true to justify a finding that the subsidy in question was a genuine cause of the Article 6.3
market phenomena is provided by the Appellate Body in EC and ce rtain member States – Large
Civil Aircraft. In that case, the Appellate Body found that the panel's generalized finding that the
R&TD subsidies enabled Airbus to develop features and aspects of its aircraft faster than would
otherwise have been possible wa s insufficient to justify "cumulating" the effects of the R&TD
subsidies with the "product effects" of the launch aid/member State financing subsidies in enabling
Airbus to launch particular models. Rather, in order to establish the requisite genuine causal link,
the panel should have made specific findings that technology or production processes funded by
the R&TD subsidies contributed to Airbus' ability to launch and bring to market particular models of
LCA.2744 Another example is the four subsidies granted to Boeing in connection with the relocation
of its corporate headquarters to the State of Illinois, which the European Communities in the
original proceeding had argued may reasonably be deemed to benefit all of the company or the
business unit's products. The Appellate Body found that there was no genuine causal link between
these subsidies and the relevant market effects in the 100 -200 seat LCA product market because
these subsidies were not shown to have "meaningfully contributed" to Boeing's lowering of prices
for the 737NG.2745
9.61. The Appellate Body has acknowledged that panels examining whether the causal
relationship between the subsidies at issue and the market phenomena ident ified in Article 6.3
meets the genuine and substantial standard may often be conf ronted with multiple factors that
may have contributed, to varying degrees, to the relevant market phenomena. Panels must seek
to understand the interactions between the subsidies at issue and the various other factors, and
make an assessment of their connections to bringing about the relevant effects.2746 A subsidy need
not be the sole cause, or only substantial cause, of an effect in or der for it to be found to be a
genuine and substantial cause. Indeed, a subsidy may be found to be a genuine and substantial
cause notwithstanding the existence of other factors that contribute to producing the relevant
market phenomena if the contribution of the subsidy, in light of a proper consideration of all other
contributing factors and their effects, rises to that of ge nuine and substantial.2747 This assessment
of whether subsidies are a genuine and substantial cause of any of the market phenomena
identified in Article 6.3 is a fact -intensive exercise and potentially there will be considerable
differences in the ways complaining parties choose to demonstrate the links between the subsidies
at issue and the effects, and in the nature of supporting evidence, in different cases.2748
9.62. Related to the question of the causation standard applied by the Panel is the issue of how
the various different subsidies should be grouped together for purposes of assessing their effects.
In the original proceeding, t he Appellate Body addressed the permissible approaches that panels
may take to collectively assessing the effects of multiple subsidies. It said that the first involves an
ex ante decision to undertake a single analysis of the effects of multiple subsidies where the
structure, design , and operation of those subsidies are similar, and thereby to assess in an
integrated causation analysis t he collective effects of such subsidy measures ( so-called
"aggregation" of subsidies).2749 The second involves an examination, taken after a panel has found
that at least one subsidy (or aggregated grouping of subsidies) has caused adverse effects, as to
whether the effects of other subsidies (or agg regated grouping of subsidies) complement and

2742 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; and US – Large Civil Aircraft (2nd
complaint), para. 913.
2743 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 913.
2744 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1404 and 1407.
2745 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1342.
2746 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 914.
2747 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 914.
2748 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 915.
2749 This approach was employed by the panel in US – Upland Cotton.

supplement those effects (so-called "cumulation" of subsidies).2750 The Appellate Body said that, in
selecting an appropriate approach to collectively assessing the effects of multiple subsidies, panels
are confined in two ways: First, by the need not to "unduly segment" by considering the effects of
each subsidy on an individual basis only (such that no subsidy is a "substantial " cause of the
relevant adverse effects)2751; and second, by the need not to combine multiple measures in such a
way as to absolve a complainant of its burden of proving that each challenged measure is a
"genuine" cause of, or "genuinely contributes to producing", the market phenomena identified in
Article 6.3.2752
9.63. In the original proceeding, the panel conducted an aggregated analysis of the aeronautics
R&D subsidies in evaluating their effects on Boeing's development of technologies for the 787. The
European Union argues that the group of pre -2007 aeronautics R&D subsidies operates through a
technology causal mechanism to affect Boeing's development of technolo gies for the 787 and its
other new technology LCA (i.e. the 777X and 737 MAX) . The United States does not object to the
aggregation of the pre -2007 aeronautics R&D subsidies. We consider it is appropriate to evaluate
the effects of the pre-2007 aeronautics R&D subsidies on Boeing's product development behaviour
as an aggregated group.2753
9.64. The European Union considers that at their most basic level, and in light of the conditions of
competition in the LCA markets, all of the post-2006 subsidies , except certain post -2006
aeronautics R&D subsidies, enable Boeing to lower the prices of its LCA in competitive sales
campaigns and can therefore be treated as one group for purposes of assessing their impact on
Boeing's LCA prices.2754 However, the European Union also acknowledges minor differences in the
way that various sub -groupings of the post -2006 subsidies operate. To account for those
differences, and "to follo w the taxonomy" of the original proceeding, the European Union
structures its discussion of the effects of the post -2006 subsidies on Boeing's LCA prices by
dividing the post-2006 subsidies into three aggregated groups:
a. A tied tax category of aggregated s ubsidies, comprising the Washington State B&O tax
rate reduction and the City of Everett B&O tax rate reduction. 2755 The European Union
argues that these tied tax subsidies are triggered by sales of each LCA to which they
relate and directly enable Boeing to lower its prices while maintaining the profitability of
the sale.2756

2750 The "cumulation" approach was employed by the panel in EC and certain member States – Large
Civil Aircraft. The Appellate Body explained that whether both, either or neither of aggregation and cumulation
are appropriate in a particular case will be a function of the particular subsidy measures at issue and their
effects on prices and sales in the relevant market, the manner in which a complainant presents its claims and
the way in which the panel decides to structure its causation analysis. (Appellate Body Report, US – Large Civil
Aircraft (2nd complaint), para. 1290). See also paras. 9.89, 9.93, 9.467, and 9.468 below.
2751 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1284.
2752 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1290.
2753 As explained in Sections 9.3.2.1.4 and 9.4.2.2 below, the European Union argues that a relatively
small number of individual post-2006 aeronautics R&D subsidies operate through a technology causal
mechanism to contribute to Boeing's development of innovative technologies for its current LCA. In paras. 9.85
and 9.86 below, we explain that we will aggregate these particular post-2006 aeronautics R&D subsidies with
the pre-2007 aeronautics R&D subsidies.
2754 European Union's first written submission, paras. 955 and 1113, and fn 1929; second written
submission, para. 941; and response to Panel question No. 43, paras. 279 and 280. At fn 352 to its response
to Panel question No. 43, the European Union makes two sequential conditional alternative arguments that,
should the Panel disagree that certain post-2006 aeronautics R&D subsidies operate, at present, through a
technology causal mechanism, alternatively, they operate through a price causal mechanism under so-called
"Category 2", and should the Panel disagree with that argument, alternatively, they operate "on a different
basis", through a "price effects" causal pathway, as described for so-called "Category 3" subsidies.
2755 The European Union also includes the FSC/ETI subsidies and the South Carolina Income Allocation
and Apportionment Agreement within this category of tied tax subsidies, however, as we explain in
Sections 8.2.5 and 8.2.8.9, respectively, we find that the FSC/ETI subsidies have been withdrawn and that the
European Union has failed to establish that the Income Allocation and Apportionment Agreement involves a
subsidy.
2756 See European Union's first written submission, paras. 1132-1154; and second written submission,
para. 941. The European Union identifies the Boeing LCA to which each particular "tied tax" subsidy is "linked"
at para. 1135 of its first written submission. It discusses the structure, operation and design of subsidies in this
category, their magnitude, and the role of competitive conditions, all as part of demonstrating that the tied tax

b. State and local cash flow subsidies, comprising all of the non -aeronautics R&D subsidies
that are not tied tax subsidies, aggregated into a single category. These subsidies are
alleged to provide Boeing with additional operating cash flow because they are linked to
(and lower) Boeing's costs of researching, developing or producing Boeing LCA.2757
c. Aeronautics R&D subsidies (NASA, DOD, and FAA) which, in contrast to the pre -2007
aeronautics R&D subsidies, operate through a price causal mechanism, in that they are
alleged to lower Boeing's costs of licensing intellectual property rights to LCA technology,
and of developing that technology, thereby providing Boeing with additional cash which
Boeing can and does use to lower its LCA prices.2758
9.65. The United States objects that the European Union discusses the alleged price effects of the
post-2006 subsidies on the basis of their aggregation into three distinct groups, without
conducting the aggregation analysis on a model-specific basis. According to the United States, this
is important because not all of the subsidies in an aggregated group are even alleged to impact the
pricing of the 787, 737 MAX , and 737NG. 2759 The United States therefore disag rees with th e
European Union's aggregations of the tied tax and state and local cash flow subsidies on the basis
that these subsidies are not all alleged to impact the same aircraft and the European Union has
failed to describe the design, structure or operation of any of them in such a way as would warrant
their aggregation.2760
9.66. In the next three subsections, we determine whether it is appropriate to aggregate the
post-2006 subsidies into three categories for purposes of conducting an integrated analysis of the
effects of those subsidies within each aggregated group. Then in Section 9.2.3.4 we additionally
consider whether it is appropriate to further aggregate any of these groups with each other or with
the pre-2007 aeronautics R&D subsidies, which are alleged to operate through a technology causal
mechanism, rather than a price causal mechanism. We summa rize our conclusions in
Section 9.2.3.5.
9.2.3.1 Aggregation of the tied tax subsidies
9.67. In the State of Washington, B&O tax is levied on the gross proceeds of sale, gross incomes
of a business , or the value of products. The City of Everett B&O tax is a tax on gross revenues
which, with respect to manufacturing, are generally treated as the value of products
manufactured.2761 The Washington State and City of Everett B&O tax rate reductions reduce the
B&O tax rates applicable to revenues earned from the sale of LCA attributable to Washington State
or the City of Everett, as the case may be, lowering Boeing's taxes and thereby increasing Boeing's
after-tax profits.2762

subsidies impact Boeing's LCA pricing and thereby constitute a genuine and substantial cause of present
adverse effects.
2757 See European Union's first written submission, paras. 1155-1179; and second written submission,
para. 941. The European Union identifies the Boeing LCA to which the subsidies in this category are "linked" at
paras. 1159-1161 of its first written submission. It discusses the structure, operation and design of this
category of subsidies, their magnitude, and the role of competitive conditions, all as part of demonstrating that
the state and local cash flow subsidies impact Boeing's LCA pricing and thereby "cause or contribute to causing,
along with the other subsidies" present adverse effects.
2758 European Union's first written submission, paras. 1120 and 1180-1190. The European Union alleges
at para. 1184 of its first written submission that the genuine causal link relates to the fact that the subsidies
are in the form of support for R&D relating to aeronautics R&D applied or to be applied on Boeing LCA (i.e. the
links to the technologies on the particular Boeing LCA). It discusses the structure, operation, and design of this
category of subsidies, their magnitude, and the role of competitive conditions, all as part of demonstrating that
this category of subsidies result in lower Boeing LCA pricing and "thereby cause, or contribute to causing, along
with the other subsidies, present adverse effects". (European Union's first written submission, para. 1191).
2759 United States' first written submission, para. 713.
2760 We address the United States' objection concerning the aggregation of the tied tax subsidies into a
single category for purposes of conducting an integrated analysis of their effects at para. 9.73 and concerning
the aggregation of the state and local cash flow subsidies into a single category for purposes of conducting an
integrated analysis of their effects at paras. 9.80-9.82 of our evaluation below.
2761 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1806.
2762 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1806. The Washington State B&O tax
rate reduction and the City of Everett B&O tax rate reduction are the same in nature and operation, the
pertinent difference being that the former reduces taxes levied at the state level in respect of state revenues

9.68. The European Union describes the Washington State B&O tax rate reduction and the City of
Everett B&O tax rate reduction as "tied" to the production and sale of Boeing LCA. This was also
the term used by the panel and th e Appellate Body in the original proceeding to describe these
subsidies.2763 It is the per -unit production or sale of LCA that gives rise to the receipt of the
subsidies. The receipt of the tied tax subsidies by Boeing therefore corresponds directly with per-
unit sales of Boeing LCA. F luctuations in Boeing's total sales volumes affect the total amounts of
these subsidies but do not affect the calculus regarding the profitability of a particular sale. Such
per-unit subsidies can be contrasted with the state and local cash flow subsidies and the post-2006
aeronautics R&D subsidies, which are "untied" in the sense that the amounts of those subsidies
received by Boeing do not vary in direct proportion to the number of aircraft produced or sold.2764
9.69. It is important to note that the concept of "tied" used to describe the per -unit subsidies in
this proceeding is different from the concept of "tied" used in the context of determining the
products over which subsidies provided to a company should be allocated in order to c alculate the
level of countervailing duties that may be levied against those products. Articles 19.4 of the SCM
Agreement and VI:3 of the GATT 1994 require Members to accurately determine the per -unit
subsidy amount found to exist with respect to the produ ct under investigation and to not impose
countervailing duties exceeding that amount. This may involve the identification of amounts of a
subsidy that a company has received in respect of the production or sale of a particular product in
situations where a company manufactures and sells a variety of products not covered by the
investigation and which are made in the same production line.2765 Where a subsidy is considered to
be tied to the production or sale of a particular product, an investigating authority may allocate the
subsidy amounts received to those specific products, and thereby calculate the specific per -unit
rate of subsidization for the product concerned. By cont rast, where the subsidy is not tied to any
particular product, it may be presumed that the company may allocate the subsidy across its
entire production.2766
9.70. The Appellate Body in US – Washing Machines recently discussed considerations relevant to
a determination of whether a subsidy is "tied" to a product in this different context of allocati ng
subsidies across the products of a company when calculating a per -unit rate of subsidization in
accordance with Articles 19.4 of the SCM Agreement and Article VI:3 of the GATT 1994.2767
9.71. In contrast, the tied tax subsidies at issue in this proceeding , as we ll as in the original
proceeding, are "tied" in the sense that receipt of the subsidies is contingent on the production or
sale of a particular product on a per -unit basis and this has relevance for the potential economic

while the latter concerns municipal taxes in respect of municipal revenues. Boeing is subject to state B&O taxes
on revenues realized from all LCA it manufactures in Washington (i.e. 787, 777X, 737 MAX, and 737NG as well
as the 767, 777, and 747). Accordingly, the European Union alleges that the Washington State B&O tax rate
reduction applies to the 787, 777X, 737 MAX, and 737NG. Boeing is also subject to municipal B&O taxes on
revenues realized from all LCA manufactured at its facility in Everett, Washington (i.e. the 787 as well as the
767, 777, 777X, and 747). Accordingly, the European Union argues that the City of Everett B&O tax rate
reduction applies to the 787 and 777X. (European Union's second written submission, para. 1065). The
European Union requests the Panel to assess the effects of the tied tax subsidies on the prices for those Boeing
aircraft to which they apply. (European Union's second written submission, para. 934).
2763 The Appellate Body has described this concept of a tied subsidy as being where the receipt of the
subsidy is contingent on the production or sale of a particular product on a per-unit basis. (Appellate Body
Report, US – Large Civil Aircraft (2nd complaint), para. 1339).
2764 Untied subsidies include so-called "development subsidies", such as R&D subsidies, which were
discussed by Professor Luís Cabral in his report in the original proceeding. (See Panel Report, US – Large Civil
Aircraft (2nd complaint), appendix VII.F.2, para. 1).
2765 Alternatively, a subsidy may be granted on a company basis rather than a product basis, and it may
similarly be difficult to identify which portions were used by the company for manufacturing the product
concerned as opposed to other products.
2766 The present proceeding does not require the Panel to allocate the subsidies in question over
Boeing's products to arrive at a per-unit rate of subsidization and the imposition of countervailing duties
consistently with Articles 19.4 of the SCM Agreement and Article VI:3 of the GATT 1994. Rather, the Panel is
required to assess how the receipt of the subsidies affected Boeing's commercial behaviour, in order to
determine whether the effects of the subsidies are any of the market phenomena identified in Article 6.3 of the
SCM Agreement.
2767 See Appellate Body Report, US – Washing Machines, paras. 5.270-5.274. Notably, it did not refer to
the different sense in which it used the concept of "tied" in the Appellate Body Report in US – Large Civil
Aircraft (2nd complaint), i.e. as referring to situations where receipt of the subsidy was "contingent on the
production or sale of a particular product on a per-unit basis". (Appellate Body Report, US – Large Civil Aircraft
(2nd complaint), para. 1339). (emphasis added)

effect of the receipt of the subsi dy on the actual pricing behaviour of the subsidy recipient . As the
Appellate Body explained in the original proceeding:
All other things being equal , a firm provided with a subsidy that is tied to production
or sale enjoys the ability to lower its price while nevertheless achieving the same
profit margin. In effect, the subsidy enhances the firm's ability to lower its prices in
order to obtain a sale, notwithstanding that the outcome of any given sale, and the
importance of price to that outcome, will still be dictated by the prevailing competitive
conditions, including the market power and the pricing strategies of the participants,
in a particular market.2768
9.72. In the original proceeding, both parties considered that, in light of the similarities in
structure and operation between the Washington State and City of Everett B&O tax rate
reductions, it was appropriate for the panel to aggregate them and thereby conduct an integrated
analysis of their effects, along with the FSC/ETI subsidies, which were also tied to per-unit sales of
LCA.2769 The panel therefore aggregated these subsidies and conducted an integrated analysis of
the effects.2770
9.73. We consider that the particular nature and operation of these per -unit subsidies is such that
it is appropriate to conduct an integrated analysis of their effects. We would add that, because the
City of Everett B&O tax rate reduction only impacts Boeing's revenues in respect of aircraft
manufactured in the City of Everett, it does not impact Boeing's reve nues in respect of the
737 MAX or 737NG, which are not manufactured in Everett. Our consideration of the effects of the
tied tax subsidies on Boeing's pricing of the 737 MAX and 737NG will therefore be confined to the
Washington State B&O tax rate reduction.
9.2.3.2 Aggregation of the state and local cash flow subsidies
9.74. The European Union argues that the Panel may aggregate all of the subsidies that it
identifies within the category of state and local cash flow subsidies and conduct an integrated
analysis of their effects. This is because all of these subsidies allegedly operate to reduce certain of
Boeing's fixed costs; namely, costs of researching, developing, selling, and producing LCA. 2771 The
United States objects that the European Union only states that each such subsidy, regardless of i ts
form, increases Boeing's operating cash flow, and that the "majority" consist of "tax breaks" while
some others involve the "provision of goods and services". 2772 According to the United States, the
only real similarity between these "miscellaneous" subsid ies is that they could not be placed into
the other two categories. 2773 The United States argues that, under the European Union's theory,
literally all subsidies that generally share a causal pathway and are not tied to a product would be
aggregated. The absence of a similarity, in the sense of a "tie" to the sale of the same product,
cannot suffice as the only common feature to aggregate a group of subsidies. Accordingly, the
European Union has failed to show that any of the state and local cash flow subsidie s should be
aggregated with any other alleged subsidy.2774
9.75. The state and local cash flow subsidies which the European Union considers should be
aggregated for purposes of conducting an integrated analysis of their effects , and which we find
have not been with drawn, within the meaning of Article 7.8, comprise the Washington State tax
measures enacted under HB 2294 (other than the Washington State B&O tax rate reduction which
is a tied tax subsidy as explained in Section 9.2.3.1 above), and the South Carolina subsidies.
9.76. The relevant Washington State tax subs idies involve two B&O tax credits and one sales and
use tax exemption. The B&O tax credits are: (a) for certain preproduction development
expenditures on aeronautics -related resea rch, design, and engineering activities, as well as for
certain expenditures on design and preproduction development, computer software and hardware

2768 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1260. (emphasis added)
2769 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1805. See also Appellate Body
Report, US – Large Civil Aircraft (2nd complaint), para. 1296.
2770 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), fn 2618.
2771 European Union's second written submission, para. 935.
2772 United States' first written submission, para. 753.
2773 United States' first written submission, paras. 754-758.
2774 United States' first written submission, para. 759.

for the digital design, and development of commercial airplanes2775; and (b) for property taxes and
leasehold excise taxes related to new construction. 2776 These tax credits are applied against
Boeing's total B&O tax liability, which accrues in connection with the manufacture and sale of all
Boeing LCA produced in the State of Washington.2777 The third Washington State tax subsidy is the
sales and use tax exemptions for computer software, hardware, and peripherals when these items
are purchased for or used in the development of commercial airplanes or their components.2778
9.77. The South Carolina subsidies involve: (a) a property tax exemption in respect of Boeing's
LCFs; (b) sales and use tax exemptions in respect of aircraft fuel, computer equipment , and
construction materials; and (c) the provision of USD 50 million by the South Carolina authorities
through the issuance of air hub bonds to partially offset the costs of constructing certain facilities
and infrastructure. These subsidies were among a number of incentives provided by the State of
South Carolina to induce Boeing to locate its new 787 production facilities in South Carolina. The
European Union argues that these subsidies are "linked" to production of the 787 at facilities in
South Carolina.2779
9.78. In general terms, the state and local cash flow subsidies involve incentives provided by
state and mun icipal authorities relate d to Boeing's LCA production activities in var ious
jurisdictions. Unlike the tied tax subsidies, Boeing's receipt of the state and local cash flow
subsidies described above is not contingent upon per -unit production or sale of LCA. The
European Union asser ts that the state and local cash flow subsidies operate to reduce Boeing's
overall costs. However, there is no evidence that the savings represented by these subsidies were
factored into the programme accounting for any of the Boei ng LCA programmes to actu ally offset
or reduce any LCA programme costs. Nor is there evidence that Boeing otherwise applies the
additional cash represented by these subsidies to its specific LCA programmes.
9.79. The European Union provided a table setting forth its assertions regarding the "applicability"
of each post-2006 subsidy to particular LCA families. We have adapted that table to cover only the
measures that we have found to be specific subsidies granted or maintained in the p ost-2006
period. This table is as follows:

2775 The European Union argues that the Washington State B&O tax credits for pre-production
development are "linked most closely" to Boeing aircraft that are currently in pre-production, which would
mean the 737 MAX, 787-10, and 777X. (European Union's first written submission, para. 1160; second written
submission, para. 1066).
2776 The European Union argues that the B&O tax credits for property taxes and leasehold excise taxes
relate to sites for which Boeing has made the largest investments in land and facilities (and in the case of the
leasehold excise tax credit, the Dreamlifter Operations Center), and thus are "most closely linked" to sites
producing the 737NG, 737 MAX, and 787. (European Union's first written submission, para. 1160, second
written submission, para. 1066).
2777 The B&O tax is Washington's major business tax. It is a tax on gross receipts of all businesses
operating in Washington, as a measure of the privilege of engaging in business. "Gross receipts" refers to the
gross proceeds of sales, the gross income of a business, or the value of products, depending on which is
applicable. Taxpayers are taxed based on the activities in which they engage in the State of Washington, such
as manufacturing, wholesaling, retailing or the provision of services. (See Panel Report, US – Large Civil
Aircraft (2nd complaint), para. 7.47).
2778 The European Union argues that the sales and use tax exemptions for computer software, hardware,
and peripherals relate to the facilities where Boeing has made the largest investments in computer equipment,
meaning that they are "most closely linked" to the 737NG, 737 MAX, and 787. (European Union's first written
2779 European Union's first written submission, para. 1161; second written submission, para. 1066.

Table 8: Alleged "applicability" of various post-2006 subsidies to Boeing aircraft
families2780
Aggregated
Subsidy group Subsidy 787 777X 737
MAX
737
NG
Tax subsidies
tied to sales
Washington State B&O Tax Rate Reduction X X X X
City of Everett B&O Tax Rate Reduction X X
State and
Local Cash
Flow
Subsidies
Washington State B&O Tax Credits for
Preproduction/Aerospace
Product Development
X X
Washington State B&O Tax Credit for Property Taxes
and Leasehold Excise Taxes X X X X
Washington State Sales and Use Tax Exemptions X X X X
South Carolina Project Gemini Facilities &
Infrastructure X
South Carolina Project Gemini – Sales and Use Tax
Exemptions X
South Carolina Project Gemini – Large Cargo Freighter
Property Tax Exemption X
Post-2006
R&D Subsidies
NASA aeronautics R&D subsidies X X X X
FAA aeronautics R&D subsidy X X X X
DOD aeronautics R&D subsidies X X X X

9.80. We have some difficulty reconciling the European Union's argument that these subsidies
represent the func tional equivalent of additional cash, on the one hand, with its argument that
these subsidies should be "linked" to certain LCA because they allegedly reduce the costs of
researching, developing, selling, and producing those LCA, on the other. If the subsidies operate to
free up additional cash for Boeing, albeit in some way connected to LCA production, they should in
our view be treated as the equivalent of additional cash . Th is is the way that the
European Communities in the original proceeding arg ued tha t a similar grouping of untied
subsidies (including the Washington State tax measures other than the Washington State B&O tax
rate reduction) should be analysed.2781
9.81. Moreover, the European Union does no t explain how amounts of the state and local cash
flow subsidies that are alleged to be "linked" to more than one Boeing family LCA (e.g. the
Washington state and local cash flow subsidies and the post-2006 aeronautics R&D subsidies)
should be apportioned across the various LCA families. In any case, a division of amounts of the
same untied subsidy across various Boeing LCA families would be at odds with the contention that
the subsidies represent the functional equivalent of additional untied cash.
9.82. We do not consider that it is appropriate to allocate, from wi thin the category of subsidies
that the European Union identifies as state and local cash flow subsidies, certain amounts of
particular subsidies to certain Boeing LCA programmes based on the ir asserted "links" to those
programmes. These subsidies are not tied to production of Boeing LCA on a per -unit basis, and at
most, operate in an indirect way t o affect Boeing's overall costs. In our view, t hey represent the

2780 Total Financial Contribution (2007-2014) and Allocation to Boeing Aircraft Programmes, (Exhibit
EU-1450). See also European Union's second written submission, para. 1072; first written submission,
paras. 1135 and 1159-1161.
2781 See Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1609. Indeed, the
European Union's argument that each of the state and local cash flow subsidies is "linked" to production of one
or more specific families of Boeing LCA suggests that these subsidies should be divided into four aggregated
categories, representing the respective "links" between the subsidy in question and the production of the 787,
777X, 737NG, and 737 MAX programmes. To recall, the United States objects to the European Union's
proposed aggregation of the state and local cash flow subsidies into a single category, inter alia, on the basis
that not all of these subsidies are alleged to impact the same aircraft. (United States' first written submission,
para. 713).

functional equivalent of additional cash to Boeing. We therefore consider that it is appropriate to
aggregate them into one category for purposes of conducting an integrated analysis of their
effects.
9.2.3.3 Aggregation of the post-2006 aeronautics R&D subsidies
9.83. The European Union argues that the technologies being developed with the assistance of the
vast majority of the post -2006 aeronautics R&D subsidies (in contrast to the technologies
developed with the assistance of the pre -2007 aeronautics R&D subsidies), have not yet matured
to the point at which they could be applied to Boeing aircraft that are currently being marketed.2782
According to the European Union, these aeronautics R&D subsidies "at present" operate through a
price causal mechanism .2783 The European Union argues that the present effect of the post -2006
aeronautics R&D subsidies is to give Boeing access to and use of research results that enable it to
continue maturing the technologies, without having to pay license fees for such access and use,
thereby lowering Boeing's LCA costs in relation to currently marketed LCA.
9.84. The European Union had origin ally argued, in its first written submission, th at the Panel
should conduct an aggregated analysis of "the aeronautics R&D subsidies", which it alleged to
cause adverse effects "through both technology and price causal mechanisms". 2784 The
United States objected to the aggregation of the FAA aeronautics R&D subsid y with the NASA and
DOD aeronautics R&D subsidies. It also objected to the aggregation of the aeronautics R&D
subsidies for purposes of analysing their effects through a price causal mechanism because the
original panel had concluded that the aeronautics R&D subsidies did not operate through a price
causal mechanism. 2785 As the European Union's arguments regarding the alleged effects of the
aeronautics R&D subsidies have developed throughout the course of the proceeding, however, it
has em erged that the European Union i s alleging only that (except as described below) the
post-2006 aeronautics R&D subsidies should be analysed as operating through a price causal
mechanism, and accordingly that only the post -2006 aeron autics R&D subsidies should be
aggregated for this purpose. 2786 With this clarification of the European Union's argument
concerning the subset of aeronautics R&D subsidies that should properly be aggregated for
purposes of assessing their effects through a price causal mechanism, it would seem that the latter
objection of the United States is moot.2787
9.85. The European Union's position regarding the FAA aeronautics R&D subsid y requires
additional explanation. The European Union argues that the flight test funding under the FAA
aeronautics R&D subsid y operates through a technology causal mechanism, while the non -flight
test funding under that subsidy operates through a price causal mechanism. 2788 However, it has
also requested the Panel to analyse the flight te st funding aspect of the FAA aeronautics R&D
subsidy as operating through a price causal mechanism if the Panel decides to reject its technology
effects arguments regarding this aspect of the FAA aeronautics R&D subsid y.2789 We consider that
it is appropriate to aggregate the non -flight test funding under the FAA aeronautics R&D subsid y
with the post-2006 NASA and DOD aeronautics R&D subsidies, owing to the fact that this aspect of

2782 According to the European Union, the inability to "link" the majority of the post-2006 aeronautics
R&D subsidies to Boeing LCA arises from the nature of these subsidies as funding early-stage R&D intended to
create technologies that will not appear on aircraft for years or even decades. (European Union's response to
Panel question No. 158, para. 72). The post-2006 aeronautics R&D subsidies are therefore "similar in nature"
to the pre-2007 aeronautics R&D subsidies. (European Union's response to Panel question No. 43, para. 280).
2783 European Union's response to Panel question No. 43, para. 280.
2784 European Union's first written submission, para. 956.
2785 United States' first written submission, para. 752.
2786 European Union's second written submission, para. 933; opening statement at the meeting with the
2787 In other words, we do not understand the United States to object to the aggregation of the
post-2006 aeronautics R&D subsidies for purposes of examining their effects through a price causal
mechanism, provided the European Union does not include in that aggregated group any aeronautics R&D
subsidies that are alleged to operate through a technology causal mechanism.
2788 See Allocation of Post-2006 R&D Subsidies through Technology and Price Causal Mechanisms,
(Exhibit EU-1265). See also fn 2753 above.
2789 European Union's response to Panel question No. 43, fn 352.

the FAA aeronautics R&D subsid y is alleged to operate through a price causal me chanism in the
same way as the majority of post-2006 NASA and DOD aeronautics R&D subsidies.2790
9.86. Accordingly, in conducting our assessment of the effects of the post -2006 aeronautics R&D
subsidies through a price causal mechanism, we will aggregate the post -2006 NASA and DOD
aeronautics R&D subsidies with the non -flight test funding portion of the FAA aeronautics R&D
subsidy.
9.2.3.4 Whether any of the aggregated groupings of subsidies should be further
aggregated with each other
9.87. In the analysis of the nature and operation of the various subsidies at issue above, we have
concluded that it is appropriate for us to aggregate them into the following four general categories,
and for the subsidies so aggregated, conduct an integrated analysis of their effects within each
category:
a. Pre-2007 aeronautics R&D subsidies, which are alleged to operate through a technology
causal mechanism.
b. Tied tax subsidies; i.e. the Washington State and City of Everett B&O tax rate
reductions, both of which correspond directly with sales of Boe ing LCA, such that
fluctuations in Boeing's total sales volumes do not affect the calculus regarding the
profitability of a particular sale.2791
c. State and local cash flow subsidies; i.e. the remaining Washington State subsidies and
the South Carolina subsidi es, owing to their nature as subsidies that Boeing receives in
connection with its LCA production activities generally, which operate to provide Boeing
with the equivalent of additional cash flow.
d. Aeronautics R&D subsidies alleged to operate through a price causal mechanism; i.e. the
post-2006 NASA and DOD aeronautics R&D subsidies and the non -flight test funding
portion of the FAA aeronautics R&D subsidy.
9.88. Based on the foregoing analysis and concl usions, we do not consider it appropriate to
further aggregate any of categories of subsidies with each other in analysing their effe cts. In order
to provide additional clarity, we explain this aspect of our analysis further.2792
9.89. The tied tax subsidies and the state and local cash flow subsidies, although both ultimately
operating through a price causal mechanism , are sufficiently different in their nature that it is not
appropriate to aggregate these subsidies and assess their effects in an integrated manner. 2793 This
does not mean that the effects of these two distinc t categories of aggregated subsidies ca nnot
subsequently be cumulated, provided one category is found to be a genuine and substantial cause
of adverse effects in the post-implementation period, and the other is a genuine cause, the effects
of which "comple ment and supplement" those of the first category. We addre ss this later in our
analysis.2794
9.90. As to whether the Panel should aggregate the state and local cash flow subsidies with the
post-2006 aeronautics R&D subsidies and conduct an integrated analysis of t heir effects, our
reasons for declinin g to do so are as follows: The state and local cash flow subsidies are state
location investment incentives that are provided in return for Boeing's location of its manufacturing
facilities in a particular place (and c onsequent investment in the local economy and creation of
local employment opportunities). In very general terms, they are designed to offer Boeing a
lower-cost manufacturing proposition for aircraft currently or soon to be in production than Boeing

2790 In Section 9.3.2.1.4, we evaluate the effects of the flight test funding portion of the FAA aeronautics
R&D subsidy, operating through a technology causal mechanism, on Boeing's development of technologies for
its various new generation LCA.
2791 We recall that the City of Everett B&O tax rate reduction does not apply to the 737NG and 737 MAX
programmes, because only the 787 (and 777X) is produced in the City of Everett.
2792 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1299.
2793 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1326.
2794 See paras. 9.468 and 9.469 below.

could presumably find by locating its production facilities elsewhere. The aeronautics R&D
subsidies are federal government measures that are designed to incentivize the U.S. aeronautics
industry to conduct R&D that industry would not otherwise consider it cost -efficient to undertake
at that time, with a view to enhancing the speed at which industry is able to develop new
technologies for application to future generations of LCA over an extended time horizon.
9.91. The European Union argues that the aeronautics R&D su bsidies also enable Boeing to lower
the prices of the LCA that Boeing currently produces and markets, because Boeing can continue to
mature the technologies it is researching without having to pay licence fees for the access to and
use of the intellectual property generated by the subsidized R&D. Regardless of whether we
consider that argument plausible or substanti ated, we note that the post-2006 aeronautics R&D
subsidies are connected in an even more indirect and speculative manner to production of any
existing LCA than the state and local cash flow subsidies. We therefore regard the nature and
operation of the post -2006 aeronautics R&D subsidies, even assuming arguendo that they are
theoretically capable of being a nalysed in the way the European Union ass erts; i.e. as providing
Boeing with access to and use of research results that enable it to continue maturing technologies
for the development of future LCA without having to pay licence fees for such access and use, as
sufficiently distinct from the way in which the state and local cash flow subsidies are said to affect
Boeing's LCA pricing. We therefore do not consider it appropriate to aggregate these two
categories of subsidies with each other and conduct an integrated analysis of their effects.
9.92. We reach a similar conclusion regar ding the aggregation of the tied tax subsidies with the
post-2006 aeronautics R&D subsidies, owing to the different nature of these two groupings of
subsidies, and the way they are alleged to operate to affect Boeing's LCA prices.
9.93. For the sake of completeness, we also consider that it is not appropriate to aggregate the
pre-2007 aeronautics R&D subsidies with any of the other aggregated groupings of post -2006
subsidies. This is because the pre -2007 aeronautics R&D subsidies ar e alleged to operate through
a technology causal mechanism, which is significantly different from the price causal mechanism
alleged in relation to the post -2006 subsidies. However, the fact that we do not consider it
appropriate to aggregate the pre -2007 ae ronautics R&D subsidies with the post -2006 subsidies
when analysing their effects does not mean that we will not consider, at a subsequent po int in the
analysis, whether the effects of the pre-2007 aeronautics R&D subsidies on Airbus' LCA sales and
prices should be cumulated with those of any of the other subsidies at issue , provided we have
established that one of those categories of subsidies is a genuine and substantial cause of those
effects and the other is a genuine cause of those same effects.2795
9.94. In re aching these conclusions, we have endeavoured to ensure that our analysis of the
effects of the multiple subsidies in this proceeding is not unduly segmented or "atomized", and
that our decisions to aggregate certain subsidies in order to conduct an integr ated analysis of their
effects enable us to determine that there is a "genuine and substantial relationship of cause and
effect" between the subsidies and the alleged market phenomena in Article 6.3.2796
9.2.3.5 Summary of conclusions regarding the aggregation of particular subsidies
9.95. Based on the nature and operation of the U.S. subsidies before us, it is appropri ate to
aggregate the subsidies into the following categories and to conduct an integrated analysis of the
effects of the subsidies within each of these categories:
a. Pre-2007 aeronautics R&D subsidies , which are alleged to operate through a technology
causal mechanism.
b. A tied tax subsidies category, comprising the Washington State B&O tax rate reduction
and the City of Everett B&O tax rate reduction.
c. State and local cash flow subsidies, comprising all of the non -aeronautics R&D subsidies
that are not tied tax subsidies, aggregated into a single category.

2795 We consider this approach consistent with the guidance in Appellate Body Report, US – Large Civil
Aircraft (2nd complaint), para. 1320.
2796 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1284.

d. Post-2006 aeronautics R&D subsidies (NASA, DOD, and FAA) which, in contrast to the
pre-2007 aeronautics R& D subsidies, are alleged to operate th rough a price causal
mechanism.
9.2.4 The relevant time -period over which to assess whether the European Union has
demonstrated that the United States has failed to take appropriate steps to remove the
adverse effects
9.96. We recall that with respect to its claims under Articles 5 and 6.3 of the SCM Agreement in
the original proceeding, the European Communities requested the panel to assess the existence of
present adverse effects caused by the challenged subsidies over the period 2004-2006.2797
Accordingly, the panel conducted its assessment of whether the effect of the subsidies at issue was
serious prejudice within the 2004 to 2006 period. However, it explained that it would not limit the
temporal scope of the evidence that it cons idered relevant in undertaking that assessment, and
therefore, would take into account all of the relevant evidence submitted in the proceeding.2798
9.97. In this proceeding, the Panel must determine wheth er the United States has taken
appropriate step s to remove the adverse effects , within the meaning of Article 7.8 of the SCM
Agreement. The European Union has chosen to discharge its burden of demonstrating the failure of
the United States to take such appropriate steps by purporting to show that variou s subsidies that
have not been withdrawn , within the meaning of Article 7.8 , are causing adverse effects after the
end of the implementation period. The European Union argues that the Panel should assess
"whether the subsidies that the United States has failed to wi thdraw, and that it grants or
maintains after the end of the implementation period on 24 September 2012, cause present
adverse effects after the end of that implementation period." 2799 In response to a question from
the Panel, the European Union further clari fied that the "reference period" for purposes of
assessing whether any non -withdrawn subsidies "presently" cause adverse effects is the period
since the end of the implementation period, and not a period that begins immediately after the
reference period f rom the original proceeding (i.e. 2004 t o 2006) or any date prior to
24 September 2012.2800
9.98. The evidence submitted by the European Union in its first written submission concerning the
alleged non-withdrawal of the subsidies the subject of the DSB recommendati ons and rulings, and
the granting and maintaining of additional closely connected subsidies, covers the pre -2007
aeronautics R&D subsidies at issue in the original proceeding, as well as aeronautics R&D subsidies
and other subsidies that have allegedly come into existence since the date of the panel req uest in
the original proceeding; i.e. subsidies alleged to exist since 2007. The evidence submitted by the
European Union in its first written submiss ion to substantiate its allegations of serious prejudice
concerns LCA sales campaigns between the relevant Boeing and Airbus aircraft that occurred
between 2007 and 2012, as well as order, delivery and pricing data for the period 2007 to 2012.
9.99. The general absence in the European Union's first written submission of direct evidence as
to the existence of subsidies or of the market phenomena identified in Article 6.3 for the period
after 23 September 2012 is a consequence of the timing of the European Union's panel request
and filing of its first written submission in relation to the expiration of the reasonable period of
time for the United States to comply with the DSB recommendations and rulings in the original
proceeding. We briefly recount the relevant events.
9.100. Under Article 7.9 of the SCM Agreement, the Unite d States had until 2 3 September 2012
to comply with the DSB recommendations and rulings to "take appropriate steps to remove the
adverse effects or withdraw the subsidies". 2801 On 23 September 2012, the United States notified
the European Union that the United States had taken a number of actions allegedly withdrawing
the subsidies or removing their adverse effects. 2802 The European Union requested consultations

2797 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1677.
2798 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1679.
2799 European Union's first written submission, para. 832; response to Panel question No. 155, para. 52.
2800 European Union's response to Panel question No. 155, para. 52 and fn 73.
2801 Dispute Settlement Body, Minutes of the meeting held on 23 March 2012, WT/DSB/M/313
(circulated 29 May 2012), para. 79.

with the United States on 25 September 2012.2803 Consultations were held on 10 October 2012,
with a view to reaching a mutually satisfactor y solution. The next day, on 11 October 2012, the
European Union requested the establishment of a panel in accordance with Articles 4.4 and 7.4 of
the SCM Agreement and Article 21.5 of the DSU. 2804 As a result of the Panel's pr eliminary rulings
regarding information gathering un der Article 13 of the DSU on 26 November 2012, the Panel
posed a number of questions to the U nited States in December 2012, based in large part upon
questions that had previously been prepared by the Euro pean Union in the context of its request
that the DSB initiate an Annex V procedure. 2805 Those questions generally sought information
regarding the existence or continuation of various alleged subsidy programmes as well as
information regarding Boeing's LCA o rders, deliveries, and pricing. The United States provided its
responses to the Panel's requests for information pursuant to Article 13 of the DSU in January,
February, and March of 2013.2806 The European Union filed its first and second written submissions
in this proceeding on 28 March 2013 and 23 July 2013, respectively. The substantive meeting with
the parties was held on 29 to 31 October 2013.
9.101. In sum, the short period of time that had elapsed since the end of the implementation
period on 24 September 2012 and the European Union's initiation of the compliance proceeding
through the request for the establishment of a panel (11 October 2012) and consequent filing of
its first written submission (28 March 2013), necessarily meant that the information that the
European Union was able to present as to the existence or continuation of the challenged
subsidies, and the market phenomena in Article 6.3, for the period after 23 September 2012, was
relatively limited. It has also given rise to an issue concerning the European Union's allegations
that the U.S. subsidies benefiting the 777X cause adverse effects in the post -implementation
period, because at the time of the expiration of the implementation period, as w ell as the time of
the European Union's panel request, the 777X had not yet been offered for sale.
9.102. The 777X was formally launched on 17 November 2013, which is after the date of the
European Union's panel request and subsequent to the meeting of the Panel with the parties. 2807
The European Union had referred to the imminent launch of the 777X in its first written submission
and argued that the adverse effects of the U.S. subsidies would be enhanced once that aircraft
was launched.2808 It also argued that the U.S. subsidies benefiting the 777X presently caused a
threat of significant lost sales and of threat of significant price suppression.2809
9.103. In September 2015, the Panel requested the European Union to update the information on
which it relies to demonstrate its claim of adverse effects to include 2013 and 2014, and to the
extent possible, the elapsed portion of 2015.2810 In response, the European Union updated both its
lost sales and displacement evidence to include the most recent data and developments since
2013, as well as certain (but not all) pricing information u nderpinning its significant price
suppression arguments.2811 In this context, it submitted evidence concerning a number of sales
campaigns involving the 777X which the European Union alleges are evidence of significant lost
sales of the A350XWB. The European Union argues that these sales demonstrate that the previous

2803 European Union's request for consultations.
2804 European Union's request for the establishment of a panel, para. 34.
2805 The Panel's rulings regarding the applicability of the Annex V procedures to this compliance
proceeding, and the request that the Panel seek information pursuant to its authority under Article 13 of the
DSU by posing to the United States the questions that the European Union had prepared for submission under
Annex V of the SCM Agreement, are set forth in the Preliminary Ruling and Decision regarding Information-
Gathering under Article 13 of the DSU, dated 26 November 2012, in Annex E-1 to this Report.
2806 United States' response to the Panel's request for information pursuant to Article 13 of the DSU,
dated 25 January 2013, response to question Nos. 1-4, 11, 23, 24, and 30; response to the Panel's request for
information pursuant to Article 13 of the DSU, dated 28 February 2013; and United States' communication in
response to the Panel's request for information pursuant to Article 13 of the DSU, dated 22 March 2013
(Exhibit USA-176).
2807 Boeing Press Release, "Boeing Launches 777X with Record-Breaking Orders and Commitments",
17 November 2013, (Exhibit EU-1299), p. 2.
2808 European Union's first written submission, para. 1198.
2809 European Union's first written submission, paras. 1555, 1318-1328, and 1555-1566; second written
submission, paras. 1445-1452 and 1508-1515. The European Union's claims of impedance and displacement
(including threat thereof) do not appear to involve the 777X. (See European Union's response to Panel question
No. 169, paras. 457-487).
2810 Panel question No. 169, 15 September 2015.
2811 European Union's response to Panel question Nos. 169 and 170.

threat of significant lost sales and the threat of significant price suppression have both now
manifested.2812
9.104. The United States argues in its first written submi ssion that, because the 777X was not
launched at the time of the European Union's panel request, alleged effects of subsidies to the
777X could not contribute to a finding that there was non-compliance at the end of the compliance
period, or that there were adverse effects as of the DSB's referral of the matter to the Panel.2813 In
other words, the European Union must show that the alleged adverse effects existed at the time
the matter was referred to the Panel.2814
9.105. The European Union responds that evidence coming into existence after the date of the
panel request which demonstrates the adverse effects caused by the U.S. subsidies benefiting the
777X is relevant to the Panel's assessment. It considers that the Panel is not precluded from
finding that the U.S. subsidies benefiting the 777X cause pre sent adverse effects merely because
the effects occurred after the date of the panel request. 2815 More generally, the European Union
argues that the relevant time -period for the Panel's determination of wheth er any non-withdrawn
subsidies "presently" cause ad verse effects is the period after 2 3 September 2012 ( i.e. the
post-implementation period ). In making that determination, the Panel should not limit the
temporal scope of the evidence that it considers relevant, and should take into account all relevant
evidence submitted in this dispute. The European Union therefore purports to provide evidence of
"present adverse effects", including relevant evidence from past time -periods, which it considers
"consistent with a longer -term counterfactual".2816 Moreover, it ar gues that evidence of adverse
effects prior to 24 September 2012 is "relevant and probative" as regards the Panel's assessment
of present adverse effects where the United States has failed to remove any of the subsidies at
issue, has granted new subsidies that are similar to its earlier subsidies, and the conditions of
competition in which these subsidies cause present adverse effects have remained largely
unchanged during the entire post-2007 period.2817
9.106. We disagree with the United States to the extent that it maintains its objection to the
Panel's consideration of adverse effects involving th e 777X on the basis that the 777X only came
into existence after the date of the European Union's panel request. The European Union's panel
request identifies measures that existed at that time (including U.S. subsidies alleged to benefit
the 777X) which are alleged to be specific subsidies that have not been withdrawn as of the
expiration of the implementation period, and makes claims of adverse effects caused by those
subsidies in relation to the 777X in the post -implementation period. In determining whether the
United States has taken appropriate step s to remove the adverse effects, within the meaning of
Article 7.8, the Panel should take into account developments subse quent to the date of the panel
request to the extent that there is such evidence before it and that evidence is relevant to the
question of whether compliance has been achieved.
9.107. More generally, we consider that, consistent with the approach taken by the original panel,
we will not limit the temporal scope of the evidence that may be relevant to undertaking our
assessment, and therefore will examine the entirety of the evidence submitted by the parties,
including the most recent evidence, in light of the parties' arguments. However, we recognize that,
in order for the European Union to make its case that the United States has failed to comply with
Article 7.8 of the SCM Agreement, it must establish the existence of adverse effects, in the form of
serious prejudice within the meaning of Articles 5 (c) and 6.3 of the SCM Agreement, in the post -
implementation period, i.e. in the period after 23 September 2012. Accordingly, our conclusions as
to whether the European Union has demonstrated that any or all of the U. S. subsidies that t he
United States has failed to withdraw, within the meaning of Article 7.8, cause adverse effects, will
focus on serious prejudice data presented by the parties with respect to the post -implementation

2812 European Union's response to Panel question No. 169, paras. 175, 179, 191, and 548. The
European Union also argues that options and purchases rights for additional 777Xs provided to customers in a
number of sales campaigns in the 2013-2015 period constitute a further threat of significant lost sales.
(European Union's response to Panel question No. 169, paras. 211 (Emirates 2013), 227 (Qatar Airways 2013),
and 317 (Etihad Airways 2013)).
2813 United States' first written submission, para. 699.
2814 See also United States' response to Panel question No. 42, fn 190.
2815 European Union's comments on the United States' response to Panel question No. 42,
paras. 259-261.
2816 European Union's first written submission, para. 834.
2817 European Union's response to Panel question No. 155, para. 53.

period, as it is only with respect t o the effects found to exist in th is period that the United States
may be found to have failed to comply with its obliga tion under Article 7.8 to take appropriate
steps to remove the adverse effects.
9.108. We next evaluate, for the relevant groupings of competing Boeing and Airbus aircraft,
whether the European Union has demonstrated that the subsidies at issue are a genuine and
substantial cause of serious prejudice to its interests, within the meaning of Articles 5(c) and 6.3,
in the post-implementation period. We begin with an evaluation of the effects of the 787 and 777X
which are alleged to adversely affect sales and prices of the A350XWB and A330.
9.3 Whether subsidies benefiting the 787 and 777X cause serious prejudice to the
interests of the European Union, within the meaning of Articles 5(c) and 6.3, in respect
of the A350XWB and A330 in the post-implementation period
9.3.1 Introduction
9.109. In this Section , we evaluate the European Union's case that the United States grants or
maintains subsidies to Boeing benefiting the 787 and 777X which cause present adverse effects, in
the form of certain kinds of serious prejudice to its interests, within the meaning of Articles 5(c)
and 6.3, in respect of the A350XWB and A330 in the post-implementation period.
9.110. As previously expl ained, the European Union for the most part presents its arguments as
to how certain aeronautics R &D subsidies operate through a technology causal mechanism and
how the majority of post-2006 subsidies operate through a price causal mechanism on a horizontal
basis; i.e. based on the nature of the particular subsidy or subsidy groups at issue, rather than the
particular Boeing LCA said to be subsidized by the various subsidies in combination. 2818
Accordingly, in Section VII.E of its first written submission, the European Union purports to
establish a "genuine" and "substantial" causal link between certain aeronautics R&D subsidies and
"present adverse effects through a technology effects causal mechanism". 2819 In Section VII.F of
its first written submission, the European Union purports to establish a "genuine" and "substantial"
causal link between the majority of the post -2006 subsidies and "present adverse effects through
a price-based causal mechanism".2820
9.111. In Section VII.H of its first written submission, dealing w ith the effects of the subsidies
benefiting the 787 and 777X on the A350XWB and A330, the European Union presents its case
that the "combined effects of: (i) certain of the US aeronautics R&D subsidies that improve the
quality and accelerate the launch and availability of delivery positions of these Boeing LCA; and (ii)
the other US subsidies that enable lower Boeing prices, constitute a "genuine and substantial "
cause of the adverse effects discussed below, and the corresponding harm to Boeing's sole
competitor – Airbus."2821
9.112. Owing to the conceptual and empirical differences underlying the European Union's main
case of post-implementation serious prejudice to its interests in respect of the A350XWB, and the
parallel argument that the serious prejudice caused by the pre-2007 aeronautics R&D subsidies
that arose in 2004 -2006 in respect of the A330 and Original A350 continue s in the post -

2818 See e.g. European Union's first written submission, section VII.E (Technology Causal Mechanism)
and section VII.F (The U.S. Subsidies Cause Adverse Effects Through a Price Causal Mechanism), dealing in a
horizontal fashion with the arguments concerning the technology causal mechanism and price causal
mechanism, compared to section VII.H (Effects of U.S. Subsidies Benefiting the 787 and 777X on the A330 and
A350XWB), section VII.I (Effects of U.S. Subsidies Benefiting the 737 MAX on the A320neo), and section VII.J
(Effects of the U.S. Subsidies Benefiting the 737NG on the A320ceo), dealing with the collective effects of all of
the subsidies benefiting the various Boeing aircraft on the competing Airbus aircraft.
2819 See European Union's first written submission, para. 1205.
2820 See European Union's first written submission, para. 1223.
2821 European Union's first written submission, para. 1199. The European Union's main case as outlined
in section VII.H of its first written submission is that the effects of: (a) certain aeronautics R&D subsidies which
improve the quality and accelerate the launch and delivery positions of the 787 and 777X LCA family aircraft
(the so-called technology causal mechanism); and (b) the majority of the post-2006 subsidies which enable
Boeing to lower its 787 and 777X prices (the so-called price causal mechanism), collectively, are a "genuine
and substantial" cause of: significant lost sales (and threat of significant lost sales) of the A350XWB; significant
price suppression (and threat of significant price suppression) of the A350XWB; and impedance and threat of
impedance of the A350XWB in the U.S. market and a number of third country markets.

implementation period as present serious prejudice in respect of the A330 and A350XWB, we
examine the two lines of argument separately.
9.113. First, i n Section 9.3.2, we address the European Union's main case : whether certain
subsidies granted or maintained by the United States after the end of the implementation period
and benefiting the 787 and 777X cause serious prejudice to the interests of the European Union ,
within the meaning of Articles 5(c) and 6.3 , with respect to the A350XWB in the
post-implementation period. Second, i n Section 9.3.3, we address the European Union's par allel
argument that the original serious prejudice to its interests caused by the pre-2007 aeronautics
R&D subsidies that arose in 2004 -2006 in respect of the A330 and Original A350 continue s in the
post-implementation period as serious prejudice to its in terests with respect to the A330 and
A350XWB.
9.3.2 The European Union's main case: Whether the pre -2007 aeronautics R&D
subsidies and certain post -2006 aeronautics R&D subsidies combined with the other
post-2006 subsidies cause serious prejudice to the interes ts of the European Union,
within the meaning of Articles 5(c) and 6.3, in respect of the A350XWB in the
post-implementation period
9.114. The European Union alleges that certain aeronautics R&D subsidies and the majority of the
post-2006 subsidies , collectively, are a genuine and substantial cause of the following forms of
serious prejudice with respect to the A350XWB in the post-implementation period:
a. Significant lost sales of the A350XWB , within the meaning of Article 6.3(c) of the SCM
Agreement, and threat thereof.2822
b. Impedance of imports of the A350XWB to the United States, within the meaning of
Article 6.3(a) of the SCM Agreement, and threat thereof.2823
c. Impedance of exports of the A350XWB , within the meaning of Article 6.3(b) of the SCM
Agreement, to the Chilean, Qatari, United Arab Emirates, Mexican, Ethiopian, and

2822 As evidenced by the following LCA sales campaigns involving the 787 or 777X in competition with
the A350XWB occurring between 2007 and 2015: Qatar Airways 2007 and 2013 (European Union's first written
submission, paras. 1410-1429; second written submission, paras. 1306-1320; and response to Panel question
No. 169, paras. 212-227, 452, and fn 861); British Airways 2007 and 2013 (European Union's first written
submission, paras. 1430-1441; and second written submission, paras. 1289-1305 and 1321-1331); LAN
Airlines 2007 (European Union's first written submission, paras. 1450-1462; second written submission,
paras. 1343-1355; and response to Panel question No. 169, para. 452 and fn 861); ILFC 2007
(European Union's first written submission, paras. 1463-1476; and second written submission, paras. 1356-
1369); Virgin Atlantic Airways 2007 (European Union's first written submission, paras. 1477-1484; second
written submission, paras. 1370-1378; and response to Panel question No. 169, para. 452 and fn 861); Etihad
Airways 2008, 2011 and 2013 (European Union's first written submission, paras. 1485-1498; second written
submission, paras. 1379-1395; and response to Panel question No. 169, paras. 294-317 and 325); United
Airlines 2010, 2012, and 2013 (European Union's first written submission, paras. 1499-1511; second written
submission, paras. 1260-1273 and 1396-1411; and response to Panel question No. 169, paras. 319-322); Air
France-KLM 2011 (European Union's first written submission, paras. 1512-1531; second written submission,
paras. 1412-1424; and response to Panel question No. 169, para. 452 and fn 861); Aeromexico 2012
(European Union's first written submission, paras. 1532-1545; second written submission, paras. 1425-1434;
and response to Panel question No. 169, para. 452 and fn 861); Singapore Airlines 2013 (European Union's
second written submission, paras. 1274-1288); Emirates 2013 (European Union's response to Panel question
No. 169, paras. 193-211); Cathay Pacific 2013 (European Union's response to Panel question No. 169,
paras. 228-247); Lufthansa 2013 (European Union's response to Panel question No. 169, paras. 248-274); All
Nippon Airlines 2014 and 2015 (European Union's response to Panel question No. 169, paras. 275-293, 323,
and 324); and Ethiopian Airlines 2015 (European Union's response to Panel question No. 169, paras. 326 and
327). More generally, see European Union's first written submission, paras. 1311 and 1407-1566; second
written submission, paras. 866, 1159-1203, and 1256-1452; and response to Panel question Nos. 42,
paras. 255 and 273, and 169, paras. 171-328 and 409-452.
2823 As evidenced by the United Airlines 2010 sales campaign, alleged to be a significant lost sale of the
A350XWB (European Union's first written submission, paras. 1586 and 1587; second written submission,
paras. 1532-1536; and response to Panel question No. 169, paras. 459-461).

Japanese third country markets 2824, and to the Chinese and Indian third country
markets, and threat thereof,.2825
d. Significant price suppression of the A350XWB, within the meaning of Article 6.3(c) of the
SCM Agreement, and threat thereof.2826
9.115. For each of the sales campaigns said to evidence significant lost sales of the A350XWB, the
European Union alleges that the "subsidy -enhanced features" of the 787 and 777X; i.e. both the
technological advancements of the ai rcraft (resulting in lower fuel burn and maintenance costs)
and its earlier delivery availability, as well as the "subsidy -enabled aggressive pricing conditions
Boeing offered" were a genuine and substantial cause of the customer's decision to order the 78 7
or 777X, as the case may be, over the competing model of A350XWB. 2827 The European Union's
impedance and significant price suppression claims as described above are also based on the
assertion that the suppression of A350XWB prices occurred due to a combination of very low prices
and the "advanced technology and early availability" of the 787.2828
9.116. The Panel adopts a unitary approach to establishing causation, under which prices, sales,
market share, and other indicators of competitive harm are not assessed in i solation, but rather as
part of an integrated causation analysis. 2829 Our analysis is counterfactual in nature: we ask
whether, but for the effects of the various subsidies, Airbus' sales, prices and market share would
be higher. We will analyse the effects of the subsidies in two related phases: First, we examine the
effects, if any, of the relevant category of subsidies on Boeing's product development and pricing

2824 Based on the following sales campaigns, each of which is alleged to be a significant lost sale of the
A350XWB: LAN 2007 (European Union's first written submission, paras. 1590 and 1591; second written
submission, paras. 1547-1550; and response to Panel question No. 169, paras. 466 and 467); Qatar 2007
(European Union's first written submission, paras. 1608 and 1609; second written submission,
paras. 1578-1580; and response to Panel question No. 169, paras. 484 and 485); Etihad 2008, 2011, and
2013 (European Union's first written submission, paras. 1610 and 1611; second written submission,
paras. 1581-1584; and response to Panel question No. 169, paras. 486 and 487); Aeromexico 2012
(European Union's first written submission, paras. 1606 and 1607; second written submission,
paras. 1574-1577; and response to Panel question No. 169, paras. 482 and 483); Ethiopian 2015
(European Union's response to Panel question No. 169, paras. 470-472); and All Nippon Airlines 2014 and
2015 (European Union's response to Panel question No. 169, paras. 478 and 479). On account of Lion Air
having cancelled its 2012 order for 787 aircraft, the European Union no longer argues that U.S. subsidies
caused displacement in the Indonesian market for new technology, twin-aisle LCA (see European Union's
response to Panel question No. 169, fn 863).
2825 Based on evidence that Boeing is projected to make more than 50% of present and future deliveries
of "new technology, twin-aisle" aircraft into these markets. (European Union's first written submission,
paras. 1592, 1593, 1598, and 1599; second written submission, paras. 1551-1553 and 1560-1563; and
response to Panel question No. 169, paras. 468, 469, 476, and 477).
2826 As evidenced by aggregate average A350XWB prices between 2007 and 2015 as well as evidence
from sales campaigns from 2007 and 2010-2015 purporting to show that the 787 and 777X, and the
"subsidy-enhanced low prices" of these aircraft forced Airbus to lower its A350XWB prices below what it would
otherwise have been able to achieve (European Union's first written submission, paras. 1277-1328; second
written submission, paras. 1463-1515; and response to Panel question Nos. 170, paras. 546, 548, 550-556,
and 559-565, and 166, para. 153).
2827 European Union's first written submission, paras. 1410-1544; second written submission,
paras. 1260-1434; and response to Panel question No. 169, paras. 182-325. In its discussion of the factors
that allegedly led customers to prefer the 787 or 777X over the competing model of A350XWB, the
European Union addresses, for each sales campaign: (a) "Availability", referring to the alleged earlier launch
and delivery positions for the 787 or 777X, as the case may be, said to be due to the aeronautics R&D
subsidies operating through various aspects of a technology causal mechanism; (b) "Technology", referring to
the innovative technology and related fuel efficiency of the 787 or 777X, as the case may be, again said to be
due to the aeronautics R&D subsidies operating through various aspects of a technology causal mechanism;
and (c) "Pricing", referring to Boeing's allegedly aggressive pricing behaviour that was said to be due to the
post-2006 subsidies operating through a price causal mechanism. See also European Union's first written
submission, paras. 1305-1307 (alleging that the 787's advanced technology and early availability were
deciding factors in identified LCA sales campaigns), and paras. 1311-1313 (alleging that certain "illustrative
competitive sales campaigns, which are largely clustered in two distinct time periods of 2007 and 2010-2012"
show that Boeing's aggressive pricing was a decisive factor in the 787 winning the sale over the A350XWB).
The claims concerning threat of impedance and impedance of A350XWB imports and exports are similarly
based on Boeing's product development and pricing decisions (in each case, said to be the result of U.S.
subsidies to Boeing) which have allegedly resulted in deliveries of the 787 at the expense of deliveries of the
A350XWB. (European Union's first written submission, para. 1583).
2828 See e.g. European Union's first written submission, paras. 1291 and 1298.
2829 See Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1658.

of the 787 and 777X; and second , we examine whether any such effects of the subsidies in
question on Boeing's product development and prices had the alleged impact on A350XWB sales
and prices in the post -implementation period, such that these subsidies constitute a genuine and
substantial cause of the particular forms of serious prejudice alleged by the European Union with
respect to the A350XWB.
9.117. In commencing our evaluation of the European Union's main serious prejudice case with
respect to the A350XWB , we analyse , in Section 9.3.2.1 whether the pre-2007 aeronautics R&D
subsidies and certain post-2006 aeronautics R&D subsidies benefiting the 787 and 777X cause
serious prejudice in respect of the A350XWB in the post -implementation period through a
technology causal mechanism . We then examine, in Section 9.3.2.2, whether certain post -2006
subsidies benefiting the 787 and 777X cause s erious prejudice in respect of the A350XWB in the
post-implementation period through a price causal mechanism.
9.3.2.1 Whether the pre -2007 aeronautics R&D subsidies and certain post-2006
aeronautics R&D subsidies cause serious prejudice to the interests of the European
Union, within the meaning of Articles 5(c) and 6.3, in respect of the A350XWB in the
post-implementation period, through a technology causal mechanism
9.118. The European Union argues that the pre-2007 aeronautics R&D subsidies continue to cause
significant competitive harm to the European Union's LCA-related interests following the end of the
implementation period through their genuine and substantial contribution to Boeing's development
of technologies for its current aircraft and the availability of future Boeing LCA. The
European Union alleges that Boeing benefits from the effects of the pre -2007 aeronautics R&D
subsidies in three main ways, which it refers to as t he "main technology effects" of these
aeronautics R&D subsidies2830:
a. Original subsidy technology effects : Boeing continues to benefit from 787 technologies
that were "found to be the effect" of the original pre -2007 aeronautics R&D subsidies,
which impact the market through sales of the 787.2831
b. Spill-over technology effects : Boeing has benefited from the application of the
"subsidized 787 technologies" to Boeing's more recent 787, 777X (and 737 MAX) LCA
developments.2832
c. Sleeper technology effects: Boeing has de veloped new innovative technologies based in
part on research co nducted under the original aeronautics R&D programmes which it is
now beginning to apply to its most recent LCA developments.2833
9.119. The European Union also argues that certain post-2006 aeronautics R&D subsidies operate
through a further particular "main technology effect" of the technology causal mechanism:
a. New subsidy technology effects : Boeing is the beneficiary of new "post -2006" NASA,
DOD and FAA aeronautics R&D subsidies, which have enabled B oeing to develop new
technologies for its 787-10 and 777X LCA models and enabled their early availability.2834
9.120. The United States disputes that, since the end of the implementation period, the
aeronautics R&D subsidies cause adverse effects through the above -referenced aspects of the
technology causal mechanism alleged by the European Union. The United States considers that the
European Union's allegations are based on the "faulty premise" that the technology effects found
by the original panel have continued past the compliance deadline. Rather, there is no basis for the
European Union's presumption that the current market presence of the 787 and the application of
the 787 technologies are "genuinely and substantially" related to subsidies. 2835 In the original
proceeding, the European Communities did not argue that Boeing never would have launched the
787; only that the 787 would have been launched later than it was. The original panel found that,

2830 European Union's first written submission, para. 982.
2831 European Union's first written submission, para. 983.
2832 European Union's first written submission, para. 984.
2833 European Union's first written submission, para. 985.
2834 European Union's first written submission, para. 986.
2835 United States' first written submission, para. 703.

absent the aeronautics R&D subsidies, Boeing "most likely" would ha ve launched the 787, but
"significantly later" than 2004. Thus, for the United States, the relevant question is not if Boeing
would have launched the 787 without the benefit of the NASA and DOD programmes, but when the
787 launch would have occurred. The U nited States argues that "in a counterfactual without the
WTO-inconsistent R&D subsidies, Boeing would still have developed the technology to make the
787 available as it currently is, launch the 737 MAX when and as it did, and develop the 777X as it
is."2836 For the United States, this refutes most of the European Union's case concerning the
alleged operation of pre-2007 aeronautics R&D subsidies through a technology causal mechanism.
9.121. The United States also disputes that any of the post -2006 aeronautics R&D subsidies
operate through any aspect of a technology causal mechanism.
9.122. In Sections 9.3.2.1.1 through 9.3.2.1.4 we examine whether the European U nion has
established that the pre -2007 aeronautics R&D subsidies, and certain post -2006 aeronautics R&D
subsidies alleged to operate throug h a technology causal mechanism give rise to the particular
forms of technology effects in the post -implementation period that the European Union alleges in
relation to the 787 and 777X. To the extent that we find that these subsidies have such effects on
Boeing's product development of the 787 and 777X, we will then assess the consequent impact on
A350XWB sales and prices in the post -implementation period so as to determin e whether the
subsidies in question, through these technology effects, constitute a genuine and substantial cause
of the particular forms of serious prejudice all eged by the European Union in respect of the
A350XWB.
9.3.2.1.1 Original subsidy technology effects of the pre-2007 aeronautics R&D subsidies
9.123. The European Union has at times framed its "technology effects" arguments on the basis
that the effects of the pre -2007 aeronautics R&D subsidies that are said to continue into the post -
implementation period are the 787 technologies themselves. 2837 The United States disputes such
an interpretation of the original panel and Appellate Body findings. It argues that the panel and the
Appellate Body found only that the aeronautics R&D subsidies accelerated Boeing's development of
787 technologies and thereby enabled it to launch the 787 earlier than would otherwise have been
the case. We therefore begin our evaluation of the European Union's arguments that the original
technology effects of the pre -2007 aeronautics R&D subsidi es on the 787 continue into the
post-implementation period by clarifying the precise finding s regarding the effects of the
aeronautics R&D subsidies in the original proceeding.
9.124. In the original proceeding, the European Communities argued that the aeronauti cs R&D
subsidies accelerated Boeing's development of new, advanced technologies for the 787 and
thereby caused serious prejudice to its interests in respect of competing Airbus aircraft in the
200-300 seat LCA product market.2838 According to the European Com munities, but for Boeing's
participation in the NASA and DOD aeronautics R&D programmes at issue, Boeing would not have
been able to launch a technologically advanced aircraft like the 787 in 2004, with promised
deliveries in 2008. 2839 In evaluating the effec ts of the pre -2007 aeronautics R&D subsidies on
Boeing's development of advanced LCA technologies, the original panel considered that Boeing
"most likely" would have either: (a) developed a 767 -replacement that incorporated all of the

2836 United States' first written submission, para. 708. The United States submits a statement by Boeing
engineers to the effect that, absent the R&D subsidies Boeing would have launched the 787 most likely no later
than 2006, in any case well before September 2012, leaving ample time for Boeing to adapt 787 technologies
to the 777X and 737 MAX.
2837 There are several places throughout the European Union's submissions where the ordinary meaning
of the language chosen by the European Union to express its argument indicates that the European Union
considers that the effects of the pre-2007 aeronautics R&D subsidies on the 787 continue into the
post-implementation as the 787 technologies themselves. Such arguments can only be based on an
assumption that the original panel found that the 787 technologies themselves were the effect of the
aeronautics R&D subsidies. See e.g. European Union's first written submission, paras. 979 and 983; comments
on the United States' response to Panel question No. 156, para. 58.
2838 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1601-7.1604. Specifically, the
European Communities argued that the challenged subsidies "accelerated Boeing's development of new and
advanced LCA technologies, as well as design and manufacturing processes, thereby enabling Boeing to bring
the 787 to market much sooner than it could have on its own", "limited and delayed Airbus' access to
innovative R&D technologies", "increased the marketability of the 787", and "allowed a rapid ramp-up of 787
deliveries". (Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1601).
2839 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1774.

technologies that are featured on the 787, but its launch would have occurred "significantly later"
than 2004 and Boeing would not have been able to promise deliveries for 2008; or (b) launched a
767-replacement in 2004 that, while technologically superior to the 767, was not as technologically
innovative as the 787 that actually launched. 2840 The panel ultimately reasoned that it was not
necessary to determine which outcome would have occurred. It explained:
What is clear to us is that, absent the aeronautics R&D subsidies, Boein g would not
have been able to launch an aircraft incorporating all of the technologies that are
incorporated on the 787 in 2004, with promised deliveries commencing in 2008.2841
9.125. This conclusion was supported by the panel's earlier findings that the aeronautic s R&D
subsidies complemented Boeing's internal product development efforts, and were focused on areas
that "carry the greatest prospect of creating significant competitive advantage" and otherwise
helped Boeing "reduce the time to market". 2842 The panel did n ot consider, however, that the
technologies applied to the 787 were exclusively attributable to work conducted under the
challenged NASA and DOD aeronautics R&D programmes. Instead, the panel recognized that
Boeing's technology developments were "clearly t he product of a variety of factors". 2843 The panel
explained that it would be reasonable to assume that, at some point in time, it would no longer be
possible to characterize the research conducted under the aeronautics R&D programmes at issue
as having contr ibuted in a genuine and substantial way to the technologies applied on a given
product, including the 787. 2844 The panel did not consider that this point had been reached in
2004, however.2845
9.126. The Appellate Body affirmed the panel's overall conclusions regarding the effects of the
aeronautics R&D subsidies at issue, explaining that "{t}he Panel's finding must be understood to
mean that the NASA aeronautics R&D subsidies accelerated the technology development process
by some amount of time, and, therefore gave Boe ing an advantage in bringing its technologies to
market".2846 Elsewhere, the Appellate Body described the aeronautics R&D subsidies as having
provided Boeing with a "boost" 2847 to the development of technologies "at the earliest, most
fundamental, stages of rese arch".2848 We therefore consider that the original panel and the
Appellate Body found that the aeronautics R&D subsidies accelerated Boeing's development of
technologies for the 787, which in turn enabled Boeing to launch the 787 earlier than otherwise
would have been possible, thereby reducing Boeing's time to market with the 787.
9.127. It is clear from the foregoing that neither the panel nor the Appellate Body considered that
the 787 technologies were themselves the effect s of the aeronautics R&D subsidies . The
aeronautics R&D subsidies were not found to have brought into existence any technology or
product that would not otherwise exist. Rather, they accelerated Boeing's development of various
technologies and reduced the time to market of a technologically -advanced product that would

2840 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1775.
2841 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1775.
2842 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1742.
2843 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1758. The panel referred, for
instance, to the significant investments that Boeing and its suppliers had made from 2000 onwards in R&D for
the development of the Sonic Cruiser, the expertise developed by Boeing and certain of its 787 suppliers in the
use of composites in primary and secondary structures, as well as knowledge and experience that Boeing
derived from development of the 777 and 737NG LCA programmes. (Panel Report, US – Large Civil Aircraft (2nd
complaint), para. 7.1757).
2844 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1758. The panel explained as follows:
Boeing's technology developments are clearly the product of a variety of factors.
Indeed, it is reasonable to assume that at some point in time, the contribution of
the NASA -funded re search will diminish in relation to other, more recent or
revolutionary technological developments that are attributable to other factors, and
that it will no longer be possible to characterize the NASA research conducted in
the 1990s as having contributed in a genuine and substantial way to new
technologies applied to future Boeing LCA.
2845 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1758.
2846 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 980 (italics original,
underlining added).
2847 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 986.
2848 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 986.

otherwise have taken Boeing longer to develop and place on the market. 2849 The issue for our
analysis under Article 7.8 of whether the United States has taken appropriate steps to remove the
adverse effects is whether this acceleration of Boeing's development of advanced LCA technologies
that the aeronautics R&D subsidies were found to have in the original proceeding is still evident or
whether it has ended by the end of the implementation period.
9.128. Given that the effect s of the aeronauti cs R&D subsidies found in the original proceeding
were to accelerate Boeing's development of advanced LCA technologies, leading to an earlier than
otherwise launch of the 787, the mere existence of 787 technologies (as applied to the 787, or as
adapted through technological spill -over to the 777X and other newer Boeing LCA) in the post -
implementation period does not demonstrate that this effect continues . Rather, an assessment of
whether this acceleration effect continues to exist in the post -implementation period logically
involves a counterfactual analysis of whether Boeing likely would have been in a different situation
with respect to the timing of its 787 -related technology development absent these aeronautics
R&D subsidies.2850 Specifically, the question is whether it is likely that, absent these subsidies, the
787 technologies would still not have been developed by the end of the implementation period and
thus the 787 would not have been present in the market by that time. It is logical to ask in this
connection how much additional time Boeing would have required to develop the 787 absent these
subsidies because this would indicate whether it is likely that Boeing would have been in the
market with an unsubsidized 787 prior to the expiration of the impleme ntation period, in which
case the pre -2007 aeronautics R&D subsidies can no longer be characterized as contributing in a
genuine and substantial way to Boeing's 787-related technology development.
9.129. With these considerations in mind, the Panel now turns to the arguments and evidence
provided by the parties in support of their estimates of the additional time that it would have taken
Boeing to develop the 787 absent the pre-2007 aeronautics R&D subsidies.2851

2849 The findings of the panel in the original proceeding regarding the nature and effects of the
aeronautics R&D subsidies (i.e. an acceleration effect providing a time to market advantage) can be contrasted
with certain of the findings in EC and certain member States – Large Civil Aircraft regarding the nature and
effects of certain of the subsidies at issue in that dispute. In EC and certain member States – Large Civil
Aircraft, the panel concluded, among other things, that Airbus would have been unable to bring to market the
LCA that it launched but for certain of the subsidies in question. In other words, certain of the subsidies in
question in that dispute enabled the creation and market presence of products that would not otherwise exist.
(See Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.1949 and 7.1984; and
Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1261, 1264-1270, and
1300). See also Panel Report, EC and certain member States – Large Civil Aircraft (Article 21.5 – US),
paras. 6.1464-6.1477.
2850 The use of a counterfactual analysis in this context is consistent with our general approach in this
Section of the Report, in which we consistently assess the effects of subsidies through counterfactual analysis.
2851 We note that the arguments of both the European Union and the United States are premised on the
idea that the proper counterfactual analysis of whether the acceleration effect of the pre-2007 aeronautics R&D
subsidies on Boeing's technology development continues involves an analysis of what the situation would have
been if Boeing had not received these subsidies. This presupposes that the situation that would exist "absent
the subsidies" is the situation that would exist if the subsidies had never been granted. Canada, a third party in
this proceeding, argues that Article 7.8 does not require this approach to the counterfactual analysis. According
to Canada, a Member satisfies its obligation under Article 7.8 if it withdraws subsidies by the end of the
implementation period. For Canada, this means that the appropriate counterfactual analysis to assess the
impact of non-withdrawn subsidies is to consider what the situation would be if the subsidies had been
withdrawn by the end of the implementation period and that a compliance panel is not required to conduct an
analysis of what the situation would be if the subsidies had never been granted in the first place. (Canada's
third-party statement, paras. 30-37; third-party submission, paras. 37 and 44-46). Canada thus considers that
a proper counterfactual analysis of the effects of the pre-2007 aeronautics R&D subsidies in the
post-implementation period requires the identification of the situation that would prevail if these subsidies had
been withdrawn at the end of the implementation period. Canada submits that if the European Union has failed
to demonstrate that the situation regarding sales volume and prices of Boeing aircraft and the resulting impact
on the sales volume and prices of competing Airbus aircraft would be any different if the R&D subsidies had
been withdrawn at the end of the implementation period, the Panel cannot find that the R&D subsidies cause
adverse effects in the post-implementation period. We note, however, that Canada appears to acknowledge
that demonstrating that Boeing's technology developments would not be materially different if it had never
received the subsidies implicitly also demonstrates that Boeing's technology developments would not be
materially different if the subsidies had been withdrawn by the end of the implementation period. (Canada's
third-party submission, para. 45). Therefore, the issue raised by Canada appears to be of limited practical
import in this proceeding and we proceed on the basis of the counterfactual analysis as framed by the parties,

9.130. In its first written submission, the United States s eeks to demonstrate that, absent the
pre-2007 aeronautics R&D subsidies, Boeing would have launched the 787 most likely no later
than 2006, leaving ample time for Boeing to adapt 787 technologies to the 777X and 737 MAX. 2852
In response to the United States' first written submission, the European Union argues that it is not
plausible that Boeing, with its own funding, could have "replicated" in less than two years the
"decades of US Government -supported R&D that enabled the development and launch of the
787".2853 The European Union argues that it would have taken Boeing "at least 10 years to develop
only a number of select LCA technologies and design tools necessary for the 787", and in addition
to the ten years, Boeing would further "require considerable time to develop the knowledge it has
acquired through its decades of experience participating in the US Government -supported R&D
programmes".2854 This time-frame would still be inadequate, as it pertains to the development of
individual technologies, and in reality, it would take even longer to "develop, mature, produce and
certify a package of new innovative technologies and the time required to find the design solution
to make them interact optimally".2855
9.131. We evaluate the merits of these two estimates below. We begin b y explaining the
European Union's "additional 10 years plus" estimate, and the United States' criticisms, and the
United States' "counterfactual launch no later than end of 2006" estimate and the
European Union's criticisms.
The European Union's "additiona l 10 years plus" estimate of the time it would have taken Boeing
to develop the 787 absent the pre-2007 aeronautics R&D subsidies
9.132. The European Union relies on a statement by Airbus engineers to support its estimate that
Boeing would have needed more than ten years to develop the technologies and design tools
acquired from its participation in the relevant aeronautics R&D programmes to be in a position to
develop and launch the 787 absent the pre -2007 aeronautics R&D subsidies (the Airbus
Engineers' Response).2856 The Airbus Engineers' Response was submitted as a response to , and
critique of, a statement of Boeing engineers that supports the United States' estimate.
9.133. The Airbus Engineers Response refers to a number of timeframes in relation to the
development of an LCA, including the time to develop individual LCA technologies and design tools,
and the time to integrate technologies into a final design solution. This includes a ten-year
incubation period, to allow for necessary certification, quality testing and material proofs. The
Airbus engineers explain that it takes at least [***] to develop the requisite composite design and
manufacturing tools, in particular with respect to tolerance specifications .2857 They also describe a
"building block" approach for developing new technologies, which starts from an early study phase,
and continues through design, procurement, production, certification and delivery and inherently
involves trial and error. Finally, they conclude that, were Airbus to undertake development of a
composite 360° barrel design, based on Airbus' knowledge of composites at the time the 787 was
launched in 2004 , it would have taken Airbus [[HSBI]] to develop, mature, produce and certify

i.e. as an analysis of the situation that would likely exist if the aeronautics R&D subsidies had never been
granted to Boeing.
2852 United States' first written submission, para. 709. The United States asserts that it is making this
demonstration to assist the Panel, even though as a legal matter, it has met its burden of rebuttal by showing
that the European Union has failed to address the relevant question in conducting a counterfactual analysis of
the alleged technology effects on the 787, including any "spill-over" effects. (United States' first written
submission, paras. 706 and 707).
2853 Response by B. Domke, P. A. Brown, J. Kumpfert, and I. Whitehouse to the June 2013 Statement of
Boeing Engineers, 19 July 2013 (Airbus Engineers' Response), (Exhibit EU-1014) (BCI), para. 3. The
European Union does not provide an estimate of the length of time it would have taken Boeing to develop the
787 absent the pre-2007 aeronautics R&D subsidies in its first written submission.
2854 European Union's second written submission, para. 975. See also European Union's second written
submission, paras. 975, 1012, and 1031-1041; Airbus Engineers' Response, (Exhibit EU-1014) (BCI), paras. 55
and 63; European Union's response to Panel question Nos. 45 and 154; and European Union's comments on
United States' response to Panel question Nos. 45 and 47.
2855 European Union's second written submission, para. 1031 (emphasis original). The European Union
also criticizes the Boeing engineers' specific estimates of the time it would have taken to complete certain R&D
tasks, and any comparison the Boeing engineers draw to the time it actually took to design and develop the
A350XWB. (Airbus Engineers' Response, (Exhibit EU-1014) (BCI), paras. 48-63 and 67-87).
2856 Airbus Engineers' Response, (Exhibit EU-1014) (BCI).
2857 Airbus Engineers' Response, (Exhibit EU-1014) (BCI), para. 43.

the composite 360° barrel sections for use on the A350XWB. 2858 Based on the Airbus Engineers'
Response, the European Union asserts that it would have taken Boeing "at least [[HSBI]] longer
to deliver the 787, with the launch delayed by a similar amount of time".2859
9.134. The United States argues that the European Union's position that it would have taken
Boeing an unspecified period in excess of ten years to develop technologies and an unspecified
period to actually launch the 787 is unsupported by the evidence. The United States considers
that, a part from being both "highly gener alized" and "unsupported by reference to real -world
experience in the specific technologies at issue" 2860, the European Union's estimate improperly
assumes that Boeing would need to take additional time for work not performed under the R&D
programmes. The Uni ted States argues that the proper counterfactual estimate should only take
into account the additional time required to attain the increased knowledge and experience to
undertake the subsidized aspects of the technology development process of the 787 in or der to fill
the gap in knowledge and experience. By accounting for the entirety of development, maturation,
production, and certification of technologies actually used on the 787, the European Union
attributes to the subsidies all non -subsidized developmen t. By doing so, the European Union
inappropriately double counts the time that it would have taken Boeing to develop the 787 with its
particular technologies, absent the aeronautics R&D subsidies.
9.135. The United States also contends that the European Union ha s never indicated in this
proceeding when it considers the 787 would have launched absent the subsidies, and by extension
has failed to establish that the 787's counterfactual launch would have occurred after the end of
the implementation period.2861 The United States contrasts this ambiguity with the more definitive
position that the European Communities took in the original panel proceeding as to how long it
would have taken Boeing to launch the 787 absent the subsidies: "The European Communities
argues that, had Boeing needed to develop the 787 using its own resources, the 787 would likely
not have been launched any earlier than mid-2006 …".2862
The United States' estimate that, absent the pre -2007 aeronautics R&D subsidies, Boeing would
have launched the 787 no later than 2006
9.136. As support for its estimate that absent the pre -2007 aeronautics R&D subsidies, Boeing
would have launched the 787 no later than 2006, the United States relies on a statement by eight
Boeing engineers who worked on the development of the 787, 777X, and/or 737 MAX (the Boeing
Engineers' Statement).2863 The Boeing engineers purport to estimate the extent of the timing
advantage that the pre -2007 aeronautics R&D subsidies could "maximally" have provided Boeing,
based on the assumption for purpos es of their statement that Boeing did in fact enjoy such a
timing advantage. 2864 They assume that: (a) Boeing (including McDonnell Douglas) had not
participated in the relevant NASA and DOD aeronautics R&D programmes; and (b) aside from that
lack of participa tion by Boeing, the degree of knowledge and technology that Boeing attained
through its independent R&D activities, its suppliers and the broader aeronautics community
remains the same.2865
9.137. The Boeing engineers first discuss Boeing's incentives to conduct ea rly-stage research in
the early 2000s, when Boeing was undertaking intensive pre -launch product development for the
Sonic Cruiser, and then the 7E7, which later became the 787. They then consider the seven
specific 7E7/787 technology areas considered by th e original panel and purport to assess the
"additional time required to replicate the work done by Boeing under the NASA and DOD programs

2858 Airbus Engineers' Response, (Exhibit EU-1014) (BCI), para. 40.
2859 European Union's comments on United States' response to Panel question No. 153, paras. 19 and
42. (emphasis original)
2860 United States' second written submission, para. 782.
2861 United States' comments on European Union's response to Panel question No. 153, paras. 16 and
22, and fn 20.
2862 United States' comments on European Union's response to Panel question No. 153, para. 16
(referring to Panel Report, US – Large Civil Aircraft (2nd complaint), para. 4.280).
2863 Statement of Boeing Engineers Regarding the Technologies and Development of the 787, 737 MAX,
and 777X, June 2013 (Boeing Engineers' Statement), (Exhibit USA-283) (BCI).
2864 The Boeing engineers explain that they disagree with the panel's findings concerning the links
between the pre-2007 aeronautics R&D subsidies and the 787, but assume those findings to be correct for
purposes of their analysis. (Boeing Engineers' Statement, (Exhibit USA-283) (BCI), para. 4).
2865 Boeing Engineers' Statement, (Exhibit USA-283) (BCI), para. 5.

using the internal resources of Boeing and its suppliers ".2866 The engineers explain that "{t}his
assessment is based on examples of the time and effort taken by Boeing and its suppliers to
address early-stage R&D challenges that were either comparable to, or more demanding than, the
types of activities conducted under the NASA and DOD programs" .2867 Finally, the Boeing
engineers discuss the pattern and pace of Airbus' development of the A350XWB, on the basis that
Airbus' ability to announce orders for the A350XWB in July 2006, followed by formal launch that
December, even though it did not have access to the benefits from the p re-2007 aeronautics R&D
subsidies, is a "useful reference point" for analysing the counterfactual timing of the 787
launch.2868
9.138. The Boeing engineers express the view that, even though commercial enterprises may
generally face disincentives to invest in early -stage aeronautics research where the commercial
payoff is highly uncertain, distant or difficult to capture, "such disincentives diminish significantly
where an aircraft manufacturer identifies a compelling need to develop a new product requiring
specific attributes that are difficult or impossible to offer using existing technology ".2869 According
to the Boeing engineers, Boeing faced precisely that situation in the early 2000s when it
determined that a critical priority was to develop a new, highly -efficient mid -sized twin -aisle
aircraft to replace the 767 and serve anticipated demand for point -to-point long-haul travel, while
customers were at the same time demanding significant breakthroughs in efficiency but were
reluctant to pay more than the acquisition cost of the 767 and A330. The Boeing engineers state
that under those circumstances, "Boeing had ample incentive to, and would, undertake whatever
additional early-stage research necessary to augment its ongoing R&D for the 787." 2870 This was
evident from th e risky, early -stage R&D that Boeing actually conducted on a number of
technologies during the 787 development program.2871
9.139. With those considerations in mind, the Boeing engineers provide specific estimates of the
time that would have been required to replica te the work done by Boeing under the pre -2007
NASA and DOD aeronautics R&D programmes found to involve subsidies using the internal
resources of Boeing and its suppliers.2872 Their conclusions are summarized as follows:
a. Composite fuselage: Boeing could have replicated in less than two years the particular
tasks that were accomplished under NASA's Advanced Technology Composite Aircraft
Structures (ATCAS) program, given the scope, scale and complexity of the work and
technical challenges involved, when compared to Boeing's work developing a one -piece
composite barrel design concept for incorporation into the 7E7 baseline design, its
completion of a full -scale demonstration barrel fuselage section and development of
design, tooling and production concepts. 2873 Specifically, it would have taken
approximately 18 months to build and study the ATCAS panelized composite fuselage
section, given that Boeing took [***].2874 It would have taken Boeing [***] if
conducted during the 7E7 development program, given that it took [***] to conclude
"much more exacting and complex costing studies of the barrel fuselage design adopted
for the 787".2875
b. Composite wings: Boeing could have completed construction and testing of a semi -span
composite wing box demonstrator using a stitched/resin filled infusion technology that

2866 Boeing Engineers' Statement, (Exhibit USA-283) (BCI), para. 7. These technology areas are: (a)
composite fuselage; (b) composite wings; (c) aerodynamics and structural design; (d) more-electric
architecture; (e) open systems architecture; (f) health management systems; and (g) noise reduction
technologies.
2867 Boeing Engineers' Statement, (Exhibit USA-283) (BCI), para. 7.
2868 Boeing Engineers' Statement, (Exhibit USA-283) (BCI), para. 8.
2869 Boeing Engineers' Statement, (Exhibit USA-283) (BCI), para. 9.
2870 Boeing Engineers' Statement, (Exhibit USA-283) (BCI), para. 10.
2871 The Boeing engineers also argue that the time required to advance research from technology
readiness levels is significantly reduced when that research occurs in the context of a high-priority aircraft
development program (Boeing Engineers' Statement, (Exhibit USA-283) (BCI), para. 12: "{o}n such a
program, Boeing pre- and post-launch R&D activity proceeds at a much faster pace than NASA R&D
aeronautics programmes because it is subject to tight deadlines and given much greater engineering and
budgetary resources to meet those deadlines").
2872 Boeing Engineers' Statement, (Exhibit USA-283) (BCI), paras. 13-40.
2873 Boeing Engineers' Statement, (Exhibit USA-283) (BCI), para. 23.
2874 Boeing Engineers' Statement, (Exhibit USA-283) (BCI), para. 21.
2875 Boeing Engineers' Statement, (Exhibit USA-283) (BCI), para. 22.

was developed under the NASA's Advanced Subsonic Technology (AST) Program in
approximately 18 months as compared to the [***].2876 Boeing participated in the
composite wing element of the NASA AST Program for a period of five years.2877
c. Aerodynamics and structural design : Boeing could have developed enhanced TRANAIR
and OVERFLOW computational fluid dynamics (CFD) codes in approximately six months
using the level of resources that were available under the 7E7 programme, had Boeing
done the work on its own rather than under the NASA's AST Program. According to the
Boeing engineers, "one Boeing employee worked part -time for 3 years to assess the
TRANAIR and OVERFLOW generic (publicly available) codes".2878
d. More-electric system architecture: Between [***], Boeing made rapid progress [***].
This was because "Boeing was serious about bringing a new aircraft to market" and also
because Boeing took the decision to deploy [***]. In light of the advances made in such
a short time, "it would have taken Boeing even less time to conduct much less ambitious
research, such as that done by McDonnel Douglas on the power -by-wire/fly-by-light
subtask of NASA's AST programme".2879
e. Open systems architecture : Boeing could have developed defined generic open
architecture specifications and component interfaces related to the 787 open systems
architecture in approximately one year (rather than the three years spent by McDonnell
Douglas under the DOD Vehicle Management Systems Integrated Technology for
Affordable Lifecycle Cost (VITAL) Program), given that Boeing [***].2880
f. Health management systems : The 787's health management system is only an
enhanced version of the health management technology used on the 777, and "there
was no need for significant early -stage R&D , and no need for learning or technology
from U.S. Government R&D programs".2881
g. Noise reduction: The technological challenges that Boeing overcame in the [***] during
which it matured and tested the noise reduction technologies for the 787 are comparable
to or greater than those posed by the noise reduction technologies that Boeing had
worked on under the NASA aeronautics R&D programmes.2882
9.140. As regards the estimate for the composite fuselage, the Boeing engineers make two
additional observations. First, they not e that prior to starting work on developing the aircraft that
became the 787, Boeing already had decades of composites experience, from its use of composites
on the 757 and 767 in the late 1970s, to the 737 Classics in the mid -1980s and most importantly,
the 777 in the late -1980s and early 1990s. 2883 Second, they consider that their conclusion that,
starting in late 2002, Boeing could have replicated its work under the ATCAS Program within two
years is confirmed by how quickly Airbus was able to launch the "pr edominantly composite"
A350XWB.2884 Like Boeing, Airbus developed composites expertise over decades, generally
increasing its application of composites with each successive aircraft program me. Similarly, Airbus
leveraged the composites experience of its suppl iers, and did not purs ue the A350XWB until the
commercial imperative arose. 2885 The Boeing engineers note that Airbus was able to announce
orders for the A350XWB in July 2006, a little over two years after Boeing launched the 787, and

2876 Boeing Engineers' Statement, (Exhibit USA-283) (BCI), para. 27. The Boeing engineers submit that
the demonstrator developed under the NASA AST Program [***]. (Boeing Engineers' Statement, (Exhibit USA-
283) (BCI), para. 27).
2877 Boeing Engineers' Statement, (Exhibit USA-283) (BCI), para. 27.
2878 Boeing Engineers' Statement, (Exhibit USA-283) (BCI), para. 30.
2879 Boeing Engineers' Statement, (Exhibit USA-283) (BCI), paras. 33-35.
2880 Boeing Engineers' Statement, (Exhibit USA-283) (BCI), para. 36.
2881 Boeing Engineers' Statement, (Exhibit USA-283) (BCI), para. 37.
2882 Boeing Engineers' Statement, (Exhibit USA-283) (BCI), para. 40.
2883 Boeing Engineers' Statement, (Exhibit USA-283) (BCI), para. 14.
2884 Boeing Engineers' Statement, (Exhibit USA-283) (BCI), para. 24.
2885 According to the Boeing engineers, Airbus needed to develop an aircraft to compete more effectively
with the 787 and 777. (Boeing Engineers' Statement, (Exhibit USA-283) (BCI), para. 24).

only months after Airbus had accepted firm orders for its earlier A350 design. 2886 The Boeing
engineers conclude:
In our view, Airbus' ability to offer the A350 XWB as quickly as it did shows that, with
the right incentives, either of the existing large commercial aircraft manufactu rers can
undertake development of an aircraft with a composite fuselage and then offer that
aircraft to customers in a relatively short period of time.2887
9.141. The European Union makes a number of criticisms of the Boeing engineers' estimate of the
counterfactual launch date of the 787 absent the pre -2007 aeronautics R&D subsidies. First, the
European Union argues that the Boeing engineers' counterfactual estimate, while focused on the
technical feasibility of developing and producing the 787, fails to take into account whether absent
the subsidies it would have been feasible for Boeing to proceed with the launch of the 787 from an
economic or commercial point of view. Second, t he European Union considers that the Boeing
engineers' estimate of the technical feasibi lity of developing the 787 without the assistance of the
pre-2007 aeronautics R&D subsidies is flawed on a number of grounds.2888
9.142. With regard to the economic feasibility of launching the 787 absent the subsidies, the
European Union argues that the Boeing engi neers' counterfactual estimate ignores the question of
whether Boeing would have considered it economically rational to proceed with the 787's launch,
considering the original panel's findings that there are large disincentives inherent in conducting
long-term, high-risk aeronautics R&D, and its overall finding that the 787 would have launched
"significantly later" than 2004 absent Boeing's participation in the NASA and DOD programmes.2889
9.143. The European Union argues that it is for the United States to establish that Boeing would
have invested all of the necessary funds to conclude all of the necessary pre -launch development
absent the pre-2007 aeronautics R&D subsidies. 2890 In particular, the European Union argues that
undertaking the fundamental R&D that was the s ubject of the pre-2007 aeronautics R&D subsidies
"would have increased the uncertainty regarding Boeing's ability to deliver the aircraft as
promised, both in terms of its timing and performance". 2891 The European Union considers that
early-stage R&D will onl y be undertaken where it is economically rational to do so, specifically
where the risk -adjusted return from the R&D is anticipated to exceed a company's investment
hurdle rate or weighted average cost of capital. Any delay in the ability to deliver the 78 7 would
give rise to negative effects in the form of additional costs, deferred revenues and additional risk,
all of which would affect the risk -adjusted anticipated return and Boeing's "business case" for
launching and bringing the 787 to market. 2892 The European Union asserts that these additional
costs, deferred revenues and additional risk "would have reduced, or even undermined, the
viability of the 787".2893
9.144. The European Union also makes a number of criticisms of the Boeing engineers' estimate,
based on the technical feasibility of Boeing concluding the necessary R&D to be able to launch a
technologically-comparable aircraft to the 787 absent the pre-2007 aeronautics R&D subsidies. The
European Union seeks to support its criticisms of the Boeing engineers' s tatement by reference to

2886 Boeing Engineers' Statement, (Exhibit USA-283) (BCI), para. 24. See also United States' first
written submission, paras. 785-788; and second written submission, paras. 799-811.
2887 Boeing Engineers' Statement, (Exhibit USA-283) (BCI), para. 24.
2888 The European Union argues that the United States simply repackages many of the same arguments
that it made in the original proceeding regarding the relevance of Boeing's non-subsidized capabilities and
those of it suppliers, as well as the relevance of the availability of Boeing's internal funds. (See
European Union's second written submission, paras. 956, 957, 964, 967, 973-975, 977-997, 999-1010,
1014-1019, and 1022-1024; response to Panel question No. 45, paras. 297-317; and Airbus Engineers'
Response, (Exhibit EU-1014) (BCI), paras. 7-63 and 67-87).
2889 See European Union's second written submission, paras. 977-997 and 1014-1019; and response to
Panel question No. 45, paras. 297-317.
2890 European Union's response to Panel question No. 45, paras. 303-306 and 311.
2891 European Union's response to Panel question No. 45, para. 316. The European Union questions the
notion that long-term and uncertain research may become "short term and capable of execution" based on
commercial imperative in the pre-launch phase combined with a [***] to complete the research.
(European Union's second written submission, para. 1018).
2892 See e.g. European Union's response to Panel question Nos. 45, paras. 313-317, and 154, paras. 30
and 34-38.
2893 European Union's response to Panel question No. 45, paras. 313-317.

the Airbus Engineers' Response which responds specifically to the assertions made by the Boeing
engineers in the Boeing Engineers' Statement.2894
9.145. First, according to the European Union, the Boeing engineers address the wrong
counterfactual by estimating the time to replicate certain work. Asking whether Boeing could have
replicated certain work absent the R&D subsidies assumes that the Boeing engineers already knew
that the technology existed or was feasible. The European Union conten ds that Boeing engineers
would not have known which technologies were technically feasible and necessary or desirable had
Boeing not participated for decades in government-supported R&D programmes. It would not have
made sense for Boeing to proceed with th e decision to launch the 787 had it not known it w as
possible to develop the composite fuselage with the desired characteristics and cost benefits, for
instance. Thus the relevant question is "how many years it would have taken Boeing to develop,
mature, produce and certify novel technologies its engineers did not know existed, or were even
feasible".2895 In addition, the European Union argues that Boeing engineers' estimate fails to take
into account the fact that there is a great deal of trial and error involved in aeronautics R&D.2896
9.146. Second, the European Union argues that , even assuming Boeing knew which technologies
had to be researched, the Boeing engineers' estimate of two additional years of time is an
unrealistically low estimate from an engineering stan dpoint. According to the European Union, the
proper counterfactual must take into account the necessary time that would have been required to
complete the "design, procurement, production, certification and delivery" of 787 technologies,
which the Boeing e ngineers' estimate fails to do. 2897 In support of this, the Airbus engineers refer
to the time that it typically takes to develop new materials, build and test complex structural
elements, build full scale test models, conduct flight testing, certify the airw orthiness, safety, and
reparability of materials, and integrate new technologies into the final design. 2898 The
European Union also criticizes Boeing engineers f or failing to factor in that basic aeronautics R&D
proceeds at a "slower pace" due to inherent unc ertainty in the effort and the need to minimize
wasting research.2899
9.147. Third, the European Union considers that the Boeing engineers' estimate is not based on a
"comprehensive, component-by-component timeline"2900 of all of the tasks that Boeing would have
had to complete in relation to "the millions of components that Boeing developed for the 787" .2901
Instead, the estimate focuses on a limited set of R&D tasks and technologies undertaken pursuant
to a sub-set of NASA and DOD programmes, and ignores entirely work performed under dual-use
military RDT&E program elements.2902
9.148. Fourth, the European Union argues that statements made by Boeing outside the context of
litigation contradict the plausibility of the Boeing engineers' estimate. The European Union refers
to a pres entation by Boeing engineers Craig Wilsey and Robert Stoker, from Boeing Commercial
Airplanes Engineering, Operations & Technology Department. 2903 In discussing "{t}echnology
{m}aturity {l}evels" in relation to technology readiness levels (TRLs), their presentation indicated
that it takes "{u}p to 10 years for major technologies" to reach a TRL 6 and an additional "3 to 6

2894 Airbus Engineers' Response, (Exhibit EU-1014) (BCI).
2895 Airbus Engineers' Response, (Exhibit EU-1014) (BCI), para. 13
2896 Airbus Engineers' Response, (Exhibit EU-1014) (BCI), para. 13; and European Union's second
written submission, paras. 974, 975, 989-999, 1003, 1008, and 1023-1030.
2897 Airbus Engineers' Response, (Exhibit EU-1014) (BCI), para. 28.
2898 Airbus Engineers' Response, (Exhibit EU-1014) (BCI), paras. 27-38.
2899 European Union's second written submission, paras. 1028 and 1029; and Airbus
Engineers' Response, (Exhibit EU-1014) (BCI), para. 14.
2900 European Union's comments on United States' response to panel question No. 46, para. 307. See
also European Union's second written submission, paras. 1042-1047.
2901 European Union's comments on United States' response to panel question No. 46, para. 307. See
also European Union's second written submission, paras. 1042-1047. For instance, Airbus engineers fault the
Boeing engineers for failing to refer to the "many US government-supported programmes that followed ATCAS"
that contributed to the full barrel structure that Boeing now uses for the 787 composite fuselage. (Airbus
Engineers' Response, (Exhibit EU-1014) (BCI), para. 69).
2902 European Union's second written submission, paras. 1042-1047.
2903 C. Wilsey, R. Stoker, "Continuous Lower Energy, Emissions and Noise (CLEEN) Technologies
Development – Boeing Program Overview", Presentation at the CLEEN Consortium Public Session,
27 October 2010, (Exhibit EU-665), p. 4.

years" before the LCA is ready for entry into service and first delivery. 2904 The European Union
asserts that "this timeframe is also corrobora ted by Boeing's Chief Technologist in stating that
'R&D programs … provide little-to-no return for 15-20 years {because,} in the aviation industry, it
can take that long, if not longer, for a technology to move from discovery to maturation to
commercialization and implementation on a product'".2905
9.149. Fifth, the European Union argues that the Boeing engineers' estimate is also contradicted
by the difficulties encountered by Boeing engineers in resolving the problems relating to the final
development of the 787, w hich resulted in the delay s of the first delivery of the 787 by nearly
three and a half years .2906 According to the European Union, the delays of the 787's entry into
service contradict the proposition that Boeing could have researched the fundamental technol ogies
developed under the NASA and DOD aeronautics R&D programmes in less than two years. 2907 The
Airbus engineers assert that Boeing's handling of the 787 production delays serves as "real-life"2908
experience demonstrating Boeing's inability to resolve "even t hese more concrete, defined
problems"2909, contradicting the notion that "solving engineering problems is merely a question of
dedicating enough engineering resources and money, and less a question of taking the time to
carefully resolve the engineering probl ems encountered". 2910 The European Union submits a
statement by an Airbus engineer which contains a lengthy discussion of what he considers are the
reasons for the delays in the entry into service of the 787; including the selection of a green field
site, "in adequate supplier selection", and "inadequate supply chain coordination and
supervision".2911
9.150. Sixth, the European Union rejects the suggestion that Airbus' experience developing the
A350XWB serves as a benchmark that confirms the Boeing engineers' estimate of the amount of
additional time it would have taken Boeing to develop the technologies in order to launch the 787.
The European Union contends that the attempt by the Boeing engineers to confirm their estimate
by reference to Airbus' experience with the A35 0XWB "compares apples with oranges" 2912, since
the composite technology solutions on the two LCA differ significantly and the A350XWB does not
incorporate a "more -electric" systems architecture. Hence, the Panel would need to add
significantly to the A350XWB development time to account for these technological differences
before making any comparison, as the composite technology solutions and "more-electric" systems
architecture would take additional time to develop . The European Union also argues that, even
without factoring in additional time to account for the technological differences between the
A350XWB and 787, the Boeing engineers' estimate is wrong, as it has actually taken Airbus almost
[[HSBI]] to develop the A350XWB without a full barrel composite fus elage or "more -electric"
systems architecture, as compared to the 787 development time.2913

2904 C. Wilsey, R. Stoker, "Continuous Lower Energy, Emissions and Noise (CLEEN) Technologies
Development – Boeing Program Overview", Presentation at the CLEEN Consortium Public Session,
27 October 2010, (Exhibit EU-665), p. 4. The European Union refers to a presentation slide by Boeing
engineers that indicates that 8-10 years is the "reality" for the time it takes to identify materials until they are
production ready. (See European Union's comments on United States' response to Panel question No. 153,
para. 22 (referring to G. Young, Director Materials & Fabrication Technology, "The Challenge of New Materials
In the Aerospace Industry", Presentation at Georgia Institute of Technology, 15 May 2013, (Exhibit EU-1663),
slide 8)).
2905 European Union's comments on United States' response to Panel question No. 153, para. 22
(referring to Statement of Dr J. Tracy, Boeing Chief Technologist, before the U.S. Senate Committee on
Commerce, Subcommittee on Aviation Operations, Safety, and Security, Hearing on "Threats to U.S.
Competitiveness in Aviation", 18 July 2012, (Exhibit EU-82) (emphasis added by the European Union)).
2906 At the time of launch in April 2004, Boeing committed to deliver the 787 to launch customers
beginning in May 2008. However, entry into service was delayed until 26 October 2011. (See "Boeing 787 Hits
Another Snag, Dreamliner's Timeline of Pain (BA)", 247wallst.com, 10 November 2010, (Exhibit EU-1161); and
T. Kelly, "Dreamliner carries its first passengers and Boeing's hopes", Reuters, 26 October 2011, (Exhibit
EU-1181)).
2907 European Union's second written submission, paras. 1009 and 1010; and Airbus
Engineers' Response, (Exhibit EU-1014) (BCI), para. 10.
2908 Airbus Engineers' Response, (Exhibit EU-1014) (BCI), para. 8.
2909 Airbus Engineers' Response, (Exhibit EU-1014) (BCI), para. 10. (emphasis original)
2910 Airbus Engineers' Response, (Exhibit EU-1014) (BCI), para. 3.
2911 Statement of B. Domke on the engineering-related aspects of the Panel's first set of questions,
4 December 2013, (Exhibit EU-1268) (BCI), paras. 5-22.
2912 Airbus Engineers' Response, (Exhibit EU-1014) (BCI), para. 3.
2913 European Union's second written submission, paras. 1011-1013; response to panel question No. 45,
paras. 318-330; and Airbus Engineers' Response, (Exhibit EU-1014) (BCI), paras. 3, 14, and 47-62. Airbus

The Panel's evaluation of the two estimates
9.151. We begin by considering the arguments presented by the European Union that it would
have taken Boeing at least an additional ten years or more to develop an aircraft equivalent to the
787 absent the pre -2007 aeronautics R&D subsidies. We then consider the merits of the estimate
provided by the United States based on the Boeing Engineers' Statement, addressing the economic
feasibility of launching the 787 without the pre -2007 aeronautics R&D subsidies, as well as the
European Union's criticisms of the methodology employed by the Boeing engineers and the
technical feasibility of their estimate. Finally, w e consider whether Airbus' experience with the
launch of the A350XWB is relevant to assessing the plausibility of the counterfactual a nalyses of
whether, absent the pre -2007 aeronautics R&D subsidies , Boeing likely would have launched the
787 before or after the end of the implementation period.
9.152. In our evaluation of the arguments of the parties with regard to how the timing of Boeing's
technology development in respect of the 787 would have been different absent the pre -2007
aeronautics R&D subsidies, an important issue is whether these arguments are consistent with the
findings of the panel and the Appellate Body in the original proceeding as to the precise role of
these subsidies in accelerating Boeing's technology development with respect to the 787. T he
European Union's affirma tive case regarding the amount of additional time that it would have
taken Boeing to develop and launch the 787 proceeds on the basis that the relevant counterfactual
question concerns the amount of additional time that it would have taken an LCA manufactu rer
like Boeing to research, develop, produce, certify, and deliver the 787. If we were to formulate the
counterfactual question in the terms proposed by the European Union, the estimate of the time we
arrive at would also include time to undertake activit ies (internal R&D conducted by Boeing and its
suppliers, production, certification and delivery) that were not found to have been effects of the
pre-2007 aeronautics R&D subsidies in the original proceeding. The original panel did not consider
that Boeing' s technology development in relation to the 787 was solely the result of Boein g's
subsidized participation in NASA and DOD aeronautics R&D programmes. Nor did it consider that
the acceleration effect of the aeronautics R&D subsidies encompassed phases in t he development
of the 787 beyond its launch. Therefore, by formulating the counterfactual question in terms of the
amount of additional time it would have taken Boeing to research, develop, produce , certify and
deliver the 787 absent the subsidies, the European Union's estimate erroneously attributes to the
pre-2007 aeronautics R&D subsidies aspects of the 787's development that were not found to have
been accelerated by Boeing's participation in the relevant NASA and DOD aeronautics R&D
programmes.2914
9.153. A furt her difficulty with respect to the European Union's argument s is that the
European Union has not provided a clear statement on its behalf, or supporting evidence, that the
787 would not have launched until after the end of the implementation period. Its af firmative case
instead has referred to an estimate of the amount of time required to develop technologies and
design tools (more than ten years), an estimate of the extent of the delay in delivering the 787
([[HSBI]]), and a statement that the launch would have been delayed "by a similar amount of
time". The Panel is uncertain whether it should infer from the foregoing that it is the
European Union's position that Boeing, absent the aeronautics R&D subsidies, would not have been
able to launch the 787 before September 2012.2915
9.154. Turning to the United States' estimate, we first address the European Union's criticism that
the United States has failed to address whether Boeing would have considered it economically
rational and commercially feasible to have proceed ed with the launch of the 787 at a point later
than 2004 absent the pre-2007 aeronautics R&D subsidies. The European Union's criticism appears
to rely in great part on statements by the original panel to the effect that there are large

engineers assert that the four panel fuselage section is considered "lower risk" compared to the 787's 360°
barrel composite design (R. Wall and A. Rothman, "Airbus Says A350 Design Is 'Lower Risk' than Troubled
787", Bloomberg, 17 January 2013, (Exhibit EU-1168)). See also Statement of P. Gavin, T. Sommer,
B. Domke, and D. Wacht, 8 November 2007, (Exhibit EU-33) (HSBI), para. 13.
2914 See e.g. European Union's second written submission, paras. 975 and 1031-141; response to panel
Question No. 45, paras. 320 and 330; and comments on United States' response to Panel question No. 47,
para. 312.
2915 See also European Union's comments on United States' response to Panel Question No. 47,
para. 320 and fn 552.

disincentives inherent in conducting long -term, high-risk aeronautics R&D. 2916 The United States
responds that the Boeing engineers' estimate is fully consistent with the panel's findings in the
original proceeding. The United States argues that the original panel findings estab lish that the
pre-2007 aeronautics R&D subsidies provided foundational knowledge relevant to Boeing's
pre-launch R&D, which accelerated the launch of the 787.2917 While noting the panel's finding that
there are disincentives to undertake early -stage R&D, the United States maintains that those
disincentives diminish over time, particularly as near -term commerci al priorities arise. The
United States further rejects the assertion that additional research undertaken absent the
pre-2007 aeronautics R&D subsidies wo uld have any impact on the 787 business case, as any
pre-launch R&D projects would have been funded through Boeing's Independent R&D budget for
commercial aircraft, and would have been treated as [***].2918
9.155. While we agree with the original panel's general obs ervations regarding disincentives
inherent in conducting long-term, high-risk aeronautics R&D, we are also inclined to agree with the
United States that those disincentives diminish as a practical matter as near -term commercial
priorities arise. We are sat isfied on the basis of the evidence before us and in light of the findings
of the original panel that the commercial imperatives in the early 2000s were such that a critical
commercial priority for Boeing was to develop a new, highly -efficient mid-sized, twin-aisle aircraft
to replace the 767.2919
9.156. In this regard, we note that the original panel did not consider that Boeing was not
capable, based on its engineering and technological capabilities unrelated to the pre -2007
aeronautics R&D subsidies, and those of its suppliers, of developing such an aircraft. Consistent
with these considerations, t he European Union itself does not argue that the 787 technologies in
question "would never have existed" absent the pre -2007 aeronautics R&D subsidies. 2920 Indeed,
we would emphasize that in the original proceeding, the European Communities argued that in the
absence of the aeronautics R&D subsidies at issue, Boeing would not have been able to launch the
787 or a comparable aircraft until mid-2006.2921
9.157. As we have explained abov e, we are attempting to reach a reasonable estimate of how
long it would have taken Boeing to undertake the subsidized R&D activities absent the pre -2007
aeronautics R&D subsidies and therefore, when the 787 would have launched absent those
subsidies. There is no evidence before us, and no support in the findings in the original proceeding,
that suggests the possibility that Boeing would have taken a commercial decision not to proceed
with the development of the 787 with all of the technologies, absent the pre-2007 aeronautics R&D
subsidies. To the extent that this is what the European Union means when it argues that additional
costs, deferred revenues and additional risk arising from a delay in the launch of the 787 "would
have reduced, or even undermined, the viability of the 787", we are unable to agree.
9.158. The European Union argues that it is for the United States to demonstrate that Boeing
would have invested all of the necessary funds to conduct the necessary pre -launch R&D. We
disagree, as we do not cons ider there is sufficient evidentiary support for the proposition that
Boeing would not have proceeded to develop the 787 at all absent the pre -2007 aeronautics R&D

2916 See European Union's second written submission, paras. 1014-1022 (referring to Appellate Body
Report, US – Large Civil Aircraft (2nd complaint), paras. 980 and 1009; and Panel Report, US – Large Civil
Aircraft (2nd complaint), paras. 7.1747 and 7.1760).
2917 United States comments on European Union's response to Panel question No. 45, para. 293.
2918 Boeing engineers submit that Boeing's independent R&D budget for commercial aircraft is [***]
(See Boeing, Reply of Boeing engineers to EU and Airbus statements regarding the technologies and
development of the 787, 737 MAX, and 77X, August 2013 (Boeing Engineers' Reply), (Exhibit USA-359) (BCI),
paras. 10-12).
2919 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1747. The panel indicated that it was
satisfied based on the evidence that Boeing would have developed an LCA to replace the 767 and noted that
the European Union did not object to this as it did not argue that Boeing would not have launched a new
aircraft in the 200-300 seat LCA product market. (Panel Report, US – Large Civil Aircraft (2nd complaint),
para. 7.1774 and fn 3704). See also Boeing Engineers' Statement, (Exhibit USA-283) (BCI), paras. 9 and 10.
2920 European Union's comments on United States' response to Panel question Nos. 153, para. 18, and
156, para. 70. (emphasis original)
2921 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 4.280 ("{t}he European Communities
argues that, had Boeing needed to develop the 787 using its own resources, the 787 would likely not have
been launched any earlier than mid-2006, by which time Airbus would have been ready to compete with the
A350XWB-800. Moreover, a non-subsidized 787, like the A350XWB-800, would have required a longer period
before it could be delivered.")

subsidies. We note that, beyond generalized assertions, the European Union has not itself
presented specific evidence of the additional costs or risks, or the amount of deferred revenues
that would have resulted had Boeing not benefited from its participation in the NASA and DOD
aeronautics R&D programmes. Nor is there any evidence before us conc erning the 787 business
case that would enable the Panel to undertake the type of financial assessment to determine the
viability of the Boeing engineers' estimate. 2922 We note that t he original panel did not accept
arguments that Boeing lacked the financial resources to engage in the same commercial behaviour
(including its product development behaviour) absent the subsidies at issue in the original
proceeding, and the European Union in this proceeding does not attempt to substantiate any
argument that Boeing would have lacked the financial resources to develop 787 absent the
pre-2007 aeronautics R&D subsidies.
9.159. We next evaluate the European Union's argument that the United States has failed to
demonstrate that it would have been technically feasible to launch the 787 in 2006 (rather than
the actual launch in 2004) absent the pre -2007 aeronautics R&D subsidies, as the Boeing
engineers conclude in the Boeing Engineers' Statement.
9.160. The European Union's argument involves criticisms of the Boeing engineers' estimate and
is generally directed at: (a) the Boeing engineers' methodological approach (e.g. the Boeing
engineers improperly estimate the time to replicate research even though Boeing would not have
known which technologies were technically feasible, fail to acc ount for the time to design, procure,
produce, certify, and deliver the 787 and fail to account for Boeing's participation in all of the
relevant NASA and DOD aeronautics R&D programmes); (b) the implausibility of the Boeing
engineers' estimate in light of statements made by Boeing engineers outside the context of this
dispute and nearly 3.5 years of delays faced by Boeing following the launch in 2004; and (c ) the
irrelevance of the United States' reference to the development of the A350XWB as a benchmark t o
confirm the Boeing engineers' estimate. 2923 We begin by addressing the European Union's
criticisms of the Boeing engineers' methodology before turning to the relevance of statements by
Boeing engineers and delays following the 787's launch, and the parties' disagreement regarding
the relevance of the development of the A350XWB to our assessment.
9.161. We have already addressed above the flaw inherent in the European Union's argument that
the counterfactual assessment of Boeing's technology development in relation to the 787 absent
the pre-2007 aeronautics R&D subsidies should consider the entire development period of the 787
beyond its launch (including the time it would have taken Boeing to develop, mature, produce, and
certify 787 technologies, and the time to in tegrate those components into a single aircraft, as the
European Union argues), which approach we consider is inconsistent with the findings in the
original proceeding and would risk attributing unsubsidized aspects of the 787's development to
the effects of the subsidies.
9.162. The European Union's criticism of the Boeing engineers' methodology is otherwise highly-
generalized in nature, and ultimately unpersuasive. The Boeing engineers s eek to identify tasks
that Boeing conducted under the challenged NASA and DO D aeronautics R&D programmes and
then to assess the additional time that Boeing would have required to conduct that work using the
internal resources of Boeing and its suppliers, i.e. they evaluate the time Boeing would have
needed to conduct the tasks had Boeing not participated in the relevant aeronautics R&D
programmes.2924 The Boeing engineers identify aspects of the development of key technological
areas of the 787, including tasks related to material choice and design for the fuselage, the
construction o f early wing box designs necessary to develop the 787 composite wing, the
development of CFD design tools, and of prototypes of generators and motor controllers for the
787 more-electric system architecture. 2925 They derive their estimates by first identifyin g other,
specific unsubsidized early -stage R&D activities in the pre -launch development phase for the
7E7/787 that they consider were either "comparable to, or more demanding" than, the type of
tasks that Boeing conducted under the relevant aeronautics R&D programmes, and note the time
that was required to conduct those unsubsidized R&D tasks. The Boeing engineers use the time

2922 Having rejected the European Union's argument for these reasons, we do not consider it necessary
to address further the manner in which Boeing allocates Independent R&D budget funds for pre-launch R&D
projects.
2923 European Union's response to Panel question No. 45, paras. 324-330 and 331-341.
2924 See para. 9.136 above.
2925 See Boeing Engineers' Statement, (Exhibit USA-283) (BCI), paras. 22-23, 30, and 32-34.

that was required to conduct those unsubsidized tasks as a proxy to estimate the time that Boeing
would have needed in the counterfa ctual scenario to conduct the early -stage research that it
actually conducted under the aeronautics R&D programmes. Under this counterfactual, the Boeing
engineers estimate that Boeing would have undertaken the necessary R&D work , especially
considering th at Boeing was under commercial pressure to develop a highly -efficient, mid-sized
twin-aisle aircraft to replace the 767.2926
9.163. The methodological approach of the Boeing engineers is in certain respects similar to the
approach taken by the panel in the original proceeding. The original panel considered the ways and
degree to which the NASA and DOD aeronautics R&D subsidies contributed to the development of
particular 787 technologies in its evaluation of whether and the extent to which the aeronautics
R&D subsidies contributed to the development and launch of the 787. The panel's findings do not
reflect every aspect of the 787 development process. 2927 The panel stopped short of reaching
conclusions as to how much of a competitive advantage the subsidies provided Boei ng in the form
of an accelerated launch, reasoning that it only needed to establish that Boeing would not have
been able to launch the 787 as early as it did in 2004 absent the subsidies.
9.164. The European Union faults the Boeing engineers generally for failing to account for the
slow pace of developmental research, and for otherwise overlooking the time required to learn
from trial and error. In doing so, the European Union argues that the Boeing engineers' estimate
fails to properly account for the additional upfront time to acquire knowledge and experience
sufficient to determine which technologies it is feasible to research before measuring the time to
conduct that research. 2928 Similarly, the European Union alleges that the Boeing engineers fail to
precisely identify "the millions of components that Boeing developed for the 787" 2929, and provide
a "comprehensive, component -by-component timeline" 2930 of all of the tasks that Boeing would
have had to complete under every challenged NASA and DOD aeronautics R&D programme .
Despite these criticisms, the European Union does not itself enumerate the specific additional tasks
that Boeing should have reflected in its assessment, and importantly, the European Union does not
provide evidence of how long Boeing would have needed t o conduct any of the R&D tasks that
were actually performed under the NASA and DOD aeronautics R&D programmes. 2931 The
European Union has also failed to provide specific evidence to rebut the timing estimates that the
Boeing engineers provide for the specific R&D tasks discussed in their statement.

2926 Boeing Engineers' Statement, (Exhibit USA-283) (BCI), para. 7.
2927 The panel's findings on the operation of the aeronautics R&D subsidies, in particular, refer to the
importance of the design, building, and testing of a four-panel fuselage design, which Boeing performed under
certain NASA aeronautics R&D programmes, to the development of the 787's 360° barrel fuselage design; and
of Boeing's work designing, fabricating, testing, and demonstrating power management and distribution
architectures, electrical actuators and starter/generators to Boeing's design and development of the
more-electric architecture of the 787. (See Panel Report, US – Large Civil Aircraft (2nd complaint),
paras. 7.1751 and 7.1752).
2928 For instance, the European Union refers to the "slower pace" of early-stage R&D, the need to
account for trials and errors and the fact that unsuccessful research is valuable, and general references by
Airbus engineers to the time it takes to introduce new materials and structural design solutions in LCA through
a "building block approach". (Airbus Engineers' Response, (Exhibit EU-1014) (BCI), paras. 68-87).
2929 European Union's comments on United States' response to panel question No. 46, para. 307 (fn
omitted). See also European Union's second written submission, paras. 1042-1047. For instance, Airbus
engineers fault the Boeing engineers for failing to refer to the "many US government-supported programmes
that followed ATCAS" that contributed to the full barrel structure that Boeing now uses for the 787 composite
fuselage. (Airbus Engineers' Response, (Exhibit EU-1014) (BCI), para. 69).
2930 European Union's comments on United States' response to panel question No. 46, para. 307. See
also European Union's second written submission, paras. 1042-1047.
2931 Rather than identify discrete tasks that were conducted under the NASA and DOD aeronautics R&D
programmes, the European Union argues in this proceeding that the Boeing engineers omit many U.S.
government-supported programmes, and otherwise fail to acknowledge the inter-dependence and
complementarity of NASA programmes and the value of knowledge and experience that Boeing acquired
through its participation. (Airbus Engineers' Response, (Exhibit EU-1014) (BCI), paras. 68-87). The
European Union has also resubmitted certain exhibits in this proceeding that were originally provided in the
original proceeding. These include the statement by Airbus Engineer Dominik Wacht entitled "An Analysis of
Selected NASA Research Programs and Their Impact on Boeing's Civil Aircraft Programs" in this proceeding.
(See Statement of D. Wacht, Boeing, An Analysis of Selected NASA Research Programs and Their Impact on
Boeing's Civil Aircraft Programs, November 2006, (Exhibit EU-32) (BCI)). The European Union has also
submitted Exhibit EU-1664, which recapitulates the contribution of NASA and DOD aeronautics R&D
programmes to the development process of the 787. These statements do not provide estimates of the time to
undertake the specific R&D tasks that were alleged to have been performed under the NASA and DOD
aeronautics R&D programmes.

9.165. It is the European Union's burden to establish that the pre-2007 aeronautics R&D subsidies
continue to cause any of the alleged serious prejudice market phenomena in the
post-implementation period. There are undoubtedly many complex steps and interactions involved
in the launch of an LCA, especially one as technologically innovative and complex as the 787. The
panel was clear in the original proceeding that it did not consider the technologies developed and
applied to the 787 were solely attributable to the aeronautics R&D subsidies. Given this, there is
no reason why this Panel should include in its estimate the development time in relation to tasks
that were not attributable to the subsidies. It is difficult to acce pt the European Union's
generalized criticisms of the United States' estimate in the absence of any clear estimate from the
European Union as to how much additional time Boeing would have needed to conduct any of the
R&D tasks that were actually performed under the NASA and DOD aeronautics R&D programmes.
9.166. For similar reasons, we are not persuaded by the European Union's argument that the
Boeing engineers' estimate is contradicted by statements made outside the context of litigation
and by the delays faced in the later stages of the 787's development. Statements made by Boeing
engineers that the European Union has cited regarding the time that is required to develop and
mature technologies are also highly generalized and do not speak to the contribution of th e
challenged aeronautics R&D subsidies in respect of Boeing's overall development of the 787. 2932
We similarly fail to see the relevance of approximately 3.5 years in delays following the launch of
the 787 programme to our assessment of the additional time it would have taken Boeing to launch
the 787 absent the subsidies. The fact that, in the real world, Boeing underestimated the nature of
the technological challenges that would arise following the launch of the 787 does not speak to the
additional time that Boeing would have needed to conclude the type of early -stage R&D tasks that
were conducted under the challenged NASA and DOD aeronautics R&D programmes in order to
have the confidence to proceed with the launch of the 787.2933
9.167. Finally, we address the question of whether Airbus' experience in developing the A350XWB
is relevant to our analysis of the credibility of the Boeing engineers' estimate of the additional
amount of time it would have taken Boeing to launch an aircraft that would have been
technologically comparable to the 787 absent the pre-2007 aeronautics R&D subsidies.
9.168. According to the Airbus engineers 2934, the development time for the A350XWB should
actually be understood as having begun in December 2004, at the time Airbus began development
of the comp osite wing for the Original A350 family LCA model, which was itself based on the
aluminium fuselage design of the A330. The Airbus engineers explain that the Original A350 was
launched at that time in an attempt to compete with the newly -launched 787. Owin g to the
negative market reaction to the Original A350, Airbus undertook a "clean sheet" design of a
completely new aircraft, the A350XWB, which retained the composite wing design that had been
developed for the Original A350, but otherwise incorporated a four-panel carbon fibre reinforced
plastic (CFRP) fuselage.2935
9.169. The A350XWB was launched in December 2006. According to the Airbus engineers, Airbus
undertook a front -load design and product development process called DARE (Develop and

2932 In its discussion of a 1999 NASA study of the average time taken for technologies to mature from
initial concept to marketable product, based on NASA's defined technology readiness levels (the Peisen Study),
the original panel noted the "considerable variability in the time it takes for technologies to mature, with
average maturation times varying by technology type, by the technology's primary benefit or goal, and to a
lesser extent, by the need for additional technologies or NASA testing for the successful maturation of the
technology". (Panel Report, US – Large Civil Aircraft (2nd complaint), fn 3668). The European Union in this
proceeding "recalls the agreement between the Parties, at the Panel meeting, that the precise timeframes set
out in the {Peisen}study are of lesser relevance to the compliance Panel's assessment, because, as the original
panel and the Appellate Body have themselves found, the study was based on a variety of different aircraft
technologies with widely varying maturation times". (European Union's response to panel question No. 46,
para. 362 (emphasis original)).
2933 Other than a generalized notion that complex technical issues can take time to resolve, the
European Union has not explained how difficulties arising from supplier outsourcing and supply chain issues are
comparable to those arising in relation to the type of early-stage R&D that Boeing conducted pursuant to its
participation in the NASA and R&D programmes.
2934 See Airbus Engineers' Response, (Exhibit EU-1014) (BCI), paras. 49-56.
2935 Airbus engineers explain that the A350XWB airframe incorporates 53% of composite structures in
addition to the use of titanium and advanced aluminium alloys, constituting "{o}ver 70 percent of the
A350XWB's weight-efficient airframe". (Airbus Engineers' Response, (Exhibit EU-1014) (BCI), para. 51).

Ramp-up Excellence)2936, which involved [[HSBI]] of pre-launch research between [[HSBI]] in
which Airbus assessed the feasibility of design options taking into account aircraft design maturity,
ramp-up time, and fulfilment of contractual commitments to customers. 2937 Pursuant to this new
development approach, Airbus undertook the development, maturation, production, and
certification of the A350XWB up to its date of first flight in June 2013. Thus, the Airbus engineers
assert that the period of time from launch until entry to service in 2014 is [[HSBI]].2938 The
Airbus engineers assert that the full development time of the A350XWB is [[HSBI]], taking into
account the time from early stages of development of its composite wing (originally designed for
the cancelled Original A350 family LCA model) through research, development , and production
phases until the date of first flight and certification. The Airbus engineers state that the "nine
years, from 2004-2013, to research, develop, produce and test the {composite} wing, which is yet
to be certified. … stands in stark contrast to the 18 months Boeing engineers allege it would have
taken them to 'develop a composite wing for the 787'".2939
9.170. As we have explained previously, what is relevant to our assessment is the additional time
that Boeing woul d have required to conclude the relevant R&D tasks that were completed under
the NASA and DOD aeronautics R&D subsidies, to allow Boeing to proceed with the launch of the
787 (and announcement of promised deliveries) had Boeing not participated in the NASA and DOD
aeronautics R&D programmes. Therefore, to the extent an analysis of the development of the
A350XWB is to provide a benchmark to determine the reasonableness of the United
States' two-year estimate, our comparison should focus on the time required to conclude the
pre-launch development of the two aircraft. This is consistent with the findings in the original
proceeding, and avoids attributing to the subsidies aspects of the development that were not
accelerated by Boeing's participation in the relevant NASA and DOD aeronautics R&D programmes.
9.171. The Boeing engineers have indicated that certain systems developed for the 787 were
carried over from the Sonic Cruiser development programme. 2940 Aside from this, the Boeing
engineers state that Boeing began inten sive pre -launch R&D specifically related to the 787 in
[***].2941 Boeing formally launched the 787 on 26 April 2004. The time from the start of intensive
pre-launch R&D on the 787 ( [***]) until formal launch (April 2004) was approximately [***]. In
addition, the Boeing engineers assert that Boeing could have conducted all the necessary research
to launch the 787 before the end of April 2006 (with promised deliveries in 2010) absent the pre -
2007 aeronautics R&D subsidies. If we accept the Boeing engineers' esti mate, the time from the
start of intensive pre -launch R&D on the 787 (November 2002) until a counterfactual -adjusted,
non-subsidized launch of the 787 (April 2006), would be approximately [***].
9.172. Turning to the pre -launch development period for the A350XWB, the Airbus engineers
state that Airbus began work on the composite wing design of the A350XWB (which originally
formed part of the Original A350 design) in December 2004. According to the United States, Airbus
began entering into customers commitments in July 20062942, although formal launch took place in
December 2006.2943 If we treat the starting point of pre -launch R&D for the A350XWB as the date
when work began on the composite wing design for the A350XWB until its official launch in

2936 Airbus engineers explain that DARE begins at early study phase and continues through design,
procurement production, certification, delivery, in-service operation, and support. (Airbus Engineers' Response,
(Exhibit EU-1014) (BCI), para. 53 and accompanying slides).
2937 Airbus Engineers' Response, (Exhibit EU-1014) (BCI), paras. 52 and 53.
2938 Airbus Engineers' Response, (Exhibit EU-1014) (BCI), para. 55.
2939 Airbus Engineers' Response, (Exhibit EU-1014) (BCI), para. 56 (referring to Boeing
Engineers' Statement, (Exhibit USA-283) (BCI), para. 27). (emphasis original)
2940 United States' second written submission, para. 805; and Boeing Engineers' Statement, (Exhibit
USA-283) (BCI), paras. 30 and 33 (referring to in-house work on generic TRANAIR and OVERFLOW CFD codes
and preliminary work on a "more-electric" system architecture).
2941 United States' second written submission, para. 805; and Boeing Engineers' Statement, (Exhibit
USA-283) (BCI), para. 15 ("{i}n 2000, Boeing made the decision to undertake a new aircraft development
program. While studying three concepts in parallel (i.e., the 747-X, Sonic Cruiser, and 7E7), we focused efforts
on the Sonic Cruiser … In [***] Boeing decided to shift its new product development efforts away from the
Sonic Cruiser to the 7E7 …").
2942 United States' second written submission, paras. 801 and 806 (referring to "Singapore Airlines
Orders 20 Airbus A350 XWB-900s and 9 Airbus A380s", Business Wire, 21 July 2006, (Exhibit USA-291)).
2943 Airbus Engineers' Response, (Exhibit EU-1014) (BCI), para. 51.

December 2006, Airbus sp ent approximately [***] on pre-launch R&D before formally offering
the A350XWB to customers.2944
9.173. Therefore, the United States' estimate that the launch and delivery of the 787 would have
been delayed by approximately two years absent the pre -2007 aeronautics R&D subsidies in fact
results in a longer pre -launch development period for the 787 than the equivalent pre -launch
development time -frame for the A350XWB. Adding two additional years for the counterfactual
launch of an unsubsidized 787 in 2006, Boeing woul d have spent nearly [***] undertaking
pre-launch R&D before launching the 787, compared to Airbus, which spent approximately [***]
undertaking pre-launch R&D for the A350XWB.
9.174. In addition to its argument that the entire development period to the point of first delivery,
and not just the pre -launch R&D period, is relevant to the counterfactual, the European Union
offers a number of reasons why we should not rely on Airbus' experience in developing the
A350XWB to evaluate the reasonableness of the United Stat es' two-year estimate. The
European Union argues that a direct comparison between the development times for the two
aircraft cannot be made without adjustments, as the 787 and A350XWB have different composite
fuselage designs, and the A350XWB does not employ a "more electric" system architecture like the
787 does.2945
9.175. We recognize that the 787 and A350XWB are two different aircraft in terms of their design
and technical solutions. Indeed, the parties agree that the 787 and A350XWB are not identical. 2946
Accordingly, the development time for one aircraft is not perfectly indicative of the development
time for the other. Nevertheless, despite the differences in their design and technical solutions, the
fact that Airbus was able to proceed from a "clean sheet" desig n of the A350XWB to a point where
it had sufficient confidence to undertake the formal launch of the A350XWB in a period of roughly
[***], having never previously produced an Airbus aircraft with a composite fuselage provides, "a
general sense of what rang e of estimates is reasonable". To the extent that the 787's barrel
composite fuselage design and "more electric" system architecture would have implications for the
length of the aircraft development cycle, and in particular, the pre -launch development tim e, the
United States' counterfactual allows for two additional years of pre -launch development, which

2944 If we treated the point at which Airbus offered the A350XWB to Singapore Airlines in July 2006, the
time between pre-launch R&D and offering would be shorter, approximately 1.5 years.
2945 In addition, the European Union argues that the United States must account for any alleged effects
of alleged subsidies on the A350XWB's development process, as the United States has characterized the
development process of the A350XWB as subsidized in another dispute. (See European Union's response to
Panel question No. 45, fn 407). The United States responds that EC and certain member States – Large Civil
Aircraft is a separate and distinct dispute. Notwithstanding, it argues that the findings in that dispute were
that, absent launch aid/member State financing subsidies, Airbus most likely would not have existed, there
would be no Airbus aircraft on the market, and none of the sales that the subsidized Airbus made would have
occurred. Therefore, the United States submits that, if it accounted for subsidies to the A350XWB, there would
be no A350XWB timeline at all. (United States comments on European Union's response to Panel question No.
45, fn 474 (referring to Appellate Body Report, EC and certain member States – Large Civil Aircraft,
para. 1264)).
2946 European Union's second written submission, paras. 1011-1013; response to panel question No. 45,
paras. 318-330; Airbus Engineers' Response, (Exhibit EU-1014) (BCI), paras. 3, 14, and 47-62; United States'
second written submission, para. 804. The European Communities in the original proceeding asserted that the
A350XWB "offer{s} customers comparable, if not better, performance and operating characteristics as Boeing's
787". (EC response to panel question No. 87 of the panel questions in the original proceeding, para. 404,
(Exhibit USA-290) (HSBI)). The European Union has also not demonstrated on the evidence that the 787's
barrel composite fuselage or "more electric" systems architecture design has materially increased the 787's
competitive appeal over the A350XWB. In addition, the performance of the A350XWB in the market is also
consistent with the view that LCA customers consider the A350XWB to be in the same league as the 787 in
respect of its mission capabilities, performance, efficiency, and price. We note that during the 2007-2015 time-
period, Airbus obtained more orders of the A350XWB (780) than Boeing obtained for the 787 (749). (Ascend
data base, Orders, data request as of 29 September 2015, (Exhibit EU-1658)). Setting aside 767 and A330
orders by customers, since its launch in 2004, Boeing has obtained 1097 orders of the 787 through 2015, while
Airbus has obtained 781 orders of the A350XWB during the same period. This constitutes a difference of 316
total orders in Boeing's favour. For purposes of comparison, Boeing captured 348 orders of the 787 during the
2004-2006 time-period before Airbus launched the A350XWB.

means that the 787 pre -launch development period would exceed the A350XWB pre-launch
development period by [***].2947
9.176. The Panel has carefully evaluated the arguments of the parties and the evidence before it,
including assessing the relevance and probity of the evidence. We have concluded that it is simply
not plausible, and the European Union has failed to establish that, absent the aeronautics R&D
subsidies, Boeing would not have launched the 787 by the end of the implementation period in
September 2012. Although it is more difficult for us to confidently predict exactly when Boeing
would have been able to launch the 787 absent the pre -2007 aeronautics R&D subsidies, we have
concluded that it would be well before (i.e. at least several years before) the end of the
implementation period.
9.177. In light of the foregoing , we conclude that the European Union has failed to demonstrate
that the acceleration effect of the pre -2007 aeronauti cs R&D subsidies in relation to Boeing's
technology development for the 7872948, has continued into the post -implementation period. The
European Union has therefore failed to demonstrate the existence of original subsidy technology
effects of the pre-2007 aeronautics R&D subsidies in the post-implementation period.
9.3.2.1.2 Spill-over technology effects of the pre-2007 aeronautics R&D subsidies
9.178. In the preceding Section in this Report we evaluate the European Union's arguments that
the original technology effects of the pre-2007 aeronautics R&D subsidies on Boeing's development
of the LCA technologies applied to the 787 continue into the post -implementation period. In this
Section, we address the European Union's arguments that the pre-2007 aeronautics R&D subsidies
through their effects on Boeing's development of 787 technologies that have subsequently been
adapted and applied to the more recently launched 787 -9/10 and 777X mode ls, giver rise to
"spill-over technology effects" in respect of those aircraft in the post-implementation period.
9.179. Regarding the technological spill -over to the 787 -9/10, the European Union argues that
Boeing was able to "simply stretch" the 787 -8 baseline model it launched in 2004 to develop the
larger variants of the 787 -family of LCA; the 787 -9 and 787-10X models, based on the spill -over
of knowledge and experience acquired through participation in the original NASA and DOD
aeronautics R&D programmes. 2949 As regards the spill -over technology effects on the 777X, the
European Union argues that Boeing's experience developing the CFRP composite wing of the 787
under the original NASA and DOD aeronautics R&D programmes enabled it to incorporate a next
generation, scaled-up composite wing design on the 777X -family models. This wing con figuration
will allegedly use [[HSBI]]2950 and will use close -coupling of the engine nacelles to the wing as
derived from the 787 to attach larger -diameter engines, which contributes to a 10% fuel burn
advantage over the 777-300ER while maintaining the necess ary ground clearance.2951 In addition,

2947 The European Union additionally argues that the Boeing engineers' conclusion that Boeing would
have launched the 787 before the end of April 2006 is further contradicted by the fact that Boeing required
four years in the pre-launch phase to develop and test the relevant materials for the 777X, which involves
similar design and development work for the 787. The European Union argues that, under the Boeing
engineers' counterfactual, Boeing would have spent half as long to do similar design and development work for
the 787. Moreover, the European Union contends that its estimate that the 777X pre-launch development
phase was four years is "conservative" as it does not account for additional time Boeing spent on composites
development for the 787, which is relevant to the 777X testing and design. (See Statement of B. Domke on the
engineering-related aspects of the Panel's first set of questions, 4 December 2013, (Exhibit EU-1268) (BCI),
paras. 18 and 19). The Panel disagrees that a simple comparison of the time spent on pre-launch R&D for the
787 and 777X programmes undermines the Boeing engineers' counterfactual estimate that, absent the
aeronautics R&D subsidies, Boeing would have launched the 787 by April 2006. Commercial priorities differ
between different aircraft programmes and these differing priorities can influence the point in time at which an
aircraft manufacturer decides to launch an aircraft programme. Based on the European Union's estimate that it
will take Boeing approximately ten years to move from the pre-launch phase for the 777X in 2010 until
estimated first delivery in 2020, the overall development time for the 777X is comparable to that of the 787.
(Statement of B. Domke on the engineering-related aspects of the Panel's first set of questions,
2948 See paras. 9.126-9.128 above.
2949 European Union's first written submission, paras. 995 and 1031-1037.
2950 European Union's response to Panel question No. 165, para. 130 (referring to Boeing Presentation
#23, (Exhibit EU-1674) (HSBI), slides 2 and 3).
2951 European Union's response to Panel question No. 165, para. 131-136 (referring to Boeing
Presentation #19, (Exhibit EU-1676) (HSBI)).

the European Union submits that [[HSBI]] have also "spilled -over" from the 787's development
and will be incorporated on the 777X.2952
9.180. The United States argues that, as Boeing would have been able to develop the
technologies to launch the 787 in 2006 and make it available as it currently is, even absent the
pre-2007 aeronautics R&D subsidies, Boeing would have had ample time to leverage learning and
developments from the 787 programme to incorporate those technologies onto o ther newer LCA
developments, including the newer models of the 787 and the 777X. The United States maintains
that the effect of the pre -2007 aeronautics R&D subsidies was to accelerate Boeing's development
of technologies for the 787 in the early 2000s, no t to create those technologies themselves such
that, absent the pre -2007 aeronautics R&D subsidies, the 787 technologies would never have
existed. Accordingly, the United States considers that there can be no spill -over technology
effects.2953
9.181. The European U nion's spill -over technology effects theory raises two issues. The first is
whether, conceptually, the original technology effects of the pre -2007 aeronautics R&D subsidies
could have "spilled-over" to other aircraft , bearing in mind that these effects per tain to the
acceleration of Boeing's development of 787 -related technologies and not to their existence as
such. If so, t he second issue is whether any of the alleged technologies identified by the
European Union in relation to the 787 -9/10 and 777X are su fficiently related or linked to the 787
technologies such that the latter bear a meaningful technological connection to the former.
9.182. As we explain in Section 9.3.2.1.1 above, the European Union has at times fram ed its
technology effects arguments on the understanding that the effects of the pre -2007 aeronautics
R&D subsidies that are said to continue into the post -implementation period are t he 787
technologies themselves. These 787 technologies themselves spill-over into other technologies
that are applied to newer Boeing LCA. To the extent that the European Union's spill -over
technology effects arguments reflect this understanding of the effects of the pre -2007 aeronautics
R&D subsidies, they are based on an inco rrect understanding of the findings of the original panel
and Appellate Body regarding the effects of the pre -2007 aeronautics R&D subsidies. The
causation finding in the original proceeding was that the pre -2007 aeronautics R&D subsidies
accelerated the development by Boeing of the 787 technologies. Therefore, the relevant question
before us is whether, owing to that acceleration, any alleged so -called spill -over technologies
applied to the 787 -9/10 and 777X also came into existence earlier than would othe rwise be the
case, enabling an earlier than otherwise launch of these aircraft.
9.183. The United States argues that the acceleration effect of the pre -2007 aeronautics R&D
subsidies was relatively short -lived, and to the extent that there is any technological c ontinuity
leading to spill-over onto newer Boeing LCA, the launch of the 787 in 2006 would have left ample
time for Boeing to adapt technologies to the newer iterations of the 787, as well as the 777X LCA,
ahead of their respective actual launches.2954
9.184. We conclude in Section 9.3.2.1.1 above that the European Union has failed to establish
that, absent the pre -2007 aeronautics R&D subsidies, Boeing would have launched the 787 after
the end of the implementation period in September 20 12. The end of the implementation period is
more than eight years after Boeing actually launched the 787 in 2004, and is ten or more years
after Boeing began pre -launch R&D for the development of the 787 , following its decision to
develop a replacement for the 767. Regardless of w hether Boeing would have launched the 787
before the end of 2006 or somewhat later, we consider that an unsubsidized launch of the 787
would nevertheless have occurred multiple years in advance of the la unch of the 787 -10 (in
June 2013) or the 777X (in November 2013).

2952 European Union's first written submission, paras. 994 and 1061-1073; response to Panel question
No. 165, paras. 128 and 129 (referring to Boeing Presentation #20, (Exhibit EU-1671) (HSBI), slides 3-5;
Boeing Presentation #21, (Exhibit EU-1672) (HSBI), slide 5; and Boeing Presentation #22, (Exhibit EU-1673)
(HSBI), slide 2). See also Statement of B. Domke, Airbus, Impact of Selected NASA/DOD-supported 787
Technologies and Recent U.S. R&D Programmes on Boeing's Post-2007 LCA Developments, March 2013 (Airbus
Engineer's Statement), (Exhibit EU-31) (BCI), paras. 67 and 72-75.
2953 See United States' first written submission, para. 708; and second written submission, para. 739.
2954 See United States' first written submission, paras. 3, 682, 703-711, 735-738, and 782-799; second
written submission, paras. 732-739, 743-849, 881-904, and 1187-1204; response to Panel question Nos. 45,
46, 47, 151, 152, 153, 156, 157, and 165; and comments on European Union's responses on Panel question
Nos. 45, 46, 47, 151, 152, 153, 156, 157, and 165.

9.185. At the point in time of an unsubsidized 787 launch, Boeing would have undertaken all of
the R&D necessary to launch 787 that the pre -2007 aeronautics R&D subsidies had enabled it to
undertake. The question remains whe ther Boeing would have had sufficient time following the
unsubsidized launch of the 787 to leverage its knowledge and experience to proceed with the
respective launches of the 787 -9/10 and 777X models. The onus is on the European Union to
demonstrate that there would not have been sufficient time. However, the European Union has not
provided credible evidence that the 787 technologies that Boeing would have developed absent the
aeronautics R&D subsidies could not have been adapted and developed into spill -over technologies
for the 787-9/10 or 777X in sufficient time to enable their respective launches in 2013.2955
9.186. Accordingly, we conclude that the European Union has failed to demonstrate th e existence
of so-called spill-over technology effects of the pre -2007 aeronautics R&D subsidies in respect of
the 787-9/10 or 777X in the post-implementation period.2956
9.3.2.1.3 Sleeper technology effects of the pre-2007 aeronautics R&D subsidies
9.187. The European Union argues that Boeing is now applying certain other technologies to its
newly developed LCA which were researched under the pre -2007 aeronautics R&D programmes.
The European Union's sleeper technology 2957 allegations concern: (a) the application of Hybrid
Laminar Flow Control (HLFC) technology on the 787 -9/10X and 777X [[HSBI]] to increase fuel
burn savings2958; (b) the use of Radio Frequency Identification (RFID) tagging to enhance the 787
Airplane Health Management system, including retrofitting RFID tagging on existing 787s, and
installation on new 787 -9/10X models2959 and the 777X2960; and (c) the incorporation of a folding
wing tip design on the 777X.2961
9.188. The European Union alleges that R&D conducted by Boeing under the NASA R&T Base and
Aviation Safety programmes, as well as the DOD Aerospace Flight Dynamics/Vehicle Systems,
Aerospace Avionics/Sensors, and Dual-Use Science and Technology RDT&E program elements, has
enabled Boeing to develop HLFC technology for use on the 787 -9 and 787-10X to reduce drag and
increase fuel burn savings and payload range capability. 2962 It also contends that RFID tags to
enhance the 787's Airplane Health Management systems, which were developed under NASA's R&T
Base Program and a number of DOD RDT&E program elements will be used to store information
such as parts maintenance logs to facilitate maintenance operatio ns and enable paperless
maintenance, which can result in [[HSBI]] and will "further increase the attractiveness,
marketability and operating cost savings of the 787 LCA family". 2963 This particular sleeper
technology will also be retrofitted on existing 787 m odels that have been delivered to
customers.2964

2955 As we explain in para. 9.182 above, this is because the European Union misconstrues the findings
from the original proceeding as to the effects of the pre-2007 aeronautics R&D subsidies.
2956 In light of this conclusion, we need not address the question whether any of the alleged technologies
identified by the European Union in relation to the 787-10 and 777X are in some way related or linked to those
on the 787.
2957 These so-called sleeper technologies are described as "promising technologies … that {Boeing}
chose not to apply to its LCA developments prior to 2007, including its 787, because the technologies did not
yet display the necessary technology readiness or maturity". (European Union's first written submission,
paras. 985, 993-995, 1025, and 1074). See also Airbus Engineer's Statement, (Exhibit EU-31) (BCI),
section III.
2958 European Union's first written submission, paras. 1079-1081; and Airbus Engineer's Statement,
(Exhibit EU-31) (BCI), paras. 85-91.
2959 European Union's first written submission, paras. 1085 and 1208; and Airbus Engineer's Statement,
(Exhibit EU-31) (BCI), paras. 98-109.
2960 European Union's response to Panel question No. 165, para. 126.
2961 European Union's first written submission, paras. 1075-1078; and Airbus Engineer's Statement,
(Exhibit EU-31) (BCI), paras. 92-97. We address in Section 9.3.2.1.4 the European Union's additional
allegation that certain post-2006 aeronautics R&D subsidies have contributed to the development, maturation,
validation or testing of technologies, including certain of the alleged sleeper technologies discussed herein.
(See e.g. European Union's first written submission, paras. 1081, 1086, and 1087).
2962 Airbus Engineer's Statement, (Exhibit EU-31) (BCI), paras. 88-91.
2963 European Union's first written submission, para. 1208; and Airbus Engineer's Statement, (Exhibit
EU-31) (BCI), paras. 99 and 103.
2964 European Union's first written submission, para. 1085; and Airbus Engineer's Statement, (Exhibit
EU-31) (BCI), paras. 98-109. The European Union submits that Boeing is also validating RFID technology

9.189. The European Union argues that the HLFC and RFID sleeper technologies developed
through the pre-2007 aeronautics R&D subsidies will also impact the 777X, citing recent evidence
suggesting that Boeing plans to apply RFID to "all {s}erialized parts" of the 777X including aircraft
structures2965 and that Boeing is leveraging knowledge and experi ence acquired under the NASA
Research and Technology Base (R&T Base) Program to develop and incorporate the drag reduction
technology, HLFC, for the 777X's [[HSBI]] to achieve fuel -burn savings. 2966 Overall, the
European Union contends that these technologies will contribute to "a promised 21 per cent
improvement in per-seat fuel burn and a 16 per cent improvement in cash operating cost per-seat
over today's 777 -300ER"2967 and will enable Boeing to launch and deliver the 777X "earlier than
would otherwise have been possible".2968 The European Union also contends that Boeing leveraged
experience from its participation in DOD RDT&E program elements, including the Northrop
Grumman A-6E Intruder fighter aircraft and A -6 Squadrons RDT&E program elements, to develop
a folding wing tip for the 777X. This will allow the aircraft to achieve the same airport compatibility
(International Civil Aviation Organization (ICAO) Code E category) as the current generation 777 -
300ER despite having the largest wingspan of all Boeing aircraft.2969
9.190. The United States disputes that the pre -2007 aeronautics R&D subsidies were the
inspiration for, or assisted in integr ating, the alleged technologies on new 787 -9/10 and 777X
models. It argues that Boeing would have had time to further develop any alleged sleeper
technologies.2970
9.191. The United States responds that the use of HLFC on the 787-9 is "unrelated to NASA's R&T
Base program" as Boeing did not rely on the Boeing/NASA 8 -ft Cross Flow Suction experiment test
results or FAA CLEEN testing when designing the 787 HLFC Tail System. 2971 As for the
European Union's allegations regarding the use of RFID tags, the United States asserts that Boeing
[***] RFID devices [***]. Notwithstanding the limited scope of deployment, the United States
argues that Boeing developed this solution through work with its suppliers. Beyond application to
passenger and crew safety equipment, [***].2972 It a sserts that Boeing has opted not to
incorporate HLFC on the 777X configuration. 2973 The United States says the 777X will not
incorporate HLFC in its [[HSBI]], as reflected in the firm 777X configuration. Instead, the 777X
will feature a passive suction system , as well as a structural integration method that are both

under the 2012 ecoDemonstrator programme. (European Union's first written submission, paras. 1086 and
1087).
2965 European Union's response to Panel question No. 165, para. 126 (citing A. Kumar, Associate
Technical Fellow Boeing, "Boeing Plans on RFID Implementation", presentation, (Exhibit EU-1670), p. 2).
2966 HLFC is a drag reduction technique that permits extending turbulent boundary layer flow in flow
conditions that would otherwise result in turbulent flow. (See European Union's first written submission,
paras. 1079-1081; and Airbus Engineer's Statement, (Exhibit EU-31) (BCI), paras. 85-91). The
European Union submits that Boeing has also tested and validated HLFC as part of its work under the FAA
CLEEN Program, demonstrating the "complementarity" and "cumulative effect" of Boeing's participation in
NASA and DOD aeronautics R&D programmes. (European Union's first written submission, para. 1081).
2967 European Union's first written submission, para. 1214. This also includes [[HSBI]].
(European Union's response to Panel question No. 165, para. 129)
2968 European Union's first written submission, para. 1218.
2969 European Union's first written submission, paras. 1075-1078; and Airbus Engineer's Statement,
(Exhibit EU-31) (BCI), paras. 92-97.
2970 United States' first written submission, paras. 708, 709, 782-784, and 804-811; second written
submission, paras. 739 and 882-896; opening statement at the meeting with the Panel, para. 129; response to
Panel question No. 165, para. 84; comments on European Union's response to Panel question No. 165,
para. 166; Boeing Engineers' Statement, (Exhibit USA-283) (BCI), para. 76; Boeing Website, "737 Family –
The New Boeing 737 MAX Family – Efficiency, Reliability, Passenger Appeal", available at
<http://www.boeing.ch/commercial/737 MAX>, accessed 3 August 2016, (Exhibit EU-617); and Boeing Press
Release, "Boeing Launches 777X with Record-Breaking Orders and Commitments", 17 November 2013, (Exhibit
USA-392).
2971 United States' comments on European Union's response to Panel question No. 165, para. 170
(referring to Boeing Engineers' Statement, (Exhibit USA-283) (BCI), para. 31).
2972 United States' first written submission, para. 801; and Boeing Engineers' Statement, (Exhibit
USA-283) (BCI), para. 39. The United States additionally contends that Boeing's testing of RFID on the
ecoDemonstrator 737-800 test bed was not under a CLEEN contract, and was not enabled by any other U.S.
R&D programmes.
2973 United States' response to Panel question No. 165, para. 83; and comments on European Union's
response to Panel question No. 165, para. 170.

Boeing's own internally-funded inventions.2974 Regardless, the United States contends that Boeing
developed the 787 HLFC Tail System technology using internal funding and publicly available
material t hat was simultaneously available to Airbus, including the publicly -disclosed results of
U.S. Government-funded tests and projects. This does not involve Boeing/NASA 8 -ft Cross Flow
Suction experiment or testing under the FAA CLEEN Program.2975
9.192. The United Sta tes argues that RFID tagging was not enabled by the original NASA and
DOD aeronautics R&D programmes, and in any event, will have limited application on the 787
passenger and crew safety equipment and will not be used on aircraft structural parts for the
787.2976 The United States argues that any development of RFID technology that will be deployed
on the 777X was not enabled by the original NASA and DOD aeronautics R&D programmes.2977
9.193. Finally, the United States rejects the allegations that the 777X folding wing tip design is
similar in material respects to the folding wing used under A-6E Intruder fighter aircraft design.2978
The United States argues that the European Union fails to show that eff ects from the NASA ACT,
AST, High Speed Research (HSR) and Aviation Safety programmes, and DOD F-22, A-6, B-2, and
Joint Strike Fighter RDT&E program elements, have enabled or contributed to Boeing's
development of the 777X's composite wings, or hardware and software that is being implemented
on the 777X. 2979 The United States contends that the 777X design is different from the A -6E
folding wing in all material respects. This includes: [***] Moreover, the 777X folding wing tip
design is asserted to differ markedly from that referred to as an initial design reference point, the
777-200.2980 The 777X folding wing tip and A -6E folding wing share "overall design principles" to
the same extent as all aircraft with a wing that fold upwards, such as the Hawker Sea Fury
(introduced in 1945), Douglas Skyraider (introduced in 1946), de Havill and Sea Vixen (introduced
in 1959), Blackburn Buccaneer (introduced in 1962), and the Russian Sukhoi SU -33 naval fighter
aircraft.2981
9.194. With respect to the allegations regarding the application of HLFC on the 787-9/10X and the
use of RFID tagging on the 787 and 777X, we note that the European Union cites advances Boeing
made on health management technologies under NASA R&T Base Program and Aviation Safety
Program dating back to 2000, and work under two contracts dating back to 1999 and 2000, and
finally, work under a number of DOD RDT&E program elements.2982 Similarly, the European Union
refers to Boeing's study of HLFC while participating in NASA's R&T Base Program between 1992

2974 United States' response to Panel question No. 165, para. 83 (referring to S. Trimble, "State Permit
Reveals Boeing Plan to Hike 777X Output 25%", Flightglobal, 22 June 2015 (Exhibit USA-597)); comments on
European Union's response to Panel question No. 165, para. 813.
2975 United States' first written submission, paras. 802 and 813; Boeing Engineers' Statement, (Exhibit
USA-283) (BCI), paras. 31 and 83; and comments on European Union's response to Panel question No. 165,
para. 170.
2976 United States' first written submission, para. 801; and Boeing Engineers' Statement, (Exhibit
USA-283) (BCI), para. 39. See also United States' comments on European Union's response to Panel question
No. 165, para. 172.
2977 United States' comments on European Union's response to Panel question No. 165, para. 172.
2978 United States' first written submission, para. 812; second written submission, paras. 793, 900, and
901; Boeing Engineers' Statement, (Exhibit USA-283) (BCI), paras. 80 and 81; and Boeing Engineers' Reply,
(Exhibit USA-359) (BCI), paras. 41 and 42.
2979 United States' first written submission, para. 809. In particular, in respect of DOD RDT&E program
elements, the United States argues that the European Union has not demonstrated that the effects derive from
assistance instruments that were the subject of the panel's findings, as opposed to procurement contracts. In
any event, it contends that the F-22, A-6, B-2, and Joint Strike Fighter RDT&E program elements are "quite
old". (United States' first written submission, para. 810; and second written submission, para. 898).
2980 United States' first written submission, para. 812; second written submission, paras. 793 and 901;
Boeing Engineers' Statement, (Exhibit USA-283) (BCI), paras. 80 and 81; and Boeing Engineers' Reply,
(Exhibit USA-359) (BCI), para. 42 (quoting Airbus Engineer's Statement, (Exhibit EU-31) (BCI), para. 121).
2981 United States' second written submission, para. 900; and Boeing Engineers' Reply, (Exhibit
USA-359) (BCI), para. 41 (quoting Airbus Engineer's Statement, (Exhibit EU-31) (BCI), para. 121).
2982 Airbus Engineer's Statement, (Exhibit EU-31) (BCI), paras. 106-109 (referring to Statement of D.
Wacht, Boeing, An Analysis of Selected NASA Research Programs and Their Impact on Boeing's Civil Aircraft
Programs, November 2006, (Exhibit EU-32) (BCI), p. 131; NASA Aviation Safety Budget Estimates,
FY 2000-2007, (Exhibit EU-655), FY 2000, SAT 4.1-51; NASA Contract NAS1-00106 with The Boeing Company
regarding Flight Critical Systems Research (2000), (Exhibit EU-656), section C.1, article 2.3; and NASA
Contract NAS1-99070 with Boeing Commercial Airplane Group regarding Structures and Materials Technology
for Aerospace Vehicles (25 January 1999), (Exhibit EU-657), at pp. 2-5).

and 1999.2983 The limited references to the development and implementation of health monit oring
technologies, on the one hand, and advances in the use of HLFC, on the other hand, in the
materials cited by the European Union indicate that these technology areas were studied.
9.195. However, while Boeing may have studied these technologies under the id entified projects,
the European Union has failed to provide evidence showing how, or otherwise qualify the extent to
which, these experiences contributed to Boeing's development of the ultimate technologies, or the
extent to which the particular pre-2007 aeronautics R&D subsidies enabled an earlier launch of the
relevant aircraft or a launch that would otherwise not have been possible. The evidence presented
is not sufficient to enable us to assess the significance of the pre -2007 aeronautics R&D subsidies
to the ultimate development of these technologies.2984 We note, in addition, that the United States
has argued that RFID will feature on the 787 in a limited capacity, and will not appear in the final
design of the 777X, further calling into question the extent to which the pre-2007 aeronautics R&D
subsidies can be said to have any impact on the technological development of these aircraft based
on the so-called sleeper technologies theory.
9.196. With respect to the sleeper technologies emanating from various RDT&E program elements
that allegedly facilitated Boeing's development of a folding wing tip for the 777X, we note that the
European Union's arguments relate generally to work conducted under a number of DOD RDT&E
program elements, particularly a DOD procurement contract under which Boeing allegedly
conducted R&D work to improve the Northrop Grumman A -6E Intruder attack aircraft. 2985 There
were no findings in the original proceeding that the payments and access to DOD facilities provided
through procurement contracts funded under the original 23 RDT&E program elements involved
specific subsidies to Boeing, nor are there any such findings in this proceeding. Accordingly, even
assuming arguendo that the work that Boeing performed under that procurement contract
provided the technological foundations for Boeing's subsequent development of the folding wing tip
on the 777X (an e videntiary issue on which we express no view), the European Union's argument
would in any case fail because it has not established an adequate link between that R&D and the
pre-2007 aeronautics R&D subsidies.
9.197. Accordingly, we conclude that the European Union has failed to demonstrate th e existence
of sleeper technology effects of the pre-2007 aeronautics R&D subsidies in respect of the 787-9/10
or 777X in the post-implementation period.
9.3.2.1.4 New technology effects of certain post-2006 aeronautics R&D subsidies
9.198. We recall that the European Union argues that the vast majority of the aeronautics R&D
subsidies that came into existence after the original proceed ing (the post -2006 aeronautics R&D
subsidies), aggregated into one category, provide Boeing with additional cash flow because they
lower Boeing's costs of licensing intellectual property rights to LCA technology, and of developing
that technology, and ther efore operate through a price causal mechanism. 2986 However, the
European Union also points to a relatively small number of individual post -2006 aeronautics R&D
subsidies which it argues operate through a technology causal mechanism (rather than a price
causal mechanism) to contribute to Boeing's development of innovative technologies for its current
LCA as well as the availability of "innovative future Boeing LCA". 2987 In this Section of the Report,
we evaluate the European Union's arguments regarding this small number of post -2006
aeronautics R&D subsidies that are said to operate through a technology causal mechanism to
affect the development of technologies for the 787 -9/10 and 777X and thereby cause serious
prejudice to the European Union's interests in the post-implementation period.

2983 Airbus Engineer's Statement, (Exhibit EU-31) (BCI), paras. 89 and 90 (referring to NASA R&T Base
Budget Estimates FY 1991-FY 2004, (Exhibit EU-648), FY 1992, 1995, and 1999).
2984 In this respect, in discussing the contribution of subsidies to Boeing's development of RFID, Airbus
engineer Burkhard Domke indicates that Boeing's participation in NASA aeronautics R&D Base Program and
DOD RDT&E program elements "likely benefit the RFID technology on Boeing's 787". (See Airbus
Engineer's Statement, (Exhibit EU-31) (BCI), para. 128).
2985 Airbus Engineer's Statement, (Exhibit EU-31) (BCI), para. 94: "{t}he 777X folding wing tip is a
product of Boeing's research and work performed under a DOD contract to improve the Northrop Grumman
A-6E Intruder attack aircraft."
2986 Section 9.4.3.4.3 below.
2987 European Union's first written submission, para. 979.

9.199. The European Union argues that Boeing's participation in: NASA's Environmentally
Responsible Aviation (ERA) Project; the Subsonic Fixed Wing Project and Supersonics Project
under NASA's Fundamental Aeronautics Program; and the ec oDemonstrator programme pursuant
to the Boeing CLEEN Agreement enabled Boeing's development of technologies for the 787 -8/9/10
and 777X, thereby contributing to serious prejudice caused through those aircraft. 2988 The
European Union also argues that certain p ost-2006 aeronautics R&D subsidies, including Boeing's
research and testing of technologies not currently applied on Boeing LCA under NASA's Subsonic
Fixed Wing Project and under DOD's RDT&E Air Force Aerospace Flight Dynamics/Aerospace
Vehicle Technologies and Air Force Advanced materials for Weapons Systems program elements,
cause a threat of serious prejudice in the form of "future technology effects".2989
9.200. The European Union argues that Boeing is conducting further R&D focused on validating
RFID technology under the 2012 ecoDemonstrator programme for application on the 787, as well
as additional testing and validation of HLFC under NASA's ERA and Subsonic Fixed Wing
Projects.2990 The European Union argues that these technologies help reduce overall aircraft fu el
burn, increase payload range capability and lower maintenance costs. 2991 The European Union
argues that Boeing is conducting testing and validation of HLFC for use on the 777X under the
ecoDemonstrator programme, and NASA ERA and Subsonic Fixed Wing Projec ts to facilitate
promised delivery in [[HSBI]].2992 The European Union submits that recent evidence
demonstrates that Boeing plans to apply RFID to "all {s}erialized parts" of the 777X including
aircraft structures. 2993 In addition, the European Union speculates that Boeing is also testing
[[HSBI]].2994
9.201. The United States argues that the European Union's allegations regarding the technological
advances arising out of Boeing's post-2006 participation in NASA and DOD aeronautics R&D efforts
and the Boeing CLEEN Agreeme nt are without merit. In the case of post -2006 NASA -funded
research, the United States argues that Boeing did not conduct the work as alleged, the research
effort is not relevant or did not enable the particular technology as alleged. With respect to fligh t
testing conducted pursuant to the Boeing CLEEN Agreement, the United States submits that "most
ecoDemonstrator flight tests had no CLEEN involvement whatsoever" 2995 and thus any testing was
not funded under the Boeing CLEEN Agreement per se. In situations where a particular technology
may have been evaluated on flights that were partially funded by the FAA CLEEN Program, the
United States considers the role of the FAA CLEEN Program was, at most, to contribute a portion of
the fuel cost incurred on the test f light, which is not a "technology effect" pursuant to the
European Union's own theory. The United States considers that the European Union's position that
tests on the ecoDemonstrator test bed would not exist absent the FAA's funding cannot be
supported.2996 The United States requests the Panel to reject the European Union's argument

2988 The European Union argues that, should the Panel disagree that any of these alleged post-2006
aeronautics R&D subsidies operate, at present, through a technology causal pathway, they should in the
alternative be understood to operate through a price causal pathway. (See European Union's response to Panel
question No. 43, fn 352).
2989 European Union's second written submission, paras. 1051-1056. (emphasis original)
2990 European Union's first written submission, para. 1103. See also Airbus Engineer's Statement,
(Exhibit EU-31) (BCI), section IV.B.2; A. Washburn, Chief Technologist, NASA Environmentally Responsible
Aviation Integrated Systems Research Program, "Drag Reduction Status and Plans – Laminar Flow and AFC",
Presentation at AIAA Aero Sciences Meeting, 4-7 January 2011, (Exhibit EU-668), p. 10; J. Eppink and R.
Wlezien, "Data Analysis for the NASA/Boeing Hybrid Laminar Flow Control Crossflow Experiment", Paper
prepared for 41st AIAA Fluid Dynamicy Conference and Exhibit, Honolulu, 27-30 June 2011, (Exhibit EU-667);
G. Norris, "787-9 Technology Revealed?", Aviation Week, Blog Things with Wings, 2 June 2011, (Exhibit
EU-647); and G. Norris, "Boeing Ditches Drag Reduction System for 777X", Aviation Week, 10 May 2015,
(Exhibit EU-1679).
2991 European Union's response to Panel question No. 165, para. 137.
2992 European Union's first written submission, paras. 1100-1102.
2993 European Union's response to Panel question No. 165, para. 126 (citing A. Kumar, Associate
Technical Fellow Boeing, "Boeing Plans on RFID Implementation", presentation, (Exhibit EU-1670), p. 2).
2994 European Union's first written submission, para. 1101.
2995 United States' second written submission, para. 892. According to the United States, the
ecoDemonstrator test bed aircraft itself is a Boeing 737-800 that was not funded by the CLEEN Contract, most
ecoDemonstrator flight tests had no CLEEN involvement whatsoever, and Boeing uses its own aircraft as flying
test beds as a matter of course outside of U.S. Government R&D programmes. (Boeing Engineers' Reply,
(Exhibit USA-359) (BCI), paras. 44-47).
2996 United States' first written submission, paras. 800-808, 813, 975-978, 986-988, 989, and 990;
second written submission, paras. 740, 792-794, 892, 897-903, 1194-1196, and 1201-1204.

regarding threat of future technology effects , as Articles 5 and 6 of the SCM Agreement do not
permit a challenge to subsidies that are merely alleged to have effects in the future.2997
9.202. The United States argues that Boeing's development of HLFC for the 787-10 is unrelated to
NASA's R&T Base Program, but instead, resulted from Boeing's use of "internal funding and
publicly available material that was simultaneously available to Airbus , including the publicly
disclosed results of U.S. Government-funded tests and projects".2998 The United States argues that
RFID technology that will feature on upcoming 787 and 777X models was not developed or
otherwise tested pursuant to a Boeing CLEEN Agreement2999 As discussed in paragraph 9.191, the
United States has also indicated that the 777X will not incorporate HLFC in its design.
"Existing" new technology effects
9.203. We first address the European Union's argument that Boeing ha s received post -2006
support to continue research into HLFC through work conducted under NASA's Subsonic Fixed
Wing Project and Supersonics Project, as well as under NASA's ERA Project. According to evidence
on record, Boeing received funding of USD 572,39 0 at the end of 2007 to research laminar flow
technology to develop a design for Supersonic Transport Aircraft through the use of CFD
analysis.3000 While asserting that the 777X will not incorporate HLFC in its design, the
United States has not denied that HL FC technology has been incorporated on the 787 -9, and
potentially the 787 -10X. Boeing's website indicates that HLFC is a feature of the 787 -9.3001
However, the European Union has provided no evidence as to the contribution of th e research into
HLFC conducted under NASA's Subsonic Fixed Wing Project, Supersonics Project or ERA Project to
Boeing's overall decision to incorporate the HLFC technologies on the 787-9 and 787-10X, or the
extent to which such research enabled an earlier launch of the 787 -10X incorpora ting this
technology, or a launch that would otherwise not have been possible. Finally, we turn to the
European Union's allegations concerning Boeing's participation in the FAA CLEEN Program through
the Boeing CLEEN Agreement in respect of the development of RFID technology and HLFC for use
on the 787 and 777X.3002 The European Union submits that "{a} major component of the CLEEN
Program is flight testing … under the ecoDemonstrator Program" 3003, including tes ting that was
done under a 2012 737 -800 test bed and a 2013 787 test bed. 3004 The European Union describes
testing on the ecoDemonstrator as "more generic" as it submits that "{a} technology tested on the
ecoDemonstrator is … tested in a way that the results can be applied to many different LCA
platforms".3005 While noting this is a departure from Boeing's past practice of testing technologies

2997 United States' second written submission, para. 850.
2998 Boeing Engineers' Statement, (Exhibit USA-283) (BCI), para. 31. See also United States' comments
on European Union's response to Panel question No. 165, para. 170.
2999 United States' comments on European Union's response to Panel question No. 165, paras. 170-172
(referring to Boeing Engineers' Statement, (Exhibit USA-283) (BCI), para. 39). See also Boeing
Engineers' Reply, (Exhibit USA-359) (BCI), paras. 44-47.
3000 NASA, Research Opportunities in Aeronautics – 2006, Supersonics Project 3 award announcement,
(Exhibit EU-143), pp. 13 and 14; NASA task order NNL08AA36T, (Exhibit EU-151).
3001 See <http://www.boeing.com/commercial/787/frontiers-787-9-october-2013>, accessed
3 August 2016.
3002 We recall that the FAA launched the FAA CLEEN Program in 2010, awarding USD 125 million in
five-year R&D agreements to Boeing, General Electric, Honeywell, Pratt & Whitney, and Rolls-Royce North
America, on a 50% cost-sharing basis. Under its agreement with Boeing, the FAA CLEEN Program funds
research to mature specified technologies, as well as testing and assessment of technologies through Boeing's
ecoDemonstrator programme. See Airbus Engineer's Statement, (Exhibit EU-31) (BCI), para. 111; FAA Fact
Sheet, "Continuous Lower Energy, Emissions, and Noise (CLEEN) Program", 24 June 2010, (Exhibit EU-257);
Boeing, Backgrounder, 2012 ecoDemonstrator Program Shows Boeing's Long Commitment to Environmentally
Progressive Technology, (June 2012), (Exhibit EU-261), pp. 1 and 2.
3003 Airbus Engineer's Statement, (Exhibit EU-31) (BCI), para. 113 (referring to Boeing, Backgrounder,
2012 ecoDemonstrator Program Shows Boeing's Long Commitment to Environmentally Progressive Technology,
(June 2012), (Exhibit EU-261), p. 2).
3004 Airbus Engineer's Statement, (Exhibit EU-31) (BCI), paras. 114 and 118 (referring to FAA Fact
Sheet, "Continuous Lower Energy, Emissions, and Noise (CLEEN) Program", 18 September 2012, (Exhibit
EU-18)). As part of the 2012 series of tests on the 737-800 test bed, the European Union submits that Boeing
flight tested the following technologies: (a) a variable area fan nozzle; (b) adaptive trailing edges; (c)
"real-time, iPad based flight trajectory optimization and information management systems"; and (d) a method
of electronically testing emergency equipment using RFID devices. (See Airbus Engineer's Statement, (Exhibit
EU-31) (BCI), para. 116 (referring to Boeing, Fact Sheet, "The Suit of Technologies on the eco Demonstrator
Tests New Ways to Reduce Fuel Consumption and Community Noise", June 2012, (Exhibit EU-263))).
3005 Airbus Engineer's Statement, (Exhibit EU-31) (BCI), para. 115.

on a platform -specific basis, the European Union acknowledges that the ecoDemonstrator
programme operates adjunct to Boeing's continuing flight testing on a platform -specific basis.3006
The Airbus engineers contend that Boeing conducted further testing and "refining" of HLFC3007, and
testing and "validat{ion}" of RFID technology.3008
9.204. Central to the original panel's finding that the NASA and DOD aeronautics R&D
programmes before it cause d serious prejudice was the conclusion that Boeing would not have
been able to launch the 787 with the technologies it had and promise deliveries in the same time -
frame, absent the contribution of the pre -2007 aeronautics R&D subsidies. 3009 In reaching this
conclusion, the panel ob served that the aeronautics R&D programmes before it were aimed at
helping Boeing overcome large disincentives inherent in "long term, high risk" aeronautics R&D.3010
Absent the contribution of the pre -2007 aeronautics R&D subsidies, th e panel considered that
Boeing would not have achieved the same gains "within the time frame and/or at the lower cost to
itself that were the product of the aeronautics R&D subsidies".3011
9.205. We see an important difference between the type of early -stage, high risk R&D at issue in
the original proceeding and the testing and assessment that takes place under Boeing's
ecoDemonstrator programme , which receives funding under the FAA CLEEN Program. The
European Union acknowledges that Boeing's work under the FAA CLEEN Program is primarily
focused on flight testing, validation and refinement of technologies already in a late stage of
development. It is not clear to us that Boeing would not have undertaken this work on its own.
The European Union has , for instance, recognized that flight testing under the ecoDemonstrator
test beds is supplemental to Boeing's testing. Finally, the European Union has not alleged that
Boeing could not have funded this testing, absent the 50% cost contribution from the FAA CLEEN
Program. Inde ed, we would have difficulty accepting such an argument, given that the total
amount of FAA funding to Boeing under the Boeing CLEEN Agreement accounts for only
USD 27,986,056 during the 2010-2014 period.3012
9.206. Thus, we are not persuaded that Boeing's particip ation in the FAA CLEEN Program through
the Boeing CLEEN Agreement materially helped Boeing to undertake R&D that it would not
otherwise have undertaken, or to achieve the same gains that it would not otherwise have
achieved within essentially the same time -frame. Rather, if anything, Boeing's participation in a
cost-sharing arrangement such as the Boeing CLEEN Agreement merely lowered the cost at which
Boeing was able to undertake research that it would have undertaken in any case. We therefore
conclude that the European Union has failed to demonstrate that Boeing's participation in the FAA
CLEEN Program, through the Boeing CLEEN Agreement, created or accelerated the development
and creation of the RFID technolog y or HLFC technologies that are alleged to fea ture on the 787 -
9/10 and 777X models.3013
9.207. The European Union has therefore failed to demonstrate the existence of so -called new
technology effects of the particular post -2006 aeronautics R&D subsidies in respect of the 787 -
9/10 or 777X in the post-implementation period.

3006 Airbus Engineer's Statement, (Exhibit EU-31) (BCI), para. 115 (referring to G. Norris,
"EcoDemonstrator Paves Technology Pathway To Future", Aviation Week & Space Technology, 8 October 2012,
(Exhibit EU-662)).
3007 Airbus Engineer's Statement, (Exhibit EU-31) (BCI), para. 124.
3008 Airbus Engineer's Statement, (Exhibit EU-31) (BCI), para. 130.
3009 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1775.
3010 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1747.
3011 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1759.
3012 Specific contributions are listed in the Boeing CLEEN Agreement as USD 6,736,692 (2010),
USD 6,511,448 (2011), USD 7,960,050 (2012), USD 6,494,751 (2013), and USD 283,115 (2014). These
amounts are then adjusted to account for the actual funding provided by the FAA to Boeing based on
modifications appended to the Boeing CLEEN Agreement. See Boeing CLEEN Agreement, (Exhibit EU-17), p. 3,
modification 2 (providing USD 6,310,150 in 2011), modification 3 (providing an additional USD 201,298 in
2011), and modification 4 (providing USD 7,960,050 in 2012).
3013 We recall, in the event we were to reject the European Union's argument that post-2006 R&D
subsidies presently have technology effects, the European Union requests the Panel to find in the alternative,
that the subsidies operate through a "price effects" causal pathway. (See European Union's response to Panel
question No. 43, fn 352). We address whether the post-2006 funding and support provided to Boeing under
the Boeing CLEEN Agreement alternatively operates through a price causal mechanism in Section 9.3.2.2.3
below.

"Future" new technology effects
9.208. The European Union separately argues that certain post -2006 aeronautics R&D subsidies
cause a threat of serious prejudice in the form of " future technology effects".3014 The European
Union identifies the following research that Boeing is currently carrying out through the post -2006
aeronautics R&D subsidies which it considers will lead to the development of technologies for
application on future generations of Boeing LCA, including possibly future twin-aisle aircraft:
a. NASA's Subsonic Fixed Wing Project related to the development of pultruded rod stitched
efficient unitized structure (PRSEUS) composite materials that will have "significant
implications for how future aircraft will be designed and repaired"3015;
b. Boeing's research and testing of variable area fan nozzle (VAFN), RFID devices, adaptive
trailing wing edge technology and a modified winglet, on the ecoDemonstrator testing
component of the FAA CLEEN Program, to the extent not currently applied on the
737 MAX or other LCA models, nevertheless "generates important knowledge and
experience that is applied to subsequent technology developments".3016
9.209. The United States argues that Articles 5 and 6 of the SCM Agreement do not permit a
challenge to subsidies that are al leged to involve a threat of future technology effects and
therefore requests the Panel to reject the European Union's argument in its entirety. Under
Article 5 of the SCM Agreement, the United States argues that causation must be presently
occurring even if the form of adverse effects is imminent or threatened rather than current serious
prejudice. Hence, it submits that Article 5 uses the term "cause" in the present t ense. According to
the European Union's own argument, the causal mechanism is not present ly operating, but is
alleged to do so in the future. Otherwise, Article 5 would refer to subsidies that "cause or threaten
to cause", which is not the case.3017
9.210. Article 5 of the SCM Agreement provides that "{n}o Member should cause … serious
prejudice to the interests of another Member". Pursuant to footnote 13, the term "serious
prejudice" should also be understood to include "threat of serious prejudice". Article 5, when read
together with Articles 6.3(a) through (d), sets out the particular situations in wh ich serious
prejudice may arise; i.e. through displacement or impedance of imports, significant price
undercutting, significant price suppression, significant price depression or significant lost sales, or
an increase in the world market share of a particular subsidized primary product or commodity.
9.211. Articles 5 and 6 when read together allow for a finding of serious prejudice where a given
subsidy is shown to presently cause a threat of (for example) significant lost sales or significant
price suppression. In articulating a standard for determining the existence of a threat of serious
prejudice under Article 6.3(c), the Appellate Body has explained that, "as with a determination of
threat of material injury … it is reasonable to require that a determination of threat of serious
prejudice 'be based on facts and not merely on allegation, conjecture or remote possibility'". 3018
Importantly, the threat of serious prejudice that results in a "'change in circumstances' … 'must be
clearly foreseen and imminent'".3019

3014 European Union's second written submission, paras. 1051-1056. (emphasis original)
3015 European Union's second written submission, para. 1052. See also Airbus Engineer's Statement,
(Exhibit EU-31) (BCI), paras. 141-159.
3016 European Union's second written submission, para. 1055. The European Union has also referred to
Boeing's "research into nonlinear modelling and non-destructive inspection for composite aircraft structures"
under DOD RDT&E Air Force Aerospace Flight Dynamics/Aerospace Vehicle Technologies and Air Force
Advanced materials for Weapons Systems program elements, related to the development of nonlinear
modelling and non-destructive evaluation, which allow better methods to design fatigue-resistant structures
and inspection of ageing aircraft structures. (See European Union's first written submission, paras. 1089 and
1104-1110; and Airbus Engineer's Statement, (Exhibit EU-31) (BCI), paras. 165-175).These have been found
to be outside the scope of this proceeding.
3017 United States' second written submission, para. 850.
3018 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1171 (citing
Article 15.7 of the SCM Agreement).
3019 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1171 (citing
Article 15.7 of the SCM Agreement).

9.212. We note that the European Union has raised a number of threat claims in this proceeding,
including allegations of threats of significant price suppression, of significant lost sales, and of
displacement and/or impedance. 3020 The European Union's claims in those c ontexts are based ,
inter alia , on facts related to Boeing's plans to bring specific Boeing aircraft to market (for
instance, the 787 -10X, 737 MAX , and 777X), and the threat of serious prejudice to competing
Airbus LCA posed by the imminent launch of the pa rticular Boeing aircraft, which has benefited
from advanced technology that was allegedly enabled by the aeronautics R&D subsidies. The
competitive harm is alleged to be clearly foreseen and imminent due to the technological advances
and the anticipated arrival of the aircraft in the market.3021
9.213. We see significant differences between those allegations and the European Union's
arguments concerning the alleged "future technology effects" of certain of the post -2006
aeronautics R&D subsidies. None of the relevan t technologies that are the focus of the "future
technology effects" allegations are alleged to have been applied to twin-aisle or other Boeing LCA
to date.3022 At most, the European Union alleges that there are "encouraging findings" 3023 that a
technology such as PRSEUS could be employed on LCA in the future.
9.214. In our view, the prospect for potential application of technologies to future but as yet
non-existent LCA models is too remote and speculative to constitute a threat of serious prejudice ,
within the meanin g of Article 5(c) and footnote 13 and Article 6.3 of the SCM Agreement. The
possibility alone is inconclusive as to whether competitive harm to the European Union's interests
is imminent, as it is contingent on whether the technologies will ultimately be a pplied to LCA that
may ultimately be launched at some future point in time. Accordingly, we are not persuaded that
the European Union has demonstrated that certain post -2006 aeronautics R&D subsidies enable
Boeing to develop technologies that will be applied to future generations of Boeing LCA and in that
sense, give rise to a threat of serious prejudice in the form of "future technology effects".
Conclusion
9.215. In sum, we conclude that the European Union has failed to demonstrate that:
a. research conducted on H LFC under the Fundamental Aeronautics Supersonics Project
and Subsonic Fixed Wing Project and NASA's ERA Project contributed to Boeing's overall
development of technologies, or otherwise enabled an earlier launch of the 787-9/10; or
that
b. Boeing's participation in the FAA CLEEN Program, through the Boeing CLEEN Agreement,
created or a ccelerated the creation of HLFC or RFID technologies relevant to the
787-9/10X, or 777X.
9.216. We therefore find that the European Union has failed to demonstrate the existence of so-
called new technology effects of the particular post -2006 aeronautics R&D subsidies in respect of
the 787-9/10 and 777X in the post-implementation period.3024
9.217. We also reject the European Union's argument that research Boeing conducted under
NASA's Subsonic Fixed Wing Project related to the development of PRSEUS composite materials or
Boeing's research and testi ng of VAFN, RFID devices, adaptive t railing wing edge technology or a
modified winglet can give rise to "future technology effects" that could constit ute a threat of
serious prejudice, within the meaning of Article 5(c) and footnote 13 and Article 6.3 of the SCM
Agreement.

3020 Sections 9.3 and 9.4 below.
3021 See e.g. European Union's first written submission, paras. 1316 and 1328.
3022 European Union's first written submission, para. 1105; and Airbus Engineer's Statement, (Exhibit
EU-31) (BCI), paras. 144, 167, and 174.
3023 European Union's second written submission, para. 1052.
3024 Given the European Union's request that if we reject its arguments that the particular, identified
post-2006 aeronautics R&D subsidies operate through a technology causal mechanism, we consider in the
alternative whether they should be analysed as operating through a price causal mechanism, we will address
whether these particular, identified post-2006 aeronautics R&D subsidies operate through a price causal
mechanism in Section 9.3.2.2.3 below.

9.3.2.1.5 Summary of conclusions on whether the pre-2007 aeronautics R&D subsidies
and certain post-2006 aeronautics R&D subsidies cause seri ous prejudice to the
interests of the European Union, within the meaning of Articles 5(c) and 6.3, in respect
of the A350XWB in the post -implementation period , through a technology causal
mechanism
9.218. Based on the foregoing analysis, the Panel concludes as follows:
a. The European Union has failed to demonstrate the existence of original subsidy
technology effects of the pre -2007 aeronautics R&D subsidies in the post -
implementation period.
b. The European Union has failed to demonstrate the existence of spill -over technology
effects of the pre-2007 aeronautics R&D subsidies in respect of the 787-9/10 or 777X in
the post-implementation period.
c. The European Union has failed to demonstrate the existence of sleeper technology
effects of the pre-2007 aeronautics R&D subsidies in respect of the 787 -9/10 or 777X in
the post-implementation period.
d. The European Union has failed to demonstrate the existence of new technology effects of
the particular post -2006 aeronautics R&D subsidie s in respect of the 787 -9/10 or 777X
in the post-implementation period.
9.219. Because the European Union has failed to demonstrate any effect of the pre-2007
aeronautics R&D subsidies, or of the particular, identified post-2006 aeronautics R&D subsidies, on
Boeing's product devel opment in respect of t he 787 or 777X in the post -implementation period,
the possibility of any consequent impact of those subsidies on sales and prices of the A350XWB
does not arise.3025 Accordingly, there is no basis on which the pre -2007 aeronautics R&D subsidies
or the particular, identified post-2006 aeronautics R&D subsidies can be found to be a genuine and
substantial cause of any of the forms of serious prejudice alleged in respect of the A350XWB in the
post-implementation period, through a technology causal mechanism.
9.220. The Panel therefore finds that the European Union has failed to establish that the
pre-2007 aeronautics R&D subsidies and certain post -2006 aeronautics R&D subsidies
are a genuine and substantial cause of any of the forms of serious prejudice alleged in
respect of the A350XWB in the post-implementation period, through a technology causal
mechanism.
9.3.2.1.6 The A350XWB as a competitive response to the 787
9.221. One further issue of potential relevance to the issue of the effects of the pre-2007
aeronautics R&D subsidies on sales and prices of the A350XWB concerns the notion that Airbus
would only have launched the A350XWB as a response to Boeing's launch of the 787 , meaning
that the subsidies in question would logically not have affected the terms of competition between
the 787 and A350XWB . In its third set of questions to the parties, the Panel asked both parties
whether they agreed that, had Boeing not launched the 787 in 2004, Airbus would not have sought
to develop the Original A350 versions and launched the A350XWB when it did, and how (if at all)
such factors should be taken into account in any counterfactual analysis of the hypothetical
position that would have existed in the post-implementation period , absent the pre -2007
aeronautics R&D subsidies.3026
9.222. The European Union re sponded that, had Boeing not launched the 787 in 2004, Airbus
would not have sought to develop the Original A350 versions, and Airbus would have continued to
enjoy the market leadership of its A330.3027 The European Union also responded that the timing of
the launch of the A350XWB, in the scenario in which Boeing had not launched the 787 by 2004,

3025 See paras. 9.116 and 9.122 above.
3026 Panel question No. 152 to the parties.
3027 European Union's response to Panel question No. 152, para. 9; comments on the United States'
response to Panel question No. 152, para. 10.

"would have depended, in large part, on the timing of a counterfactual launch of the 787 ".3028 The
European Union says that it is "possible" that, with a significantly d elayed launch of the 787,
Airbus would have launched the A350XWB in response to demands from airlines for significantly
more fuel-efficient aircraft, and would have done so irrespective of whether Boeing had already
launched the 787 or was close to launching it.3029
9.223. The European Union argues that these considerations are not, however, particularly
relevant to the Panel's assessment of the existence of adverse effects in the post -implementation
period. Absent the pre-2007 aeronautics R&D subsidies and their imp act on Boeing's launch of the
787, Airbus would have continued to enjoy the market leade rship of the A330. The
European Union submits that, alternatively, "in a counterfactual in which Airbus had decided to
launch the A350XWB by 24 September 2012, the pre -2007 aeronautics R&D subsidies would also
be a genuine and substantial cause of significantly lower EU LCA sales and prices – in this case, of
the A350XWB."3030 Moreover, even under a counterfactual in which the launch of the A350XWB
was only ever a competiti ve response to the launch of the 787, the terms of competition between
the 787 and A350XWB in this counterfactual scenario "would be altered by the fact that the portion
of the 787's order book that the European Union did not challenge as 'lost sales' would still need to
be produced, pushing out further the delivery positions that Boeing could offer in competitive sales
campaigns against the A350XWB."3031
9.224. The United States responded to the Panel's question by agreeing with the European Union
that, had Boeing not launched the 787 in 2004, Airbus would not have sought to develop the
Original A350 versions when it did. However, the United States additionally considers that Airbus
would not have developed the A350XWB when it did. 3032 The United States argues that the
underlying findings of the original panel and evidence available demonstrate that the A350XWB
was developed as a reaction to the 787, and therefore, would not have been launched when it was
in 2006 if Boeing had not launched the 787 in 2004. 3033 The United S tates considers that
Airbus' focus on developing and devoting resources to the A380, and the market dominance of the
A330 in the period prior to the launch of the 787 in 2004, "each independently meant that the
A350XWB would only have been launched in response to the 787".3034
9.225. For the United States, the fact that the A350XWB was a "reaction to, and contingent upon"
the launch of the 787 must be considered in the appropriate counterfactual. 3035 According to the
United States, if the 787 had launched in 2006 (inste ad of 2004), the delay in the 787's launch
would have caused a delay in the launch of the A350XWB. Although the pre -2007 aeronautics R&D
subsidies accelerated the launch of the 787, they did not alter the terms of competition between
the 787 and the A350XW B after launch. Any acceleration effect of the pre -2007 aeronautics R&D
subsidies would have no effect on competition between the 787 and A350XWB.3036 This means that
there is no basis to find a genuine and substantial causal link with respect to the pre -2007
aeronautics R&D subsidies, or the portions of the post-2006 aeronautics R&D subsidies erroneously
alleged to have technology effects.3037
9.226. The original panel was satisfied that the technological and operating cost advantages of
the 787 over the A330 and Origi nal A350, as well as its scheduled delivery dates commencing in
2008, caused Airbus to lose significant sales of the A330 and Original A350 between 2004 and

3028 European Union's response to Panel question No. 152, para. 9; comments on the United States'
response to Panel question No. 152, para. 12.
3029 European Union's comments on the United States' response to Panel question No. 152, para. 12.
3030 European Union's response to Panel question No. 152, para. 10.
3031 European Union's comments on the United States' response to Panel question No. 152, para. 14.
3032 United States' response to Panel question No. 152, para. 9.
3033 United States' response to Panel question No. 152, para. 10. "Airbus had no plans, and no reason,
to launch an aircraft like the A350XWB absent the market entry of the 787 because the A330 held a dominant
market position and because Airbus had dedicated its focus and resources to its priority of launching the
technologically innovative and extraordinarily complex A380." The United States refers to Panel Report, US –
Large Civil Aircraft (2nd complaint), paras. 4.334 and 7.1777, and Appellate Body Report, US – Large Civil
Aircraft (2nd complaint), para. 1024, in support of its position.
3034 United States' response to Panel question No. 152, para. 13. "{t}he A350XWB would never have
entered a market in which its sales and prices were not affected by the market presence of the 787."
(United States' comments in the European Union's response to Panel question No. 152, paras. 8 and 14).
3035 United States' response to Panel question No. 152, para. 14.
3036 United States' comments in the European Union's response to Panel question No. 152, para. 14.
3037 United States' response to Panel question No. 152, para. 14.

2006, and significantly suppressed the prices of those aircraft during that period. 3038 We note that
Airbus' Christian Scherer, in a statement in the original proceeding which is referred to by the
panel, said that at the beginning of 2004, Airbus had expected that the A330 would remain the
standard for the 200-300 seat LCA product market for at least another ten years of deliveries.3039
This statement is consistent with evidence before the Panel that in early 2004 Airbus was focused
on developing the A380 and did not anticipate a major updating of the A330 for several years.3040
9.227. The United States' point is that, this being the case, the A350XWB would only ever have
been launched as a competitive response to the 787. This means that, absent the pre -2007
aeronautics R&D subsidies, Boeing would have launched the 787 at a later date, the A350XWB
would have been launc hed in response, and the competitive dynamics between the 787 and
A350XW would be essentially no different than they currently are, only with a delay. In other
words, only the sales and prices of the A330 and Original A350 are logically capable of being
adversely affected by the pre-2007 aeronautics R&D subsidies. The European Union concedes that
the timing of the counterfactual launch of the A350XWB does depend "in part" on the timing of the
counterfactual launch of the 787. 3041 This seems to be because it co nsiders that, had the
counterfactual launch of the 787 been sufficiently delayed, Airbus would in any event have
responded to market demand from airlines for more fuel -efficient aircraft, irrespective of whether
Boeing had launched the 787, or was close to launching it.3042
9.228. We conclude in Sections 9.3.2.1.1 through 9.3.2.1.5 above that the European Union has
failed to demonstrate that the pre -2007 aeronautics R&D subsidies, operating through a
technology causal mechanism, affect Boeing's development of technologies for the 787 and 777X
in the post-implementation period. It is therefore not necessary that we evaluate whether, in any
case, technology effects of the pre -2007 aeronautics R&D subsidies could logically have impacted
only the A330 and Original A350 because, as a factual matter, the launch of the A350XWB was a
competitive response to the launch of the 787. However, we consider that if it were necessary for
the Panel to address this issue, the Eu ropean Union would have needed to demonstrate that,
absent the pre -2007 aeronautics R&D subsidies, Boeing would not have been able to launch the
787 until after Airbus had independently decided to launch a new wide -body aircraft such as the
A350XWB in resp onse to customer demand for more fuel efficient aircraft. We find this scenario
unlikely on the basis of the evidence before us. We note that in 2004, 14 years had already lapsed
since Boeing's launch of a new, wide -body LCA (its newest wide -body LCA model until that time
was the 777, which had been launched in 19 90).3043 Moreover, Airbus would likely have been
occupied with flight testing and first deliveries of the A380 until at least mid -20073044 and Airbus
had anticipated in 2004 that the A330 -200 would be th e market leader for at least another ten
years of deliveries.
9.3.2.2 Whether the post -2006 subsidies benefiting the 787 and 777X cause serious
prejudice to the interests of the European Union, within the meaning of Articles 5(c) and
6.3, in respect of the A350XWB in the post -implementation period , through a price
causal mechanism
9.229. As stated in paragraph 9.114 above, the European Union argues that certain unwithdrawn
subsidies that the United States grants and maintains since the end of the reference period in the
original proceeding (the post -2006 subsidies), through their effects on Boeing's pricing of the 787
and 777X, considered collectively with the effects of certain aeronautics R&D subsidies on Boeing's
technology developments for the 787 and 777X, cause various forms of serious prejudice with
respect to the A350XWB in the post-implementation period.
9.230. In Section 9.3.2.1 above, however, the Panel concludes that the European Union has failed
to demonstrate the existence of the various forms of technology effects of the aeronautics R&D

3038 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1780.
3039 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1777.
3040 M. Pilling, "Dream Date", Airline Business, 1 April 2004, (Exhibit USA-579), p. 6.
3041 European Union's comments on the United States' response to Panel question No. 152, para. 12.
3042 European Union's comments on the United States' response to Panel question No. 152, para. 12.
3043 M. Pilling, "Dream Date", Airline Business, 1 April 2004, (Exhibit USA-579), p. 6.
3044 Airbus had planned flight tests of the A380 in 2005 with first entry into service in 2006, however, it
did not make its first A380 delivery until October 2007. C. Daily, "Boeing Commits to Building 7E7 After ANA
Order", Global News Wire, 27 April, 2004, (Exhibit USA-578); and T. Enders, "Je n'exclus aucun recours en

subsidies in question in respect of the 787 and 777X in the post -implementation period . The
consequence of this conclusion is that the technological advancements (including the timing of
delivery) of the 787 and 777X in the post -implementation period cannot be considered to be an
effect of the aeronautics R&D subsidies operating through a technology causal mechanism . This
means that the remaining aspect of the European Union's main serious prejudice case regarding
the A350XWB that the Panel must evaluate is whether the post -2006 subsidies that are said to
operate through a price causal mechanism cause the alleged forms of serious prejudice in respect
of the A350XWB in the post-implementation period.
9.231. In this Section, we therefore consider whether the post -2006 subsidies, through their
effects on Boeing's prices of the 787 and 777X, are a genuine and substantial cause of significant
lost sales of the A350XWB (as well as a threat of significant lost sales), impedance and a threat of
impedance of A350XWB imports (to the United States) and of exports (to certain third country
markets), and significant price suppression of the A350XWB (as well as a threat of significant price
suppression) in the post-implementation period.
9.232. In Section 9.2.2, we explain that we w ill conduct our analysis of the effects of the post -
2006 subsidies that operate through a price causal mechanism by aggregating them into one of
three categories: (a) tied tax subsidies, comprising the Washington State and City of Everett B&O
tax rate reductions, the receipt of which is contingent on the sale of particular Boein g LCA on a
per-unit basis; (b) state and local cash flow subsidies, comprising incentives provided by state and
municipal authorities in Washington and South Carolina related to Boeing's LCA production
activities in those jurisdictions, but which are not related to LCA production or sale on a per -unit
basis; and (c) post -2006 aero nautics R&D subsidies, which the European Union argues enable
Boeing to use intellectual property to continue developing technologies for future LCA without
having to pay licence fees.
9.233. We therefore begin our analysis of the effects of the post -2006 subsid ies by asking
whether the European U nion has demonstrated that the tied tax category of subsidies affected
Boeing's 787 and 777X pricing and thereby affected A350XWB sales and prices in the
post-implementation period, such that these subsidies are a genuin e and substantial cause of any
of the serious prejudice phenomena alleged by the European Union with respect to the A350XWB
in the post -implementation period. We then undertake the same analysis for the state and local
cash flow subsidies, and for the post-2006 aeronautics R&D subsidies.
9.3.2.2.1 The tied tax subsidies
9.234. The tied tax subsidies alleged to benefit the 787 (in respect of 787s produ ced in the State
of Washington) 3045 and 777X are the Washington State and City of Everett B&O tax rate
reductions. These B&O ta x rate reductions re duce the B&O taxes in respect of revenues earned
from the sale s of LCA attributable to Washington State (or the City of Everett, as the case may
be), lowering Boeing's taxes and thereby increasing Boeing's after-tax profits.3046
9.235. According to the European Union, the structure, desig n, and operation of the tied tax
subsidies impact Boeing's LCA prices by lowering the taxes and fees paid by Boeing on the
production and sale of each individual LCA, thus directly reducing the marginal unit cost of each
LCA by an amount equal to the subsidy. 3047 The causal link between the subsidies and adverse
effects is "confirmed and amplified" by the magnitude of the subsidies which, when taken
collectively, is "large by any reasonable measure". 3048 The European Un ion emphasizes that the
Appellate Body in the original proceeding considered that the tied tax subsidies were a genuine
and substantial cause of adverse effects on the basis of their close nexus to the subsidized Boeing
LCA, their design, structure and ope ration, their magnitude3049, and the conditions of competition

3045 We recall that Boeing also produces 787s in the State of South Carolina; accordingly, revenues
associated with sales of 787s produced in South Carolina are not subject to B&O taxes in the State of
Washington.
3046 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1807.
3047 European Union's first written submission, paras. 1136-1146.
3048 European Union's first written submission, paras. 1147 and 1173; second written submission,
para. 1077.
3049 The European Union uses the term "magnitude" differently from the way the European Communities
used this term in the original proceeding. In the original proceeding, the European Communities used
"magnitude" to refer to the total subsidy amounts that it alleged Boeing had received between 1989 and 2006:

in the LCA industry. 3050 The European Union argues that nothing has occurred since the original
proceeding to alter the Appellate Body's reasoning and conclusion.3051
9.236. The European Union argues generally that the impact of the U.S. subsidies on Boeing's LCA
prices (including the tied tax subsidies) is concentrated on LCA sales campaigns in which the
competition is very intense. 3052 According to the European Union, Airbus and Boeing, as "two
rational and pro fit-maximising LCA manufacturers", have "no incentive to offer price concessions
that go beyond what is necessary to win a deal".3053
9.237. The United States does not d ispute that subsidies that are tied to the production and sale
of particular LCA are capable of a ffecting Boeing's pricing behaviour. 3054 Rather, its primary
argument with respect to the tied tax subsidies is that their magnitude is too small to cause
adverse effects.3055 The United States notes that the adverse effects finding s with respect to the
tied tax subsidies in the original proceeding included the FSC/ETI subsidies, which have since been
withdrawn. The original panel's finding that the Washington State and City of Everett B&O tax rate
reductions were not large enough on their own to cause adverse ef fects still stands, and the
European Union has not demonstrated otherwise in this proceeding.
9.238. Both parties appear to accept that , as per -unit subsidies, the tied tax subsidies by their
nature, are capable of affecting Boeing's pricing behaviour.3056 The United States describes the tied
tax subsidies at issue in the original proceeding (and therefore also in this proceeding) as subsidies
"that did affect Boeing's marginal cost of producing current LCA alleged to be subsidized". 3057 It
distinguishes the effects on pricing of tied tax subsidies from the effects on pricing of untied,
non-recurring subsidies on the basis that tied tax subsidies correspond directly with sales, such
that fluctuations in total sales volumes do not affect the calculus regarding the profita bility of a
particular sale:
{I}n terms of effects on pricing behaviour, the more of a specific LCA a manufacturer
produces, the less significant an untied non -recurring subsidy generally is on a per -
aircraft basis. The significance (if any) of a tied tax subsidy does not become diluted in
the same way when production volumes increase.3058
9.239. This is also broadly consistent with the positions of the parties in the original proceeding
and the conclusion of the panel that the FSC/ETI subsidies and the B&O tax subsi dies, by lowering
the taxes incurred in connection with sales of LCA, have a far more direct and immediate
relationship to aircraft prices and sales than other subsidies at issue in the dispute. 3059 The
Appellate Body also emphasi zed the nature of the tied ta x subsidies as tied to the production and
sale of LCA on a per -unit basis in reaching the conclusion that subsidies of this nature were

(a) allocated over time (with the addition of an "opportunity benefit" reflecting the time value of the funds to
Boeing); and (b) allocated across the various models of Boeing LCA. In this proceeding, the European Union
refers to "magnitude" as meaning simply the "amount" of the subsidies.
3050 European Union's first written submission, paras. 1123-1153.
3051 European Union's first written submission, paras. 1141-1146.
3052 See e.g. European Union's response to Panel question No. 164, paras. 116 and 117: "{i}n this
context, the European Union also recalls that the price-sensitive nature of sales involving closely competing
products, the existence of large economies of scale, the role of switching cost and incumbency, as well as
Boeing's exercise of market power each facilitate Boeing's targeted use of its subsidies in highly competitive
sales to charge lower prices for its LCA than it would otherwise have charged." (emphasis added)
3053 European Union's response to Panel question No. 164, para. 111. The European Union's argument
posits that the tied tax subsidies do not affect Boeing's prices in a generalized manner, e.g. by affecting the
calculus of the pricing floor below which Boeing cannot sell an aircraft without affecting the overall profitability
of the LCA programme, but are accumulated for strategic use in highly price-sensitive sales campaigns.
3054 United States' first written submission, paras. 727 and 728.
3055 United States' first written submission, paras. 719-721; second written submission, paras. 863-865.
3056 We note that Korea, in contrast, argues that the fact that a subsidy is ostensibly "tied" to a
particular investment does not necessarily mean that the subsidy actually caused an investment that would not
otherwise have occurred. Korea notes that money is fungible. In order to overcome the "presumption that
money is fungible", a complaining party would need to produce extensive evidence of the recipient's financial
capabilities and investment plans in the absence of the alleged subsidies that demonstrates that the
investments would not otherwise have occurred. (Korea's third-party submission, paras. 26-28).
3057 United States' comments on the European Union's response to Panel question No. 169, para. 27.
3058 United States' first written submission, para. 728.
3059 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1806 and 7.1807.

capable of affecting Boeing's pricing decisions with respect to the relevant LCA. 3060 As the
Appellate Body explained:
All other things being equal, a firm provided with a subsidy that is tied to production
or sale enjoys the ability to lower its price while nevertheless achieving the same
profit margin. In effect, the subsidy enhances the firm's ability to lower its prices in
order to obtain a sale, notwithstanding that the outcome of any given sale, and the
importance of price to that outcome, will still be dictated by the prevailing competitive
conditions, including the market power and the pricing strategies of the particip ants,
in a particular market.3061
9.240. However, the Appellate Body also appeared to consider that, while the tied tax subsidies
provided Boeing with the ability and incentive to lower its LCA prices, the competitive dynamics of
the LCA markets are such that it wo uld not actually do so unless it faced the commercial
imperative, in the particular circumstances of the sales campaign. That imperative would arise only
where the LCA sales campaigns we re particularly price -sensitive, in the sense that Boeing was
under pressure to reduce its prices, and there we re no other non -price factors that explain the
outcome of the sales campaign:
In this dispute, we consider that, given the nature of the tied tax subsidies, their
operation over time, their magnitude, and the compe titive conditions in the LCA
market, Boeing had both the ability and incentive to use the tied tax subsidies to
lower prices, and that there was a substantial likelihood that this occurred in sales
campaigns that were particularly competitive and sensitive in terms of price. On that
basis, where it can be established that Boeing was under particular pressure to reduce
its prices in order to secure LCA sales in particular sales campaigns, and there are no
other non -price factors that explain Boeing's success in obtaining the sale or
suppressing Airbus' pricing , we can conclude that the subsidies contributed in a
genuine and substantial way to the lowering of Boeing's prices.3062
9.241. The Appellate Body therefore considered that it would only be possible to reach a
conclusion regarding the causal connection between the tied tax subsidies and Boeing's LCA pricing
by examining the sales campaign evidence to determine whether, in each sales campaign, Boeing
was under particular pressure to reduce its prices in order to se cure the LCA sale and there were
no other non-price factors that explained Boeing's success in obtaining the sale.3063
9.242. As this is a compliance proceeding, we consider it appropriate to follow the same approach
to analysing the effects of the tied tax subsidi es on Boeing's LCA pricing as taken by the Appellate
Body in the original proceeding. We therefore evaluate the sales campaign evidence submitted in
relation to sales campaigns won by Boeing with the 787 and/or 777X at the expense of the
A350XWB, and which the European Union argues are evidence of significant lost sales of the
A350XWB, as well as of impedance of A350XWB imports and exports, and significant price
suppression of the A350XWB, in each case an effect of the U.S. subsidies. In doing so, we
determine whether the campaigns are "price -sensitive", in the sense that Boeing appeared to be
under particular pressure to reduce its prices in order to secure the sales, and there are no non-
price factors that explain Boeing's success in obtaining the sale ; e.g. Boeing's incumbency and a

3060 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 1252-1260.
3061 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1260. (emphasis added)
3062 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1260. (emphasis added) This
is confirmed by the Appellate Body's reiteration of this aspect of its reasoning regarding the effects of the tied
tax subsidies on Boeing's prices, somewhat later in the Report:
We have explained that, due to the nature of the tied tax subsidies, their operation
over time, their magnitude, and the competitive conditions in the LCA market,
Boeing had both the ability and the incentive to use the tied tax subsidi es to lower
prices, and that there was a substantial likelihood that this occurred in sales
campaigns that were particularly competitive and sensitive in terms of price. We
have also explained that, where it can be established that Boeing was under
particular pressure to reduce its prices in order to win an LCA sale in a particular
sales campaign, and there were no other non -price factors that explain Boeing's
success in obtaining the sale, we can conclude that the subsidies contributed in a
genuine and substantial way to the lowering of Boeing's prices.
(Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1271 (emphasis added))
3063 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 1261-1265.

consequent switching cost advantage, the suitability of the aircraft for the particular customer's
requirements (in terms of range, capacity and delivery availability).
9.243. Where Boeing appeared to be under particular pressure to reduce its pri ces in order to
secure the sale, and there are no non -price factors that explain Boeing's success in obtaining the
sale, we will conclude that the tied tax subsidies contributed in a genuine and substantial way to
the lowering of Boeing's LCA prices. As a second step in the analysis, we will then address the
United States' argument concerning the relative insignificance of the magnitudes of the tied tax
subsidies by determining whether, on the basis of the evidence before us, the magnitudes we re
enough to "cover the margin of victory between the final net prices of Boeing and Airbus" 3064 such
that the tied tax subsidies, through their effects on Boeing's prices, are a genuine and substantial
cause of lost sales of the A350XWB.
The sales campaigns involving competition between the 787 and 777X and A350XWB
9.244. The European Union submits evidence for certain LCA sales campaigns involving the 787
and/or 777X and the A350XWB that occurred between 2007 and 2015, and were won, in whole or
in part, by Boeing. It argues that these LCA sales campaigns are highly competitive, and instances
where Boeing did in fact act on its incentive, enabled by its receipt of subsidies, to offer pricing
concessions that enabled it to secure the sale at the expense of Airbus. 3065 The basic details
concerning the outcomes of these sales campaigns are set forth in Table 9 and Table 10 below:

3064 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1263.
3065 The European Union must establish the existence of adverse effects in the post-implementation
period (i.e. the period after 23 September 2012), and therefore the only LCA sales campaigns that can be
evidence of the existence of significant lost sales are those that took place after the end of the implementation
period. Nevertheless, we also examine the evidence related to sales campaigns that took place in the
2007-2012 period on the basis that we should examine the entirety of the evidence submitted by the parties to
the extent that it may be relevant to identifying the particular pricing dynamic between Boeing and Airbus.

Table 9: Alleged lost sales of the A350XWB between 2007-2012 due to the 787
Sales campaigns alleged to demonstrate lost sales of the A350XWB due to subsidies to the 787
between 2007-20123066
Campaign Number of 787 orders Number (if any) of A350XWB
orders3067
Qatar Airways 2007 30 787-8
80 A350XWB, consisting of 20
A350XWB-800 and 40 A350XWB-900,
converted from Original A350, and 20
additional A350XWB-1000
British Airways 2007
24 787, consisting of 8 787-8 and 16
787-9, plus 18 options and 10
purchase rights
None
LAN Airlines 2007 26 787-8/787-9 None
ILFC 2007 52 787 None
Virgin Atlantic Airways
2007
15 787-9, plus 8 options and 20
purchase rights None
Etihad Airways 2008 and
2011 41 787-9 12 A350XWB
United Airlines 2010

25 787-8, plus 50 options 25 A350XWB-900
United Airlines 2012
("Follow-on")
5 787, consisting of 4 787-9 and 1
787-8 None
United Airlines 2013
20 787-10, 10 of which were an
up-conversion of the 2010 order of
787-8
35 A350XWB-1000, consisting of
conversion of 2010 order to 25
A350XWB-1000 and additional 10
A350XWB-1000
Air France-KLM 2011
 25 787-9 25 A350XWB-900
Aeromexico 2012 6 787-9 None
The data in Table 9 above is supported by the following evidence: Qatar Airways Press Release, "Qatar Airways
Orders 60 Boeing 787-8 Dreamliners And 32 Boeing 777s", 11 November 2007, (Exhibit EU -769); Airbus Press
Release, "Qatar Airways confirms order for 80 A350 XWBs and adds three A380s", 18 June 2007, (Exhibit EU -
771); Boeing Press Release, "Boeing and British Airways Finalize Contr act for 24 787 Dreamliners",
27 December 2007, (Exhibit EU -782); Boeing Press Release, "Boeing, LAN Airlines Complete Deal for 32 787s
and Four 777 Freighters", 5 November 2007, (Exhibit EU -793); Boeing Press Release, "Boeing, ILFC Announce
Order for 63 Airplanes" , 19 June 2007, (Exhibit EU -800); Boeing Press Release, "Boeing and Virgin Atlantic
Announce 787 Order, Environmental Partnership", 24 April 2007, (Exhibit EU -807); Boeing Press Release,
"Boeing, Etihad Airways Announce Twin -Aisle Order", 14 July 2008, (Ex hibit EU-814); "Etihad Cancels Orders
for Four 787 Dreamliners", Aviation and Aerospace , 4 March 2011, (Exhibit EU -825); "Etihad Cuts Dreamliner
Order in Swap for Boeing 777s", Arabian Business , 8 March 2011, (Exhibit EU -826); Boeing Press Release,
"Boeing, Etihad Airways Announce Order for 10 787 -9 Dreamliners", 12 December 2011, (Exhibit EU -831);
"Etihad splits massive order between Boeing, Airbus", USA Today , 15 July 2008, (Exhibit EU -827); Boeing
Press Release, "Boeing and United Airlines Finalize 787 O rder", 25 February 2010, (Exhibit EU -838); Airbus
Press Release, "United Signs Firm Order for 25 A350 XWB aircraft", 10 March 2 010, (Exhibit EU-839); Boeing
website, Orders and Deliveries – 2012 Orders Detail, available at
<http://www.boeing.com/commercial/#/orders-deliveries>, last accessed 7 August 2016, (Exhibit EU -1566);
E. Russell, "United quietly upped 787 number prior to Paris order", Flightglobal, 1 July 2013, (Exhibit
EU-1567); Boeing Press Release, "Boeing Launches New Commercial Airplane; Highlig hts Innovation, Efficiency
and Partnerships at 2013 Paris Air Show", 20 June 2013, (Exhibit EU -1184); Boeing website, Orders and
Deliveries – 2013 Net Orders, through 9 July 2013, available at
<http://www.boeing.com/commercial/#/orders-deliveries>, accesse d 7 August 2016, (Exhibit EU -1185);

3066 The European Union had also challenged the Air Berlin 2007 and Lion Air 2012 twin-aisle campaigns,
but does not pursue its arguments in relation to these campaigns on account of both airlines having cancelled
their 787 orders. (European Union's response to Panel question No. 169, para. 328).
3067 Certain of the campaigns cited by the European Union are "split campaigns", meaning that the
customer ordered both Airbus and Boeing LCA. In many cases, the split order was a strategic decision by the
airline that involved maximizing early delivery positions, and maintaining a competitive balance between the
two airframe manufacturers.

United Press Release, "United is North American launch customer for Boeing 787 -10", 18 June 2013, (Exhibit
EU-1186); Airbus Press Release, "Airbus, United Airlines reach agreement for 35 A350 -1000 aircraft",
20 June 2013, (Exhibit EU -1187); Boeing Press Release, "Boeing, Air France -KLM Finalize Order for 25 787s",
10 January 2012, (Exhibit EU -850); Airbus Press Release, "Air France -KLM co nfirms future with A350XWB",
19 June 2013, (Exhibit EU -1209); Airbus Press Release, " Air France -KLM to acquire up to 60 A350 XWBs",
16 September 2011, (Exhibit EU-852); and Boeing Press Release, "Boeing, Aeromexico Finalize 787 Dreamliner
Order", 27 December 2012, (Exhibit EU-872).

Table 10: Alleged lost sales of the A350XWB in the post-implementation period due to
the 787 and 777X
Post-implementation period sales campaigns alleged to demonstrate lost sales of the A350XWB due
to subsidies to the 787 and 777X3068
Campaign Number of 787 orders Number of 777 orders Number (if any) of
A350XWB orders
Singapore
Airlines 2013 30 787-10X None 30 A350XWB-900, plus 20
options
British Airways
2013
12 787-10, plus firming up
options for 6 787-8/787-9 None 18 A350XWB-1000
Emirates 2013 None
150 777X, consisting of 35
777-8X and 115 777-9X,
plus 50 purchase rights
None
Qatar Airways
2013 None 50 777-9X, plus 50
purchase rights None
Cathay Pacific
2013 None 21 777-9X None
Lufthansa 2013 None 34 777-9X, plus 30 options 25 A350XWB-900, plus 30
options
Etihad Airways
2013
30 787-10, plus 12 options
and purchase rights
25 777X, consisting of 17
777-9X and 8 777-8X, plus
12 options and purchase
rights
50 A350XWB, consisting of
40 A350XWB-900 and 10
A350XWB-1000
ANA 2014 14 787-9 20 777-9X None
ANA 2015
("Follow-on") 3 787-10 None None
Ethiopian
Airlines 2015 6 787-8 None None
The data in Table 10 above is supported by the following evidence: Boeing Press Release, "Boeing Launches
New Commercial Airplane; Highlights Innovation, Effi ciency and Partnersh ips at 2013 Paris Air Show",
20 June 2013, (Exhibit EU -1184); Singapore Airlines Press Release, "SIA To Order US$17 Billion Worth Of
Aircraft From Airbus & Boeing", 30 May 2013, (Exhibit EU -1195); Airbus Press Release, "Singapore Airlin es
finalises order for up to 50 more A350 XWBs", 19 June 2013, (Exhibit EU -1196); "Boeing Launches 787 -10
with $30 Billion of Orders", Reuters, 20 June 2013, (Exhibit EU -1245); "BA Set to Order 10 Boeing 787 -10s",
Reuters, 16 June 2013, (Exhibit EU -1246); "British Airways Confirms Order for 787 -10 Series", British Airways
News, 18 June 2013, (Exhibit EU -1247); "BA Orders 18 New Airbus A350 Aircraft", The Independent ,
23 April 2013, (Exhibit EU -1249); Emirates Press Release, "Emirates announces l argest-ever aircraft order",
17 November 2013, (Exhibit EU -1317); Boeing Press Release, "Boeing Launches 777X with Record -Breaking
Orders and Commitments", 17 November 2013, (Exhibit EU -1299); Qatar Airways Press Release, "Qatar
Airways Announces the Purchase of 50 Bo eing 777-9X", 17 November 2013, (Exhibit EU -1316); Boeing Press
Release, "Boeing Launches 777X with Record -Breaking Orders, Strengthens Partnerships in the Middle East at
the 2013 Dubai Airshow", 20 November 2013, (Exhibit EU -1454); Boeing Press Release, " Boeing, Qatar
Airways Finalize Order for 50 777Xs", 16 July 2014, (Exhibit EU -1469); Boeing Press Release, "Boeing and
Cathay Pacific Airways Announce Order for 21 777 -9Xs", 20 December 2013, (Exhibit EU-1443); Cathay Pacific
Press Release, "Cathay Pacific places order for 21 Boeing 777 -9X aircraft – Deliveries to commence in 2021",

3068 The 777X was launched in November 2013, so is only relevant for sales campaigns in the
post-implementation period.

20 December 2013, (Exhibit EU -1444); M. Steen, "Lufthansa makes record German investment", Financial
Times, 19 September 2013, (Exhibit EU -1493); Lufthansa Press Release, "Moder n, quiet and environmentally
efficient: Lufthansa Group orders 59 ultra -modern wide -body Boeing 777 -9X and Airbus A350 -900 aircraft",
19 September 2013, (Exhibit EU -1313); "Lufthansa Splits $19 Billion Order Between Airbus, Boeing",
Bloomberg, 19 September 2013, (Exhibit EU -1510); Airbus Press Release, "Lufthansa, Airbus' biggest airline
customer, commits to up to 55 A350s", 19 September 2013, (Exhibit EU -1494); Boeing Press Release,
"Boeing, Etihad Airways Kick Off Dubai Airshow with 777X, 787 -10 Orders" , 17 November 2013, (Exhibit
EU-1314); Etihad Airways Press Release, "Etihad Airways announces largest ever fleet order to enable
accelerated growth strategy", 17 November 2013, (Exhibit EU -1315); Airbus Press Release, "Etihad Airways
orders 50 A350 XWB, 36 A320neo and one A330 -200F", 17 November 2013, (Exhibit EU -1548); Boeing Press
Release, "Boeing Statement on ANA Widebody Airplane Selection", 27 March 2014, (Exhibit EU -1445); ANA
Holdings News, "ANA Group to place record 1700 billion yen order for 70 new aircraft", 27 March 2014, (Exhibit
EU-1446); Boeing Press Release, "Boeing Announces ANA 's Commitment to Become Newest 787 -10
Customer", 30 January 2015, (Exhibit EU -1569); and Boeing Press Release, "Boeing, Ethiopian Airlines
Announce Order for Six 787 Dreamliners", 17 June 2015, (Exhibit EU-1570).

9.245. The evidence submitted in relation to the above sales campaigns includes information
concerning: (a) the aircraft that were offered by Airbus and Boeing, respectively, to customers in
each sales campaign; (b) t he particular needs of the airline customer in terms of factors such as
seating capacity, range and routes to be served, efficiency and delivery dates; and (c) the
dynamics of the pricing interactions between Airbus and Boeing, on the one hand, and the air line
or leasing company customer on the other, through repeated rounds of negotiations. 3069 This
evidence allows the Panel to assess with a high degree of confidence the extent to which the sales
campaigns were or were not particularly price -sensitive. While some of the sales campaign
evidence is in the public domain (e.g. the information concerning the terms of the aircraft orders
ultimately placed by the customer), a significant part of it, especially as regards the internal Airbus
communications describing Airbus' sales strategies and evaluating the competing Airbus and
Boeing offers, is designated as HSBI. Therefore, in the discussion that follows, we provide a
non-confidential summary of our conclusions regarding the extent to which the outcomes of the
individual sales campaigns appeared to turn on the price of the competing offers. Our detailed
confidential analysis of the evidence pertaining to each s ales campaign is set forth in an HSBI
Appendix to the Report.3070
9.246. We conclude that there is insufficient evi dence to demonstrate that any of the LCA sales
campaigns involving the 787 and/or 777X and the A350XWB set forth in Table 9 and Table 10
above were price-sensitive in the s ense used by the Appellate Body (i.e. where Boeing was under
particular pressure to reduce its prices in order to secure LCA sales in particular sales campaigns,
and there were no other non-price factors that explain Boeing's success in obtaining the sale).
9.247. Indeed, while pricing was discussed in certain of the sales campaigns, other factors
featured more prominently in the airline customers' evaluations of the suitability of the competing
offers as well as in the evidence on record explaining the reasons w hy the airline customer chose
to order Boeing aircraft over the competing Airbus offering. In the majority of the LCA sales
campaigns, a critical factor was the airline customers' preference for the delivery availability of the
Boeing aircraft over the com peting Airbus aircraft, in light of the airlines' particular fleet
replacement requirements as well as Airbus' delivery delays.3071 The choice of engine manufacturer

3069 The exception is with respect the Ethiopian Airlines 2015 campaign. The European Union argues that
this sales campaign constitutes a significant lost sale of the A350XWB (European Union's response to Panel
question No. 169, paras. 326 and 327), but does not submit any evidence regarding the details of this sales
campaign. Indeed, the only evidence submitted by the European Union in connection with this sales campaign
is a Boeing press release announcing the order for six 787s. There is no evidence before the Panel that Airbus
even participated in a competition to offer alternative Airbus aircraft in this sales campaign. The
European Union argues that this order "also" results in the threat of further significant lost sales having
materialized (European Union's response to Panel question No. 169, para. 326 and fn 592, referring to its first
written submission, para. 1342). This paragraph of the European Union's first written submission is part of the
European Union's "parallel" argument, wherein it describes the threat of significant lost sales arising out of the
2005 Ethiopian Airlines lost sale of the Original A350 as arising from the possibility that Ethiopian Airlines may
continue to retain options and purchase rights which "flow" from the 2005 order. However, there is no evidence
before the Panel that the 2015 Ethiopian Airlines order arose out of an exercise of options or purchase rights
relating to its 2005 order.
3070 See HSBI Appendix (Appendix 2).
3071 See HSBI Appendix (Appendix 2) paras. 10, 22, 29, 39, 48, 60, 76-79, 89, and 111. In the case of
one "split order", the airline customer's needs could not be met by one aircraft manufacturer, meaning that
neither Airbus nor Boeing would have been awarded the whole order. (See HSBI Appendix (Appendix 2), para.
89).

was another major factor in many campaigns .3072 In some cases, the main factors taken into
account by the airline customers included performance evaluations of the various aircraft,
perceived strengths and weaknesses in performance guarantees and/or the level of confidence in
the maturity of the aircraft programme. 3073 In other campaigns, the size of th e aircraft, given the
airlines' planned range and capacity needs, also featured as a decisive factor. 3074 Incumbency was
a vital factor in some cases, with the airline customer either striving for the advantages generated
by fleet commonality, or being averse to the risks brought on by fleet diversity. 3075 We conclude
that in each case there a re factors other than price that explain why Airbus either did not win the
sale, or in the case of the sales campaigns that involved "split orders", i.e. where the customer
ordered a number of Airbus and Boeing aircraft, why there is no basis to conclude that Boeing's
pricing resulted in the customer awarding a greater portion of the order to Boeing (and thus a
lesser portion to Airbus) than would otherwise have been the case.3076
9.248. Our review of the sales campaign evidence is also consistent with other evidence
suggesting that the competing models of Airbus and Boeing wide -body, twin -aisle LCA are less
substitutable, and therefore that the outcomes of sales campaigns involving the se aircraft will
depend to a greater extent on non -price factors. Airlines will generally purchase a particular LCA
model for the purpose of performing a specific route, or mission. A significant factor in determining
the outcome of an LCA sales campaign t herefore, is the suitability of the aircraft f or a particular
route or routes: the more suitable an aircraft for the routes in question, the lower its direct
operating costs over time.3077 The suitability of an aircraft to perform a particular route depends on
its seating, cargo, payload and range capability, which are largely determined by an aircraft's
number of seats, its MTOW and its range when at maximum passenger capacity.3078 The closer the
suitability of two aircraft for a particular route or routes, the greater their substitutability. The
wide-body, twin-aisle models of Boeing (787 and 777X) and Airbus (A330 and A350XWB) display a
far greater variance in terms of seating capacity, maximum take -off weight, and range than their
narrow-body, single-aisle counterparts (A320neo and A320ceo, and 737 MAX and 737NG).
9.249. Our conclusion is further supported by the statement of Airbus' Executive Vice President,
Strategy & Marketing, Kiran Rao, who opines that [[HSBI]].3079 It is also consistent with the
conclusions drawn b y the Appellate Body in the original proceeding suggesting that sales
campaigns involving single -aisle LCA are likely to be more price -sensitive than those involving
wide-body, twin-aisle LCA:
{P}rice appears to have been a particularly important consider ation in the 100 -200
seat LCA market due to the relatively high degree of substitutability between the A320
and the 737NG, and the fact that many customers within this product market are
low-cost carriers, which are particularly price-sensitive.3080
9.250. On the b asis of the foregoing evaluat ion of the nature of the tied tax subsidies, the
conditions of competition in the wide-body, twin-aisle LCA markets, and the evidence pertaining to
sales campaigns involving the 787 and 777X and A350XWB between 2007 and 2015, w e conclude
that the European Union has failed to demon strate that these campaigns were price -sensitive, in
the sense that Boeing was under particular pressure to reduce its prices in order to secure LCA
sales in the particular sales campaigns, and there we re no other non -price factors that explain
Boeing's success in obtaining the sale . While the tied tax subsidies may have given Boeing the

3072 See HSBI Appendix (Appendix 2), paras. 29, 60, 89, 133, 149, and 158.
3073 See HSBI Appendix (Appendix 2), paras. 10, 22, 76-79, 89, and 111.
3074 See HSBI Appendix (Appendix 2), paras. 29, 76-79, 141, and 148.
3075 See HSBI Appendix (Appendix 2), paras. 22, 98, and 157.
3076 Several of the LCA sales campaigns involved split orders of both Airbus and Boeing aircraft: Qatar
Airways (2007); Etihad Airways (2008, 2011 and 2013); United Airlines (2010, 2012 and 2013); Air
France-KLM (2011); Singapore Airlines (2013); British Airways (2013); and Lufthansa (2013). In one of these
campaigns, the resulting split order was part of a deliberate policy on the part of the airline customer to avoid
becoming dependent on one manufacturer for its long-haul needs. (HSBI Appendix (Appendix 2), paras. 140
and 141).
3077 Mourey Statement, (Exhibit EU-34) (BCI), paras. 48 and 49.
3078 Mourey Statement, (Exhibit EU-34) (BCI), paras. 48 and 49.
3079 Statement of K. Rao, 6 October 2015, (Exhibit EU-1668) (HSBI). It is not affected by the caveats
expressed by the United States and Mr Wojick concerning the inherent limitations of NPV analyses as a tool for
comparing relevant factors associated with the respective offers of Airbus and Boeing in any LCA sales
campaign.
3080 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1259.

ability and incentive to lower its LCA prices without affecting its profitability calculus , the
competitive dynamics of these LCA sales campaigns are such that it did not have the commercial
imperative to do so in order to win the sales.3081
9.251. Because the European Union has failed to demonstrate any effect of the tied tax subsidies
on Boeing's 787 or 777X prices in the post -implementation period, the possibility of any
consequent impact of those subsidies on sales and prices of the A350XWB does not arise. 3082
Accordingly, there is no basis on which the tied tax subsidies can be found to be a genuine and
substantial cause of any of the forms of serious prejudice alleged in respect of the A350XWB in the
post-implementation period, through a price causal mechanism.
9.252. The Panel therefore finds that the European Union has failed to establish that the
tied tax subsidies are a genuine and substantial cause of any of the forms of serious
prejudice alleged in respect of the A350XWB in the post -implementation period, through
a price causal mechanism.
9.3.2.2.2 The state and local cash flow subsidies
9.253. This category of post-2006 subsidies comprises:
a. B&O tax credits for Washington State property taxes and leasehold excise taxes in
connection with property where the 787 and 777X (as well as 737 families) are
produced, and a property tax exemption for LCFs in South Carolina used in transporting
parts for the 787 production;
b. B&O tax credits for aerospace preproduction in Washington that are alleged to affect
aircraft in preproduction such as the 787 and 777X (as well as the 737 MAX);
c. sales and use tax exemptions for construction materials, fuel and computer equipment
related to 787 production in Washington and South Carolina; and
d. grants related to infrastructure for 787 production facilities in South Carolina.
9.254. In Section 9.2.3.2 of this Report, we explain t he nature and operatio n of the state and
local cash flow subsidies for purposes of deciding whether and how to aggregate the various
post-2006 subsidies. In particular, we explain that the receipt of these subsidies is not contingent
upon per-unit production or sale of LCA.
9.255. The European Union argues that the state and local cash flow subsidies generally operate
to liberate funds and thereby reduce costs that Boeing would otherwise have had to incur with its
own resources. The European Union considers that Boeing is able, and ha s strong incentives, to
use the additional cash represented by the state and local cash flow subsidies to lower prices for
its LCA in competitive sales campaigns without reducing its profits. 3083 The European Union
therefore regards the state and local cash f low subsidies as having the same essential cost
reducing effect as the tied tax (per-unit) subsidies. They should be analysed as operating to
provide Boeing with the same ability to lower its LCA prices in particular, price -sensitive LCA sales
campaigns, thereby contributing to causing the same effects on Airbus' prices and sales as the tied
tax subsidies. Moreover, the magnitude of the state and local cash flow subsidies "confirms and
amplifies" the existing causal connection already established by the sub sidies' close connection to
the production of the particular Boeing aircraft and the conditions of competition in the LCA
industry.3084
9.256. The European Union considers that the untied nature of this aggregated group of subsidies
is not an obstacle to their bein g found to cause adverse effects, especially in light of the Appellate
Body's acceptance of the proposition that subsidies that are "not directly contingent upon

3081 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1260.
3082 See paras. 9.116 and 9.233 above.
3083 European Union's first written submission, para. 1156; second written submission, para. 1080.
3084 European Union's first written submission, paras. 1173-1175.

production or sale can nevertheless affect pricing decisions in some circumstances". 3085 It
emphasizes that, in the original proceeding, the Appellate Body found a causal link between t he
tax abatements related to the City of Wichita IRBs and adverse effects, and argues that, since the
state and local cash flow subsidies share the same essential featu res as t he tax abatements
related to the City of Wichita IRBs, this finding should "apply" equally to the state and local cash
flow subsidies at issue in this proceeding.3086
9.257. The European Union notes that the Appellate Body reached its conclusion regarding the tax
abatements related to the City of Wichita IRBs notwithstanding that they were untied subsidies.3087
According to the European Union, the state and local cash flow subsidies are also closely "linked"
to the research, development or production of particul ar Boeing LCA. This "close link with
production", coupled with the "cash flow -enhancing nature" and the "prevailing comp etitive
conditions", of the state and local cash flow subsidies, which are essentially the same as those of
the tax abatements related to the City of Wichita IRBs, means that the Appellate Body's reasoning
applies equally to all of the state and local cash flow subsidies in this proceeding.3088
9.258. The United States arg ues that the European Union has failed to establish a causal
connection between any of the state and local cash flow subsidies and the alleged adverse effects.
While the European Union refers to "aggressive pricing" by Boeing in LCA sales campaigns, it fails
to explain how subsidies not tied to Boeing's marginal cost of producing th e relevant aircraft
(including those alleged to reduce Boeing's early -stage R&D costs) would affect Boeing's pricing.
Absent such a showing, any "aggressive pricing" reflects normal competition rather than the
effects of subsidies. 3089 The United States argue s that, g iven that both the European Union and
United States agree that Boeing's offers in LCA sales campaigns reflect the terms that Boeing, as a
profit-maximizing firm, views as necessary to win the sales campaign, the relevant question is
whether, and to what extent, the alleged subsidies enabled Boeing to price as it did.3090
9.259. According to the United States, the European Union had two ways to show that alleged
subsidies enabled Boeing to provide additional discounts substantial enough to alter the outcome
of a particular campaign. First, it could have shown that, even though the sales at those prices
were profit -maximizing, Boeing would have been unable to make them absent the subsidies.
Second, it could have shown that sales at those prices would no longer have been
profit-maximizing for Boeing in the absence of the subsidies. 3091 According to the United States,
"{t}he notion that a rational, profit-maximizing firm would deviate from optimal pricing strategy to
generate increased revenue (at the expense of pro fits) only makes sense if the firm is
capital-constrained and needs short -term revenue to continue operations." 3092 The United States
observes that the European Union has been very clear that it does n ot allege that Boeing faces
capital constraints that force it to deviate from a profit -maximizing strategy. The United States
further notes that the European Communities in the original proceeding had not been able to
establish that Boeing was capital constrained.3093
9.260. Further, the United States notes that the economic model provided by the European
Communities in the original proceeding, which purported to demonstrate the effects of untied
subsidies on Boeing's LCA pricing behaviour, was also rejected by the original panel.3094 While the
Appellate Body in the original proceeding expressed the view that untied subsidies "may" affect
Boeing's prices, the United States maintains that the European Union must actually establish that

3085 European Union's second written submission, para. 1085 (citing Appellate Body Report, US – Large
Civil Aircraft (2nd complaint), para. 1348 (emphasis added)).
3086 European Union's first written submission, paras. 1169 and 1177; second written submission,
paras. 1087-1089.
3087 European Union's second written submission, para. 1087.
3088 European Union's second written submission, paras. 1088 and 1089.
3089 United States' comments on the European Union's response to Panel question No. 169, para. 18.
3090 United States' comments on the European Union's response to Panel question No. 169, paras. 22
and 23.
3091 United States' comments on the European Union's response to Panel question No. 169, para. 23.
3092 United States' comments on the European Union's response to Panel question No. 169, para. 23.
Indeed, the United States argues that economic theory dictates that where a firm needs to maximize
short-term revenue, it would lower its prices, as raising them would have the opposite effect. Therefore, if
Boeing needed cash in the short-term due to the absence of the alleged subsidies, it would charge lower, not
higher, prices.
3093 United States' first written submission, paras. 723 and 724; second written submission, para. 867.
3094 United States' first written submission, paras. 723-726; second written submission, para. 867.

they do so.3095 According to the United States, t he European Union provides no causation analysis
beyond the general proposition that money is fungible.3096
9.261. The United States considers that the Appellate Body's treatment of the effec ts of the tax
abatements related to the City of Wichita IRBs cannot support the European Union's general
theory concerning the operation of untied subsidies such as the state and local cash flow subsidies
through a price causal mechanism.3097
The analysis of the effects of untied subsidies on Boeing's LCA pricing in the original proceeding
9.262. Certain of the state and local cash fl ow subsidies, such as the Washington State B&O tax
credits for property taxes and for aerospace preproduction /aerospace product development, were
also at issue and analysed in the original proceeding. In the original proceeding, the European
Communities al leged that all of the subsi dies, o ther than the FSC/ETI subsidies and the
Washington State and City of Everett B&O tax rate reductions, similarly operated to "increase
Boeing's non -operating cash flow", thereby providing Boeing with the ability to engage i n
"aggressive pricing" of its LCA in order to win market share from Airbus. 3098 The subsidies in this
group were not "explicitly targeted to lowering Boeing's costs of production of specific LCA
models".3099 Rather, they were considered "fungible" by the Europea n Communities, and treated
as the "functional equivalent of additional cash flow available to Boeings' LCA division". 3100 The
European Communities argued that, notwithstanding the fact that this category of subsidies was
not directly related to Boeing's production of individual LCA, Boeing's receipt of the subsidies of the
magnitudes in question, in light of the strategic incentives in the LCA market, and Boeing's
financial condition, made it reasonable to infer that the subsidies did in fact affect Boeing's L CA
pricing behaviour.3101
9.263. The European Communities' original case that subsidies that are untied , in the sense tha t
their receipt is not contingent on production or sale of LCA on a per -unit basis, can nonetheless
affect Boeing's LCA pricing behaviour, was t herefore based on a combination of: (a) an
econometric simulation model developed by Professor Luís Cabral concerning the effects of
"development subsidies"; (b) the financial condition or economic viability of Boeing's LCA division
in the absence of the s ubsidy amounts; (c) subsidy magnitudes; (d) the conditions of competition
in the LCA market; and (e) selected individual LCA sales campaigns.3102
9.264. The United States in the original proceeding agreed with the European Communities that
the abse nce of a direct li nk (i.e. tie ) to production of a particular product is not of itself
determinative of the outcome of the Panel's causation analysis. At the same time, in the absence
of such a tie, a complaining Member would bear the burden of identifying persuasive eviden ce that
the subsidy was used by the recipient in a way that caused the adverse effects at issue, or that,
but for the subsidy, the recipient could not have competed in the market as it did.3103
9.265. The original panel's discussion of the econometric simulati on mo del developed by
Professor Cabral is set forth in appendix VII.F.2 of the original panel report. 3104 The original panel
considered that a principal weakness of Professor Cabral's model, insofar as it purported to
demonstrate that Boeing would use a significan t portion of each additional dollar of untied subsidy
to engage in aggressive pricing of its LCA, was that the theory appeared to be inconsistent with

3095 United States' first written submission, para. 730 (citing Appellate Body Report, US – Large Civil
3096 United States' first written submission, para. 722.
3097 United States' first written submission, para. 729.
3098 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1825.
3099 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1609 and 7.1827.
3100 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1609.
3101 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1610.
3102 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1611.
3103 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1828 and fn 3786.
3104 As the panel explains, the "Cabral Model" actually comprised two models, the "objective function
model" and the "price competition model". The main purpose of the "price competition model" was to
determine Boeing's allocation of subsidies between three types of "investment": (a) "aggressive pricing" due to
learning curve efficiencies; (b) "aggressive pricing" due to buyer switching costs; and (c) R&D expenditures.
(Panel Report, US – Large Civil Aircraft (2nd complaint), appendix VII.F.2, para. 30).

Boeing's actual pricing behaviour between 2001 and 2006. 3105 The original panel also expressed
the view that the relationship between a reduction in Boeing's general costs that are not part of
the development costs for a particular LCA programme (e.g. general R&D costs ), and LCA prices
was less direct than suggested by Professor Cabral, especially in light of th e evidence as to how
LCA manufacturers set their prices. 3106 The panel's conclusions regarding the Cabral model were
not appealed.
9.266. The original panel also found unpersuasive the European Communities' attempt to
demonstrate that, but for Boeing's receipt of th e subsidies in question between 1989 and 2006,
Boeing's LCA division would not have been "economically viable", in large part because the
European Communities' argument rested on the proposition th at Boeing had received
USD 19.1 billion in subsidies over t hat 17 year period, wh ile the panel found that Boeing had
received a fraction of that amount. 3107 Indeed, the panel estimated that the magnitude of the
subsidies that could appropriately be analysed as operating as the functional equivalent of
additional cash to Boeing was only USD 550 million over that 17 year period. The panel was
unpersuaded that subsidies which by their nature are not directly tied to the production or sale of
products, in such comparatively small amounts, could have affected Boeing's LCA pricing in a
manner that could give rise to serious prejudice.3108
9.267. The European Communities appealed this finding on the basis that the panel should have
assessed the effects of this group of untied subsidies, either with the tied tax subsidies, as an
aggregated single group, or at least by cumulating the effects of the group of untied subsidies with
those of the tied tax subsidies.3109 While the Appellate Body did not find fault with the pane l's
decision not to conduct an aggregated analysis of the effects of t he two groups of subsidies as
though they were a single subsidy, it found that the panel had erred in failing to make a
cumulative assessment of whether the effects of the untied subsidies complemented and
supplemented the effects that the original panel h ad found were caused by the tied tax
subsidies.3110
9.268. The Appellate Body, in completing t he analysis on this issue, found that w ith one
exception, none of the untied subsidies at issue was a genuine cause of serious prejudice in the
single-aisle market. The e xception was with respect to the tax abatements related to the City of
Wichita IRBs, which we f ind have been withdrawn by the United States.3111 There, the Appellate
Body found that because the subsidy could "not be considered trivial" in its overall magnitud e and
duration, and was "closely connected" to Boeing's production of the 737, it had a genuine causal
connection to the serious prejudice already found to have been caused by the tied tax subsidies in
the single-aisle market.3112 With respect to the remainin g untied subsidies, which were the other
Washington tax subsi dies that are also at issue as state and local cash flow subsidies in this
proceeding, the Appellate Body found insufficient evidence that the subsidies had been used in
connection with expenditu res associated with the 737NG. As a resu lt, it found there could be no
genuine causal connection between the subsidies and serious prejudice in the single -aisle
market.3113
The amounts of the state and local cash flow subsidies and their alleged "links" to p roduction of
particular Boeing LCA
9.269. In Section 8 of this Report, we estimate the relevant amounts of the various state and
local cash flow subsidies for the 2013-2015 period, which we present in the table below, along with
an estimate of the value of Boeing orders for the various LCA over that same period. We also
indicate the LCA programmes to which the particular subsidies are alleged by the European Union
to be "linked".

3105 Panel Report, US – Large Civil Aircraft (2nd complaint), appendix VII.F.2, paras. 68 and 72.
3106 Panel Report, US – Large Civil Aircraft (2nd complaint), appendix VII.F.2, para. 74 and fn 4262.
3107 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1830 and 7.1831.
3108 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1828 and 7.1834.
3109 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1323.
3110 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 1287 and 1288; and
Panel Report, EC and certain member States – Large Civil Aircraft, para. 7.1956.
3111 See para. 8.640 above.
3112 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1348.
3113 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 1341-1346.

Table 11: Estimated amounts of state and local cash flow subsidies 2013-2015
Subsidy 2013-2015
(USD millions)
Boeing LCA in respect of
which the European
Union alleges the
subsidy arises
Value of Boeing
orders
2013-20153114
Washington State B&O tax credits for
preproduction/aerospace product
development
[***] 737 MAX and 787-10s and
777Xs manufactured in the
State of Washington

737NG:
USD 45.7 billion
737 MAX:
USD 97.6 billion
787: USD 36 billion
777X:
USD 63.3 billion

Washington State B&O tax credit for
property taxes and leasehold excise
taxes
[***] 737NG, 737 MAX, and
787s manufactured in the
State of Washington
Washington State sales and use tax
exemptions for computer hardware,
software, and peripherals
[***] 737NG, 737 MAX, and
787s manufactured in the
State of Washington
South Carolina payment of proceeds of
USD 50 million in bond issuances
50 (lump sum) 787s manufactured in
South Carolina
South Carolina property tax exemption
in respect of Boeing LCFs
25.82 787s manufactured in
South Carolina
South Carolina sales and use tax
exemptions in respect of aircraft fuel,
computer equipment, and construction
materials
2.25 787s manufactured in
South Carolina

9.270. Unlike the tied tax subsidies, Boeing's receipt of the state and local cash flow subsidies is
not contingent on the production or sale of LCA on a per-unit basis. The state and local cash flow
subsidies represent the functional equivalent of additional cash to Boeing. The European Union
asserts that the state and local cash flow subsidies reduce Boeing's fixed costs of production.
However, it does not demonstrate that any particular subsidy affects the programme costs for any
specific Boeing LCA programme , in the sense that the subsidies in question affect Boeing's
production cost forecasts for an LCA programme, and thereby alter the profitability calcul us of
sales of those LCA at particular prices .3115 In addition, in asserting generally that certain state and
local cash flow subsidies can be considered "linked" to multiple Boeing LCA programmes (as is the
case for the Washington state and local cash flow subsidies), the European Union does not explain
how much of the subsidy should be considered to be allocated to each aircraft programme, based
on such "link".
9.271. The Panel does not rule out the possibility that, in certain specific contexts, subsidies that
reduce the fixed costs of a producer may be shown to impact prices. For example, if Boeing were
facing capacity constraints (such that any additional sales would result in higher marginal costs), a
subsidized expansion of production capacity could be demonst rated to allow for a reduction of

3114 These calculations have been made using an estimated discount of 44% off the average 2012
list-price of the relevant LCA. The average 2012 list prices are set forth in Boeing list prices, (Exhibit EU-1210).
The 44% discount is the discount from average 2012 list prices of Boeing LCA used in the International Trade
Resources Report submitted by the European Union in connection with its calculation of the annual amounts of
the Washington State B&O tax rate reduction. (See ITR Report, (Exhibit EU-25), para. 11).
3115 See Section 9.2.2 above. Compare, for example, the European Union's response to Panel question
No. 169, fn 408. The European Union has not explained, beyond generalized assertions, how the individual
state and local cash flow subsidies impact Boeing's fixed costs of production in relation to any of its LCA
programmes. We note, moreover, that the Washington State B&O tax credits for property and leasehold excise
taxes and for preproduction/aerospace product development, as well as the Washington State sales and use
tax exemptions for computer hardware, software, and peripherals, were all challenged in the original
proceeding and argued by the European Communities to be untied subsidies which were not linked to
production of particular families of Boeing LCA or to the production or sale of individual LCA. (See Panel Report,
US – Large Civil Aircraft (2nd complaint), para. 7.1609 and fn 3376). The European Union does not explain why
it is now appropriate to analyse these same subsidy measures as reducing Boeing's fixed costs of production of
any particular LCA programme or programmes.

marginal costs, and hence prices.3116 Nor is the situation before us one in which a subsidy enables
an otherwise uncompetitive producer to remain in the market, distorting market prices by
contributing to excess supply or cap acity.3117 There is no evidence before us from which the Panel
can conclude that, absent the state and local cash flow subsidies, Boeing would not have engaged,
or would not have been financially able to engage, in the same pricing behaviour in which it
engaged.
9.272. The European Union refers to the Appellate Body's finding with respect to the tax
abatements related to the City of Wichita IRBs to support the argument that, in light of the
incentives that Boeing has to reduce its prices in strategic LCA sales campa igns, and the subsidy
magnitudes, the untied Washington State subsidies that have a "link" to the production of the
relevant Boeing LCA, can be considered to have a genuine causal link to Boeing's pricing of those
aircraft.3118
9.273. The Appellate Body's finding in relation to the tax abatements related to the City of Wichita
IRBs was a factual determination made in the context o f completing the analysis .3119 To interpret
what the Appellate Body said in that particular context as setting forth an economic theory or le gal
ruling regarding the basis on which untied subsidies, through their impact on the recipient's pricing
behaviour, should be considered to be a genuine cause of serious prejudice would, in our view, be
overstretching the application of that finding. The state and local cash flow subsidies may be
related in a factual sense to the production of certain (or all) LCA by Boeing. The subsidies
generally arise from Boeing's location of its LCA manufacturing in particular places. However, the
fact that the produc tion of certain (or all) Boeing LCA in a particular location gives rise to certain
subsidies, does not of itself, say anything meaningful in an economic sense about how Boeing
would apply the notional additional cash represented by those subsidies, and mor e specifically,
whether it would use such additional cash to lower the prices of its LCA, or how it would allocate
that additional cash to lower pricing of different LCA models where the subsidies in question are
"linked" in a factual sense to production of a number of LCA models.3120

3116 This is assuming that learning curve efficiencies are not adversely impacted by the addition of the
new capacity. Aviation industry analysts have speculated that Boeing's decision to split its 787 production
between two assembly sites on opposite coasts may have adversely affected the rate at which Boeing's 787
production costs have declined. (D. Gates, "Will 787 program ever show an overall profit? Analysts grow more
sceptical", The Seattle Times, 17 October 2015, (Exhibit EU-1705), p. 9).
3117 The evidence before the Panel suggests that, if anything, there is greater demand for LCA in the
product markets the subject of this proceeding than can currently be met. Evidence before the Panel indicates
that, as of the end of July 2014, both Airbus and Boeing held record backlogs of orders for approximately
11,000 aircraft combined. The 787 was reported to be sold out through the end of the decade. Boeing was
reported to have raised its prices by approximately 3.1%, which was almost twice the rate of price increases of
the previous year. ("Boeing Raises Jet Prices 3.1 Per cent; 777-9X Costs Most", Bloomberg, 31 July 2014,
(Exhibit EU-1447)). Both Airbus and Boeing were reported in late 2014 and 2015 to be considering increasing
production targets for single-aisle LCA to meet anticipated demand which already exceeded capacity, with
Boeing's reported backlog for the 737 family being reported as 4,008 orders as of September 2014; almost
eight years of production at current rates. ("Boeing considering further boost in 737 production", Chicago
Tribune, 17 September 2014, (Exhibit EU-1684); and "UPDATE 2 – Airbus debates new A320 output hike,
suffers test glitch", Reuters, 28 May 2015, (Exhibit EU-1686)).
3118 And correspondingly, that untied subsidies that have a close connection or "link" to the production
of other Boeing LCA at issue in this proceeding (i.e. the 787 and 777X), can also be considered to have a
genuine causal link to Boeing's pricing of those aircraft.
3119 The Appellate Body found that the original panel erred in failing to consider whether the "remaining"
(untied) subsidies had a genuine causal relationship with; i.e. made a "real or meaningful contribution to" the
effects of the tied tax subsidies on Boeing's pricing in the 100-200 seat LCA product market, such that the
remaining subsidies could be said to "complement and supplement" the effects of the tied tax subsidies and
thereby also cause serious prejudice. (Appellate Body Report, US – Large Civil Aircraft (2nd complaint),
paras. 1328 and 1329). The Appellate Body then decided to complete the analysis. The Appellate Body has
completed the analysis only in cases in which there are sufficient factual findings in the panel report or
undisputed facts in the panel record to enable it to carry out the legal analysis. (See e.g. Appellate Body
Report, EC and certain member States – Large Civil Aircraft, paras. 1143-1147). The United States had
asserted that there were no such findings or undisputed facts on the record that would enable the Appellate
Body to complete the analysis in this instance, and moreover, that the European Union had failed to identify
any. (Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1332).
3120 To take an example, although the Washington State B&O tax credits for pre-production/aerospace
product development may currently be generated in respect of Boeing aircraft that are in pre-production, such
as the 737 MAX, 787-10, and 777X, given the nature of this subsidy as untied, we do not consider that this
necessarily provides a basis for concluding, in a manner analogous to the Appellate Body's analysis of the per-

9.274. In the original proceeding, the Appellate Body reasoned (in relation to its analysis of the
tied tax subsidies) that it is rational to expect that, where a subsidy is provided on a per-unit basis
in respect of LCA produced or so ld, the manufacturer would be inclined, in the appropriate market
context, to pass on all or part of that subsidy to the purchaser because it is possible to do so
without sacrificing profit margins. 3121 The calculus of the extent to which untied subsidies, wh ich
relate in a less direct way to production or sales than per -unit subsidies, potentially affect the
profitability of a n LCA sale in light of the competitive dynamics of the LCA markets , is far less
clear. We are unable to identify any economic rationale or other explanation as to why untied
subsidies that ma y be considered factually associated with production of Boeing aircraft, whether
individual aircraft models, certain models, or all models , would contribute to Boeing's ab ility to
lower the prices of those aircraft.3122
9.275. The European Union does not advance an economic theory to support its argument that
subsidies that reduce Boeing's fixed costs in a general sense impact its LCA prices generally or
more specifically, over the short-term or over the long -term.3123 Nor does it attempt to
demonstrate that Boeing's LCA pricing would not be economically feasible absent the receipt of the
state and local cash flow subsidies.3124
9.276. Because the European Union has failed to demonstrate any effect of the state and local
cash flow subsidies on Boeing's prices of the 787 or 777X in the post -implementation period, the
possibility of any consequent impact of those subsidies on sales and prices of the A350XWB does
not arise.3125 Accordingly, there is no basis on which the state and local cash flow subsidies can be
found to be a genuine and substantial cause of any of the forms o f serious prejudice alleged in
respect of the A350XWB in the post-implementation period, through a price causal mechanism.
9.277. The Panel therefore finds that the European Union has failed to establish that the
state and local cash flow subsidies are a genuine and substantial cause of any of the

unit tied tax subsidies in the original proceeding, that Boeing would have the ability and incentive to use that
subsidy to lower its LCA prices in relation to those aircraft models. The same analysis applies with respect to
the other state and local cash flow subsidies which the European Union alleges are "linked" to the production of
one or more Boeing LCA.
3121 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1261.
3122 We note that the Appellate Body has explained that, even where a panel considers its view to
represent common sense or its own conception of economic rationality, it should at least explain the economic
rationale that supports its "intuition" and moreover, should test its intuitions empirically. (Appellate Body
Report, US – Large Civil Aircraft (2nd complaint), para. 643). Indeed, accepting the European Union's
arguments would, in this instance amount to "causation through association". (See Appellate Body Report, EC
and certain member States – Large Civil Aircraft, para. 1404). Our approach to this issue is consistent with the
approach to an analogous issue taken by the Appellate Body in EC and certain member States – Large Civil
Aircraft. In that case, the Appellate Body found that the panel's generalized finding that the R&TD subsidies
enabled Airbus to develop features and aspects of its aircraft faster than would otherwise have been possible
was insufficient to justify cumulating the effects of the R&TD subsidies with the "product effects" of the launch
aid/member State financing subsidies in enabling Airbus to launch particular models. Rather, in order to
establish the requisite genuine causal link, the panel should have made specific findings that technology or
production processes funded by the R&TD subsidies contributed to Airbus' ability to launch and bring to market
particular models of LCA. (Appellate Body Report, EC and certain member States – Large Civil Aircraft,
paras. 1404 and 1407).
3123 Unlike in the original proceeding, the European Union does not submit an economic model
explaining how subsidies the receipt of which is not contingent on per-unit production or sale of LCA, by virtue
of operating to increase Boeing's cash flow in a general sense, cause Boeing to lower its LCA prices. (Panel
Report, US – Large Civil Aircraft (2nd complaint), para. 7.1613).
3124 This is a significant departure from the European Communities' case in the original proceeding,
where it sought to demonstrate that Boeing's pricing and product development decisions would have been
"unsustainable and financially irrational" absent Boeing's alleged receipt of the subsidies at issue. (See Panel
Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1621, 7.1830, and 7.1831, and fn 3787). The
evidence before us suggests that the 787 programme has thus far generated significant losses for Boeing. See
para. 9.55 where the Panel discusses evidence that the accumulated "deferred costs" for the 787 programme
are projected to peak at USD 33 billion late 2016 and that these losses are in addition to Boeing's original
investment to develop the 787, which has been estimated by analysts at an additional USD 20 billion or more.
(D. Gates, "Will 787 program ever show an overall profit? Analysts grow more sceptical", The Seattle Times,
17 October 2015, (Exhibit EU-1705), p. 8). However, the evidence also suggests that Boeing has thus far been
able to sustain this programme due to the cash generated by its highly profitable 777 and 737 programmes.
(See para. 9.55 above).
3125 See paras. 9.116 and 9.122 above.

forms of serious prejudice alleged in respect of the A350XWB in the
post-implementation period, through a price mechanism.
9.3.2.2.3 The post-2006 aeronautics R&D subsidies
9.278. The European Union argues that the post -2006 aeronautics R&D subsidies 3126 operate to
lower Boeing's pricing of current LCA, such as the 787 and 777X, because they provide Boeing
with access to and use of research re sults and inputs that enable it to "continue maturing"
technologies for application to future generations of LCA without having to pay the U.S.
Government for such access and use. 3127 The European Union considers that the post -2006
aeronautics R&D subsidies o perate in a manner that is "identical to the remaining state and local
subsidies".3128
9.279. The European Union considers that the post -2006 aeronautics R&D subsidies are similar in
nature to the pre -2007 aeronautics R&D subsidies in that they concern the developm ent of LCA
technologies that "Boeing has a significant economic disincentive to research on its own". 3129
However, unlike the pre -2007 aeronautics R&D subsidies, the post -2006 aeronautics R&D
subsidies concern technologies that are not sufficiently mature for application to current Boeing
LCA, and thus do not affect sales and prices of current generation Boeing LCA throug h a
technology causal mechanism.3130 The European Union argues that the post-2006 aeronautics R&D
subsidies do affect the prices o f current Boei ng LCA through a price causal mechanism , however.
This is because the post-2006 aeronautics R&D subsidies relieve Boeing from paying to licence the
use of intellectual property in its technology development activities. The post -2006 aeronautics
R&D subsidi es therefore lower Boeing's costs of licensing intellectual property rights to LCA
technology, and of developing that technology , in order to continue improving its products and to
maintain the competitiveness of products, "enabling it to act on its incent ive to pass such cost
savings on to its customers in the form of lower prices for Boeing LCA".3131
9.280. The European Union argues that the post -2006 aeronautics R&D subsidies, operating
through a price causal mechanism , enable Boeing to lower the prices of its cu rrent LCA based on
the same reasoning that the Appellate Body adopted in concluding that the tax abatements related
to the City of Wichita IRB s have a genuine causal link to, and "complemented and supplemente d"
the effects of the tied tax subsidies on Boei ng's LCA prices in the original proceeding. 3132 The
genuine causal link between the post-2006 aeronautics R&D subsidies and alleged present adverse
effects is confirmed by the design, structure, magnitude, and operation of these subsidies, in light
of the rel evant conditions of competition, as well as their nexus with the subsidi zed Boeing LCA.
This is sufficient to establish that the post -2006 aeronautics R&D subsidi es affect Boeing's LCA
pricing decisions, as the Appellate Body made clear that subsidies not contingent upon per-unit
production or sale may affect prices, and given the conditions of competition, Boeing would have

3126 Although the European Union argues that the non-flight testing portion of the FAA aeronautics R&D
subsidy should be analysed as operating through a technology causal mechanism, it requests the Panel to
analyse this aspect of the FAA aeronautics R&D subsidy as operating through a price causal mechanism if the
Panel were to reject its technology effects arguments. (European Union's response to Panel question No. 43,
fn 352).
3127 European Union's response to Panel question No. 43, para. 280.
3128 European Union's first written submission, paras. 1180 and 1187. See also European Union's
comments on United States' response to Panel question No. 158, para. 79, where the European Union explains
that the post-2006 aeronautics R&D subsidies that operate through a price causal mechanism are not, in the
short-term, materially different from the tax abatements related to the City of Wichita IRBs.
3129 European Union's response to Panel question No. 43, para. 280.
3130 The post-2006 aeronautics R&D subsidies cannot be linked to particular Boeing LCA currently
marketed, owing to their nature as "funding early-stage R&D intended to create technologies that do not
actually appear on LCA until years or decades in the future". (European Union's response to Panel question No.
158, para. 72). Compare to European Union's second written submission, paras. 1099 and 1100 and United
States' comments on the European Union's response to Panel question No. 43, paras. 239-246.
3131 European Union's response to Panel question No. 43, para. 280. See also European Union's first
written submission, para. 1187; opening statement at the meeting with the Panel, paras. 81 and 82; and
closing statement at the meeting with the Panel, paras. 25 and 26.
3132 European Union's first written submission, para. 1187: "{w}hile the City of Wichita IRBs provided
benefits through tax breaks on property investment, and the aeronautics R&D subsidies here relate to funding
and support for R&D, both share the salient feature that they generate or free non-operating cash flow that
Boeing can use to lower LCA prices".

used the post-2006 aeronautics R&D subsidies available to it to reduce prices in competitive sales
campaigns.3133
9.281. The United States makes a number of arguments, first with respect to the proposition that,
absent the post -2006 aeronautics R&D subsidies, Boeing would have had to pay the U.S.
Government to licence the intellectual property, and second, with respect to the proposition that
cost savings represented by Boeing not having to pay to licence the intellectual property represent
the equivalent of additional cash flow that Boeing would use to lower its current LCA prices.
9.282. The United States considers that there is no support for the Euro pean Union's argument
that, absent the post -2006 aeronautics R&D subsidies, Boeing would have had to incur additional
costs licensing intellectual property from the U.S. Government. According to the United States, the
European Union's argument implies that , because the benefit conferred by the subsidy concerns
the more favourable allocation of intellectual property right s to Boeing, the counterfactual
assessment of Boeing's LCA pricing in the absence of the post -2006 aeronautics R&D subsidies
should assume that Boeing would need to licence those technologies from the U.S. Government in
order to carry out its LCA technology development activities. However, the nature of the research
funded by the post -2006 aeronautics R&D subsidies is research that would not have been
undertaken in the absence of the subsidies. Thus, in the appropriate counterfactual, the research
would not have been undertaken by Boeing or by the U.S. Government and there is no basis for
thinking that Boeing would pay to obtain intellectual p roperty rights to such non -existent
research.3134 Moreover, the European Union provides no evidence that the R&D funded by the
post-2006 aeronautics R&D subsidies can be expected to produce significant protectable
intellectual property, or that any such prote cted intellectual property is likely to be needed to
conduct subsequent research relevant to Boeing's LCA.3135
9.283. The United States also considers that, even assuming arguendo that the post -2006
aeronautics R&D subsidies resulted in lower intellectual property licensing fees for Boeing, the
European Union fails to provide any economic theory to explain why, in a counterfactual world in
which Boeing paid to licence the equivalent intellectual property, Boeing would need to raise the
prices of its current LCA. Fir st, the European Union does not address the magnitude of the
licensing fees that Boeing would have had to pay absent the post -2006 aeronautics R&D subsidies,
or support an estimate of the value of the putative cost savings with any evidence. Second and
more fundamentally, there is no basis for concluding that, in a counterfactual world where Boeing
had to pay to licence intellectual property to develop LCA technologies for application to future LCA
models, it would need to raise the prices of its current LC A.3136 Third, given the European Union's
position that the post-2006 aeronautics R&D subsidies support research into technologies that are
not linked to current Boeing LCA (i.e. the 787, 777X, 737 MAX , or 737NG)3137, the so-called "cost
savings" from not having to licence intellectual property are "untied" to the production of current
LCA and therefore would not affect pricing of current Boeing LCA , unless Boeing were shown to
face significant capital constraints, such that its investment and pricing behaviour wo uld be
sensitive to fluctuations in cash flows.3138
9.284. Finally, as regards the European Union's attempt to argue that the post -2006 aeronautics
R&D subsidies complement and supplement the effects of other subsidies on Boeing's LCA prices,
by analogy to the way that the Appellate Body cumulated the effects of the tax abatements related
to the City of Wichita IRBs with those of the tied tax subsidies in the 100 -200 seat LCA product

3133 European Union's first written submission, paras. 1114-1116 and 1183-1190; and second written
submission, paras. 1083-1091.
3134 United States' comments on the European Union's response to Panel question No. 43,
paras. 249-251. The United States adds that, if the nature of the subsidized research is such that the R&D
would have been conducted by Boeing absent the post-2006 aeronautics R&D subsidies, there would be no
basis for finding that the post-2006 aeronautics R&D subsidies at any point in the future could give rise to
technology effects, and the European Union's position is therefore internally inconsistent. See also
United States' response to Panel question No. 158, para. 45.
3135 United States' comments on the European Union's response to Panel question No. 43, para. 252.
3136 United States' comments on the European Union's response to Panel question No. 43, paras. 253
and 254.
3137 Referring to European Union's response to Panel question No. 43, para. 280.
3138 United States' comments on the European Union's response to Panel question No. 43, para. 255.
The United States notes that the European Union has stated clearly that it is not attempting to show that
Boeing was or is capital constrained.

market, the United States argues that the European Union has failed to establish an y "link" to
particular Boeing LCA. 3139 Specifically, the European Union does not explain how intellectual
property licensing fees that would be required to develop a future technology for a future aircraft
model are linked to the production of existing aircraft that are currently being sold.
9.285. Japan and Korea advance arguments supporting the analysis of R&D subsidies through a
price causal mechanism. Japan argues that a price causal mechanism is inherent in any subsidy
that has the potential to cause price-related effects, and that R&D subsidies are no exception. R&D
subsidies function by enabling the recipient to lower the sales price of products incorporating the
results of the subsidized research and development. 3140 Japan considers that, even assuming for
the sa ke of argument that, with respect to the aeronautics R&D subsidies at issue in this
proceeding, Boeing used the previously -subsidized technology, experience , and knowledge to
further the development of new innovative technologies (the so -called "spill -over" and sleeper
technology effects), this does not mean that the assessment of adverse effects can properly be
based on such a technology causal mechanism. 3141 For Japan, the fact that a recipient has
invented a particular technology likely reveals that it had the technological potential to do so, but
could not afford to commercially, in the absence of subsidization. 3142 In this situation, the proper
counterfactual in analysing adverse effects is whether the recipient, as a business entity, would
have had to offer products using the technology it developed without the R&D subsidies at higher
prices, rather than whether the recipient could, or could not, have invented the particular
technology.3143 Japan further observes that it is not clear what realistic steps the sub sidizing
government could take to remove the "technological effect" of R&D subsidies. However, if the
removal of adverse effects is considered from the perspective of the price effects of R&D subsidies,
it is more realistic for a subsidizing government to take appropriate steps to remove the adverse
effects, within the meaning of Article 7.8 of the SCM Agreement.3144
9.286. Korea considers that the technology causal mechanism is difficult to reconcile with the
structure of the SCM Agreement and its definition of sub sidies and that it is doubtful that such an
analysis can properly be extended to other situations in which the parties have not accepted its
use.3145 A subsidy only exists where government action takes the form of a financial contribution.
In essence, then, a subsidy always consists of extra money for the recipient. Because the essence
of a subsidy is the extra money the recipient obtains, the effects of the subsidy must be measured
by the effects of that money. Therefore, as a logical matter, the only direct effect of the provision
of money to a recipient at lower -than-market cost is a reduction in the recipient's overall cost of
financing.3146 Korea considers that the proposed technology causal mechanism presents
insuperable conceptual difficulties in cases such as this, with a product characterized by long
development times that can continue to provide multiple benefits over multiple generations. As a
practical matter, technological advantages gained in the past cannot be withdrawn and their
effects cannot be er ased. Korea fails to see how the U.S. producer in this proceeding can be
expected to unlearn the knowledge it has gained over the years, while by the same token, the
benefits of any continuing subsidies would not be reflected for many years, when the knowl edge
generated today is actually put to use. By contrast, money obtained through improper subsidies
can be repaid or otherwise offset through taxes or other levies; the financial effects of a subsidy
are quantifiable and remediable. The technological effec ts are not. Korea therefore considers that
the assessment of adverse effects through a technological mechanism should be carefully
circumscribed, if not entirely rejected.3147
9.287. The parties' arguments raise two basic issues. Th e first is whether the post -2006
aeronautics R&D subsidies relieve Boeing from paying to licence intellectual property in its

3139 United States' comments on the European Union's response to Panel question No. 43,
paras. 257-259.
3140 Japan's third-party submission, paras. 10 and 11.
3141 Japan's third-party submission, para. 12.
3142 Japan emphasizes in this respect the positive externalities of R&D subsidies, and that R&D subsidies,
by their nature, can be distinguished from those that provide a competitive advantage to inefficient
enterprises. Indeed, R&D subsidies are meaningless unless the recipient has the requisite internal
competencies to achieve the desired result. (Japan's third-party submission, paras. 21-23).
3143 Japan's third-party submission, para. 14; third-party statement, paras. 24-26.
3144 Japan's third-party submission, para. 16.
3145 Korea's third-party submission, para. 25.
3146 Korea's third-party submission, paras. 25-27.
3147 Korea's third-party submission, paras. 29 and 30.

technology development activities and thus can be considered to lower Boeing's costs. 3148 The
second is whether, if the Panel accepts that characterization of the oper ation of the subsidies,
these subsidies have been demonstrated to affect Boeing's LCA pricing behaviour.
9.288. With respect to this second issue, we recall that in Section 9.3.2.2.2 above, we evaluate
the European Union's argument that certain state and local cash flow subsidies provide Boeing with
additional cash flow because they are linked to (and lower) Boeing's costs of researching,
developing or producing LCA. We f ind that the European Union ha s failed to demonstrate that
these subsidies, by virtue of operating to increase Boeing's overall cash flow, have a genuine
causal link to Boeing's LCA pricing. This is because the European Union does not provide any
theoretical or other basis (such as cash flow constraints) for considerin g that Boeing's LCA pricing
behaviour would have been any different absent the subsidies. The European Union's argument
regarding Boeing's incentives to apply the alleged cost savings represented by the post -2006
aeronautics R&D subsidies to lower pricing of its LCA parallels the argument it makes in this regard
in relation to the state and local cash flow subsidies. This argument must therefore fail for the
same reasons that we find that the European Union ha s failed to demonstrate that Boeing would
use the additional cash flow represented by the state and local cash flow subsidies to lower its LCA
prices.
9.289. It is therefore unnecessary for us to address the first issue, which is whether the post-
2006 aeronautics R&D subsidies should be analysed as representi ng additional cash flow to Boeing
on the basis that they relieve Boeing from paying to licence intellectual property in its technology
development activities and thereby lower Boeing's costs. We merely observe that the vast majority
of the post-2006 aeronautics R&D subsidies do not appear, on the basis of the evidence before us,
to be related in any sense to the production of the particular LCA that the European Union alleges
are being offered to customers at lower prices. 3149 At most, these subsidies could relate to the
development technologies for potential application of future generations of Boeing LCA.
9.290. Because the European Union has failed to demonstrate any effect of the post -2006
aeronautics R&D subsidies on Boeing's prices of the 787 or 777X in the pos t-implementation
period (assuming, arguendo, that we treat these subsidies as relieving Boeing from paying to
licence intellectual property in its technology development activities, and thus as subsidies that
lowered Boeings' costs, an issue we need not and do not decide), the possibility of any consequent
impact of those subsidies on sales and prices of the A350XWB does not arise. 3150 Accordingly,
there is no basis on which the post -2006 aeronautics R&D subsidies can be found to be a genuine
and substantial cause of any of the forms o f serious prejudice alleged in respect of the A350XWB
in the post-implementation period, through a price causal mechanism.
9.291. The Panel therefore finds that the European Union has failed to establish that the
post-2006 aeronautics R&D subsidies are a genuine and substantial cause of any of the
forms of serious prejudice alleged in respect of the A350XWB in the
post-implementation period, through a price mechanism.

3148 Alternatively, whether for aeronautics R&D that Boeing would have undertaken in the absence of the
subsidies, the full amount of the financial contributions should be treated as "cost savings" to Boeing.
3149 For the vast majority of the post-2006 aeronautics R&D subsidies, the European Union indicates that
the subsidies concern technologies that are not yet sufficiently mature for application to current Boeing LCA.
These subsidies therefore do not bear any relation to expenditures associated with Boeing's current LCA
offerings. The European Union alleges that a relatively small number of individual post-2006 aeronautics R&D
subsidies are in fact related to Boeing's development of innovative technologies for current LCA offerings, i.e.
the non-flight testing portion of the FAA aeronautics R&D subsidy, which the European Union requests the
Panel to analyse as operating through a technology causal mechanism based on their contribution to Boeing's
development of innovative technologies for current LCA offerings, specifically the 787, 737 MAX, and 777X. As
regards this subsidy, the European Union argues in the alternative that it be considered to operate through a
price causal mechanism.
3150 See paras. 9.116 and 9.122 above.

9.3.2.2.4 Summary of conclusions on whether the post -2006 subsidies benefiting the
787 and 777X cause serious prejudice to the interests of the European Union, within the
meaning of Articles 5(c) and 6.3, in respect of the A350XWB in the post-implementation
period, through a price causal mechanism
Tied tax subsidies
9.292. The Panel recalls that the Appellate Body in the original proceeding emphasi zed the nature
of the tied tax subsidies as tied to the production and sale of LCA on a per -unit basis in reaching
the conclusion that subsidies of this nature a re capable of affecting Boeing's pri cing decisions with
respect to the relevant LCA. The Appellate Body reasoned that, given the nature of the tied tax
subsidies, their operation over time, their magnitude, and the competitive conditions in the LCA
markets, Boeing had the ability and incenti ve to lower its LCA prices, however it would be
necessary to establish that (a) Boeing was under particular pressure to reduce its prices in order to
secure LCA sales in particular sales campaigns and (b) there were no other non -price factors that
explained Boeing's success in obtaining the sale, in order to conclude that the subsidies
contributed in a genuine and substantial way to the lowering of Boeing's prices. T he Appellate
Body therefore considered that it would only be possible to reach a conclusion regarding the causal
connection between the tied tax subsidies and Boeing's prices by examining the sales campaign
evidence.
9.293. Following the approach of the Appellate Body to the analysis of the tied tax subsidies, t he
Panel has evaluated the sales campaign evidence submitted in relation to sales campaigns won by
Boeing with the 787 and/or 777X at the expense of the A350XWB between 2007 and 2015 and
which are argued to be evidence of significant lost sales of the A350XWB, as well as impedance of
A350XWB imports and exports, and significant price suppression of the A350XWB, and threats of
the foregoing, in each case an effect of the U.S. subsidies. In doing so, it sought to determine
whether the campaigns are price-sensitive, in the sense that Boeing was under particular pressure
to reduce its prices in order to secure LCA sales in particular sales campaigns and there were no
other non-price factors that explain Boeing's success in obtaining the sale. The Panel concluded
that none of the sales campaigns involvin g the 787 and 777X and the A350XWB were price-
sensitive in the above sense, and that there were other factors that featured prominently in the
customers' evaluations of the suitability of the competing offers and the objective evidence on the
record explai ning the reasons why the customer chose to order the Boeing aircraft over the
competing Airbus offering. Accordingly, the European Union has failed to establish that the tied tax
subsidies are a genuine and substantial cause of any of the forms of serious prejudice alleged by
the European Union in respect of the A350XWB in the post -implementation period through a price
causal mechanism.
State and local cash flow subsidies
9.294. Unlike the tied tax subsidies, Boeing's receipt of the state and local cash flow subsidies is
not contingent on the production or sale of LCA on a per -unit basis. Therefore, rather than
operating to directly reduce the marginal unit costs of each Boeing LCA, the state and local cash
flow subsidies represent additional untied cash to Boeing . The European Union asserts that the
state and local cash flow subsidies reduce Boeing's fixed costs of production. However, it does not
demonstrate that any particular subsidy affects the programme costs for any specific Boeing LCA
programme, in the sens e that the subsidies in question affect Boeing's production cost forecasts
for an LCA programme, and thereby alter the profitability calculus of sales of those LCA at
particular prices.
9.295. The Panel does not consider that asserted factual "links" between the receipt of a subsidy
and the production of LCA mean that the subsidies thereby have a genuine causal relationship to
Boeing's prices, and to consequent effects on Airbus' sales and prices. The Appellate Body's finding
in relation to the tax abatements rela ted to the City of Wichita IRBs was a factual determination
made in the context o f completing the analysis . The Panel does not interpret what the Appellate
Body said in the particular context of cumulating the effects of the tax abatements related to the
City of Wichita IRBs with the effects of the tied tax subsidies in the 100 -200 seat LCA product
market, as part of completing the analysis, as setting forth an economic theory or legal rulin g
regarding the basis on which untied subsidies, through their impa ct on the recipient's pricing
behaviour, should be considered to be a genuine cause of serious prejudice. Moreover, in asserting
generally that certain state and local cash flow subsidies can be considered "linked" to multiple

Boeing LCA models (as is the case for the Washington state and local cash flow subsidies), the
European Union does not explain how much of the subsidy should be considered to be allocated to
each aircraft model, based on such "link".
9.296. The European Union does not advance an economic theory to support its argument that
subsidies that reduce Boeing's fixed costs in a general sense impact its LCA prices generally or
more specifically, over the short -term or over the long -term. Nor does it attempt to demonstrate
that Boeing's LCA pricing wo uld not be economically feasible absent the receipt of the state and
local cash flow subsidies.3151
9.297. Accordingly, the European Union has failed to establish that the state and local cash flow
subsidies are a genuine and substantial cause of any of the forms o f serious prejudice al leged by
the European Union in respect of the A350XWB in the post -implementation period through a price
causal mechanism.
Post-2006 aeronautics R&D subsidies
9.298. The European Union has failed to establish that the post-2006 aeronautics R&D subsidies,
assuming for purposes of argument that the post -2006 aeronautics R&D operate in the same
manner as the state and local cash flow subsidies , are a genuine and substantial cause of any of
the forms of serious prejudice alleged by the European U nion in respect of the A350XWB in the
post-implementation period through a price causal mechanism.
9.3.3 The parallel argument: Whether the original serious prejudice caused by the pre-
2007 aeronautics R&D subsidies in respect of the A330 and Original A350 cont inues in
the post -implementation period as serious prejudice t o the interests of the
European Union in respect of the A330 and A350XWB
9.299. In this Section, we address the European Union's parallel argument that the United States
has failed to take appropriate steps to remove the adverse effects , within the meaning of
Article 7.8, because each of: (a) the significant price suppression of the A330 and Original A350;
(b) the significant lost sales of the Original A350; and (c) the threat of displacement or impedan ce
in the 200-300 seat LCA product market, found to exist in the 2004 -2006 reference period in the
original proceeding, continues to exist in the post-implementation period.
9.300. The European Union argues that the United States has failed to remove the significant
price suppression of the A330 on a number of grounds. 3152 First, some of the 2004 -2006
price-suppressed orders of the A330 have yet to be delivered in the post -implementation period.
Second, customers who placed orders of the A330 at suppressed prices in 2004-2006 have
exercised options or purchase rights in respect of those price suppressed orders (and based on the
same pricing), enabling them to buy more A330s at the same suppressed prices. Third, those
same customers, after 2006, have made "follow -on or ders" influenced by the same low pricing
expectations that Airbus had met in 2004 -2006 in respect of 17 out of 28 of the original
2004-2006 customers. In addition, the European Union argues that, after 2006, the market
became conditioned to expecting lower prices for A330s and has never changed that view. In other
words, the pricing expectations of all customers, not just those who benefited from price
suppressed sales in 2004-2006, have been adversely affected and this phenomenon continues into
the post-implementation period.3153

3151 The evidence before the Panel suggests that Boeing has thus far been able to sustain the significant
"deferred production costs" associated with the 787 programme due to the cash generated by its highly
profitable 777 and 737 programmes. See above para. 9.55.
3152 The European Union rejects the argument of the United States that its claim of price suppression in
respect of the A330 must fail as a matter of law because of its position that the A330 is in a separate market.
(European Union's second written submission, para. 1459). The European Union argues that the omission, from
the second part of Article 6.3(c) of the SCM Agreement, of the requirement that the "subsidized product" and
the "like product" be in the same market, means that significant price suppression, price depression, and lost
sales may be established where the effects of a subsidy arise in a product market separate from the product
market in which the subsidized product competes. (European Union's response to Panel question No. 40,
paras. 229-250; comments on the United States' response to Panel question No. 40, paras. 233-247).
3153 European Union's first written submission, paras. 1226-1265; second written submission,
paras. 1453-1462.

9.301. The European Union bases its arguments that the United States has failed to remove the
significant price suppression of the Original A350 on what it alleges is significant price suppression
of the A350XWB in the post -implementation period. In essence, the European Union argues that
the significant price suppression of the Original A350 that was found to exist in 2004 -2006
continues in the post -implementation period through deliveries of A350XWBs that were
conversions (at suppressed prices) of orders for Original A350s that were placed in 2004-2006.3154
9.302. The European Union considers that the United States has failed to remove the significant
lost sales of the Original A350 because those lost sales continue in the post-implementation period
as lost sales of the A350XWB through deliveries of 787 orders placed in the nine sales campaigns
that the European Communities alleged were significant lost sales to Airbus over the 2004 -2006
period in the original proceeding.3155 The European Union also alleges that any options or purchase
rights that were part of these orders, when "firmed up", also lead to a threat of significant lost
sales. The European Union similarly treats these nine alleged lost sales of the Original A350 in the
2004-2006 period as impe ded exports of the A350XWB in the post -implementation period where
deliveries of the 787 from those lost sales are occurring in the post -implementation period.
Accordingly, the European Union considers that the United States has failed to remove the threat
of displacement and impedance found to exist in the original proceeding.3156
9.303. With respect to the alleged continuing significant price suppression of the A330 , the
United States argues that the European Union fails as a legal matter to establish one of the ba sic
elements of a price suppression claim under Article 6.3(c) because the European Union's argument
that the A330 is in a "monopoly" market for "existing technology, small wide -body aircraft that are
available for near -term delivery" means that the A330 i s not in the same market as any Boeing
aircraft.3157
9.304. The United States argues that the European Union is precluded from arguing that the
United States has failed to remove the significant price suppression of the Original A350 on the
basis of alleged signifi cant price suppression of the A350XWBs currently being delivered (as a
result of converted orders of Original A350s). The United States considers that the original panel
rejected the argument that suppression of Original A350 prices necessarily led to supp ression of
A350XWB prices when the orders were converted. It also disputes that Airbus had no choice but to
convert the Original A350 orders to A350XWB orders at the same price. However, even if the
European Union were correct that Airbus had no choice but to convert the Original A350 orders to
A350XWB at lower prices to avoid cancellation and penalty fees, this is not an effect of the pre -
2007 aeronautics R&D subsidies.3158
9.305. As to the alleged continuing significant lost sales of the Original A350 as significant lost
sales of the A350XWB in respect of deliveries in the post -implementation period of 787s ordered
out of those lost sales campaigns, the United States argues that the European Union cannot turn
what were found in the original proceeding to be lost sales of the Original A350 into lost sale s of
the A350XWB in the compliance proceeding. The United States also argues that five of the LCA
sales campaigns at issue in the original proceeding cannot be the basis of lost sales claims in this
proceeding because they were rejected as lost sales in the origi nal proceeding and the
European Union did not appeal those panel findings. Even if the Panel in this proceeding did
"reassess" those alleged lost sales cases, it would conclude as it did in the original proceeding, that
there were other factors besides the subsidies that explained the outcomes of those campaigns.
Similarly, original findings based on impedance of exports of A330 and Original A350 aircraft
cannot be the basis for impedance findings regarding the A 350XWB. Moreover, five of the nine
sales campaigns at issue in the original proceeding were found not to be lost sales (findings the

3154 European Union's first written submission, paras. 1277-1289; second written submission,
paras. 1465-1481.
3155 European Union's first written submission, paras. 1337-1406; second written submission,
paras. 1204-1255.
3156 European Union's first written submission, paras. 1569, 1570, 1586-1588, 1590, 1591, 1594-1597,
1602, 1604, 1605, 1608, and 1609; second written submission, paras. 1532-1550, 1554-1559, and
1567-1573.
3158 United States' first written submission, paras. 830-831; second written submission, paras. 939-945.

European Union did not appeal) and therefore cannot support arguments of displacement of
exports in this proceeding.3159
9.306. Canada argues that the European Union's claims regarding the continuation of adverse
effects in the form of price suppression and lost sales should fail because it is not sufficient for the
European Union to establish that current and future deliveries are rela ted to orders placed during
the original reference period. Rather, the European Union must establish that these Boeing
deliveries and their negative effects on Airbus (lost sales and price suppression) are attributable to
the presence of subsidies at the e nd of the implementation period. The European Union fails to
conduct a proper counterfactual analysis to establish that the situation would have been different
in the absence of the subsidies at the end of the implementation period.3160
9.307. We note that an impor tant element of the European Unio n's arguments that the
United States has not removed the effects of the past serious prejudice in respect of the A330 and
Original A350, because that serious prejudice continues in the post -implementation period, is the
idea that serious prejudice continues to exist until the relevant LCA is delivered . In support of this
view, the European Union relies on the original panel's observation that the phenomena of price
suppression and lost sales do not begin and end at the time an LCA is ordered but continue up to
and including the time at which the aircraft is delivered (or not delivered):
In the Panel's view, the phenomena of "price suppression" and "lost sales" do not
begin and end at the time at which an LCA is ordered. Rath er, given the particularities
of LCA production and sale, these forms of serious prejudice should be understood to
begin at the time at which an LCA order is obtained (or an order is lost), and to
continue up to and including the time at which that aircraf t is delivered (or not
delivered). However, the Panel considers that the ordinary meaning of the terms
"imports" and "exports" in Articles 6.3(a) and (b) of the SCM Agreement, respectively,
suggests that these forms of serious prejudice arise only on deliv ery of the aircraft to
the customer.3161
Because we regard price suppression and lost sales to exist from the time an order for
LCA is made, up to and including its delivery, data pertaining to both LCA orders and
to LCA deliveries will potentially be releva nt to demonstrating the existence of
significant price suppression and significant lost sales. As regards displacement and
impedance or imports or exports, the Panel considers that the existence of these
serious prejudice phenomena can only be definitely e stablished by relevant delivery
data. 3162
9.308. We note that the relevant paragraphs of the panel report explaining the findings of
significant price suppression and lost sales suffered by Airbus in the 200 -300 seat LCA product
market do not explicitly mention the idea that price suppression and lost sales begin at the time of
an order and continue up to and including the delivery of an aircraft, which suggests that these
findings were made with respect to orders only. 3163 The European Union contends that, in respect
of "sales of A330 family LCA to customers that placed orders during the original 2004 -2006
reference period", "{t}he original panel found that, for those sales, the significant price
suppression continued from the initial order through each of the aircraft deliveries".3164 Actually,
no explicit statement to that effect appears in the panel report. The only discussion of the role of
deliveries appears in the context of the panel's finding that lost sales of A330 and Original A350

3159 United States' first written submission, paras. 845-868; second written submission, paras. 999-1034
and 1131-1186.
3160 Canada's third-party submission, para. 41.
3161 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1685.
3162 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1686. (fn omitted)
3163 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1781-7.1788.
3164 European Union's first written submission, para. 1231 (emphasis omitted). We note that with regard
to the panel's findings of significant price suppression and significant lost sales in the 100 to 200 seat LCA
product market, the Appellate Body noted that it was "uncertain whether the Panel was referring to orders, or
to deliveries, or whether it was referring to such orders or deliveries occurring inside or outside the reference
period". (Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1222).

LCA constituted evidence of a t hreat of displacement or impedance of exports from certain third
country markets.3165
9.309. Moreover, the Appellate Body made findings of significant price suppression and lost sales
solely based on orders without referring to deliveries. Following its reversal of the panel's findings
of significant price suppression and significant lost sales in the 100 to 200 and 300 to 400 seat LCA
product markets3166, the Appellate Body proceeded to complete the analysis through an analysis of
evidence related to specific sales ca mpaigns. The Appellate Body made no reference to the role of
deliveries in this regard.3167
9.310. Thus, it is somewhat unclear whether and, if so, how the idea that price suppression and
lost sales "exist from the time an order is made, up to and including its del ivery" is reflected in the
actual findings of significant price suppression and lost sales made in the original proceeding. More
importantly, however, we consider that the European Union's reliance on this idea as a basis for a
finding that the United Stat es has failed to take appropriate steps to remove the adverse effects
reflects an interpretation of Article 7.8 that we find problematic. Moreover, we consider that
certain factual arguments of the European Union in support of its claim that the particular adverse
effects found to exist in the original proceeding have continued into the post -implementation
period are contradicted by the evidence before us and/or inconsistent with the findings made in
the original proceeding.
9.311. We consider that the European Union's approach poses the following problems with respect
to the interpretation of Article 7.8 of the SCM Agreement.
9.312. First, the European Union's argument involves an assumption that the phrase "take
appropriate steps to remove the adverse effects" in Artic le 7.8 must be interpreted to mean that a
Member found to be granting or maintaining an actionable subsidy is obligated to ensure that the
particular adverse effects found to exist in respect of the specific transactions during the original
reference period cease to exist in respect of those same transactions .3168 We doubt whether such
an interpretation of "remove the adverse effects" is meaningful in a practical sense. It is not clear,
for example, how it is possible in practice for a Member to take steps to ensure that significant
price suppression found in relation to specific transactions during the original reference period
does not continue in respect of those same transactions in the post-implementation period or that
a significant lost sale found in the original reference period in respect of a specific transaction does
not continue to constitute a lost sale in respect of that transaction in the post -implementation
period. The European Union never explains what kind of action the United States could have taken
with respect to that undelivered aircraft that would have removed the "present" adverse effects.
9.313. Second, the idea that "to take appropriate steps to remove the adverse effects" entails an
obligation to ensure that adverse effects must be "removed" from the specific transactions that
formed the basis for the adverse effects findings in the original proceeding is also difficult to
reconcile with the prospective interpretation of Article 7.8. 3169 The European Union has explicitly
endorsed such a prospective reading of Article 7.8, arguing that "{t}he removal of adverse effects
does not refer to the removal of adverse effects in the past. It refers to the withdrawal of adverse
effects in the sense of ensuring that there are no adverse effects arising in the new reference
period".3170 In our view, the European Union has not explained how the "historic" aspect of its
claim of present adverse effects in relation to the A330 and the A350XWB is consistent with this
prospective approach to the interpretation of Artic le 7.8. In our view, to interpret "to take
appropriate steps to remove the adverse effects" to mean "ensuring that no adverse effects arise
in the new reference period", is very different from interpreting this phrase to mean that a Member

3165 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1791.
3166 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1249.
3167 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 1262-1274.
3168 See e.g. European Union's first written submission, paras. 1330 ("the United States has failed to
remove the adverse effects from those 787 sales that were found in the original proceedings to be caused by
the subsidies"), 1331 ("{t}he United States has failed to remove the adverse effects associated with each of
these sales"), 1339 ("{b}elow, the European Union demonstrates that the United States has not removed the
adverse effects related to these significant lost sales at Qantas, Ethiopian Airlines, Icelandair and Kenya
Airways. These sales constitute present significant lost sales to the extent that deliveries flowing from those
sales remain outstanding.")
3169 See Section 6.3 above.
3170 European Union's first written submission, para. 49. (emphasis added)

is obligated "to remove the adverse effects associated with each of {the} sales" 3171 that were
found to be lost sales in the original proceeding.
9.314. We disagree, in this regard, with the notion that where aircraft the subject of a past order
found in the original proceeding to be a lost sale are undelivered at the time of the expiry of the
implementation period, this is a "present" adverse effect. The European Union appears to consider
that the fact that aircraft will be delivered in the post -implementation period means that th ere is
an "adverse effect arising in the new reference period". 3172 In our view, the fact that aircraft are
undelivered after the expiry of the implementation period is not a "present" adverse effect arising
in the post-implementation period but a consequence or manifestation of an event that occurred in
the past. Because of the inherent relationship between orders and deliveries, we fail to see how
the United States could have taken any steps with respect to outstanding deliveries without
retroactively affect ing the underlying orders. More generally, we consid er that the
European Union's "historic" case essentially attempts to show present adverse effects on the basis
of phenomena that are not effects that presently arise from subsidies granted or maintained a t
"present" but are more accurately described as continuing manifestations or effects of past
adverse effects. In our view, to interpret Article 7.8 to mean that a Member is obligated to remove
the "effects of adverse effects" of subsidies granted in the p ast is in contradiction with the
prospective interpretation of that provision.
9.315. In addition to these legal and conceptual problems, we find that the European Union's
argument that the adverse effects , in the form of certain kinds of serious prejudice withi n the
meaning of Articles 5(c) and 6.3, found to exist in the original proceeding in respect of particular
transactions in the 200 -300 seat LCA product market , continue into the post -implementation
period, is in several respects contradicted by the evidenc e before us and/or inconsistent with
relevant findings made in the original proceeding.
9.316. Regarding the alleged continuation of serious prejudice in the form of significant price
suppression of A330 LCA3173, we recall that as support for its argument that foll ow-on orders by
airlines that had purchased A330s at significantly suppressed prices in 2004 -2006 were also made
at significantly supressed prices, the European Union relies on the average A330 pricing trend
during the period 2001 -2012 and on a comparison of average prices of follow -on orders by those
airlines during the period 2007 -2012 with average price s of A330 orders paid by all other
customers in that period.3174

3171 See fn 3168 above.
3172 The European Union states, for example, in respect of aircraft the subject of orders found to be lost
sales in the original proceeding that "{t}o the extent they remain undelivered, they represent present adverse
effects to the European Union in the form of significant lost sales to the EU LCA industry that the United States
has failed to remove". (European Union's first written submission, para. 1342).
3173 We do not consider that, as argued by the United States, the European Union's argument that the
A330 is now in a monopoly market means that the European Union has failed to make a prima facie case
because it has not established that the A330 is "in the same market" as any Boeing aircraft. The
European Union's claim of significant price suppression in relation to the A330 is not based on the existence of
current competition between the A330 and any subsidized Boeing aircraft. The European Union's case with
respect to the A330 is that the 2004-2006 adverse effects experienced by the A330 have "lingered" and that
the A330 continues to experience price suppression as a result. The European Union's argument is that "much
of the present significant price suppression is a continuation or extension of significant price suppression that
arose in the 2004-2006 period, when the products were in the same product market". (European Union's
response to Panel question No. 170, para. 557). According to the internal logic of the European Union's case,
the A330 may have moved into a different market from the 787 but the "lingering" effects of the original
serious prejudice caused by the 787 when the A330 and the 787 were in the same market continue regardless.
Therefore, because of this particular causation theory relied upon by the European Union, it is possible for the
European Union's claim to be sustained even if the A330 currently exists in its own market. Thus, there is no
basis to find that by asserting that the A330 is in a market of its own, the European Union has failed to make a
prima facie case under Article 6.3(c) of the SCM Agreement.
3174 European Union's first written submission, paras. 1242-1246. The European Union asserts that the
average A330 family price trend supports the conclusion that Airbus [***], even though Airbus' input costs
have increased steadily over the 2005-2012 period. (European Union's first written submission, paras. 1244
and 1245). The European Union asserts that the comparison of average prices of follow-on orders with average
prices of orders of A330s to other customers during the period 2007-2012 shows that average prices for the
follow-on orders [***] and that, while average prices for both sets of customers [***], average prices for
follow-on orders by customers that ordered A330s in 2004-2006 [***] than orders by other customers.
(European Union's first written submission, para. 1246).

9.317. As noted above, the European Union also argues that the pre -2007 aeronautics R&D
subsidies c ause significant price suppression with respect to post -2006 orders (and related
deliveries) of A330s to all customers other than those that purchased A330s in the original
reference period.3175 The European Union asserts that this is supported by evidence sh owing that
the average indexed pricing of A330 family orders [***] notwithstanding that Airbus made
substantial investments in the A330 since 2004 to improve its performance and faced steadily
rising input costs. 3176 The European Union argues that the fact th at Airbus was unable to [***]
A330 prices was the effect of the pre-2007 U.S. aeronautics R&D subsidies.3177
9.318. We note that the pricing data that the European Union presents in support of its argument
that significant price suppression of the A330 found to exi st in the original reference period has
continued into the post -implementation period only covers the period up to 20123178 and was not
updated to cover the post -implementation period. Although in October 2015 the Panel requested
the European Union to update the data on which it relied to substantiate its serious prejudice case,
the European Union did not update much of the data on which it relies to demonstrate that the
A330 has suffered significant price suppression in the post-implementation period.3179
9.319. In any case, much of that data is directed to an argument that A330 prices have never
recovered to their 2003 highs, and that therefore "something" is holding down A330 prices.
However, it is not clear to us why Airbus could have legitimately expected A330 pric es to ever
"recover" to their pre -2004 levels, when the A330 was the technological market leader, given the
reality that since then, the 787 and A350XWB have changed the competitive dynamics of this
market. The A330 still has a place in the market and its sales still appear robust, but there is no
reason to think it could command the sort of price it once did.
9.320. Finally, we note that data presented by the United States demonstrates that there is no
correlation in price movements between the A330 and the 787. Specifically, [***].3180
9.321. Thus, even setting aside the problems with the European Union's A330 price suppression
arguments that arise due to the "historic" nature of its case 3181, we find that the European Union
has failed to empirically demonstrate that the A33 0 is suffering significant price suppression in the
post-implementation period.3182
9.322. Regarding the European Union's argument that price suppression found to exist in the
original proceeding continues into the post -implementation period as significant price suppression
of the A350XWB3183, we are of the view that this argument is in contradiction with the fact that the
price suppression that occurred in 2004 -2006 was price suppression of a different aircraft, the

3175 See para. 9.300 above.
3176 European Union's first written submission, paras. 1247-1250.
3177 European Union's first written submission, paras. 1252-1264.
3178 European Union's first written submission, paras. 1245 (figures 2 and 3), 1246 (figure 4), and 1250
(figures 5 and 6).
3179 European Union's response to Panel question Nos. 169 and 170. The European Union provided
information on the post-2012 evolution of average A330 prices. However, it did not update the data presented
in its first written submission concerning the discrepancy in the evolution of A330 average pricing and
Airbus' input costs and the data on A330 prices in 2007-2012 in follow-on orders by customers who ordered
A330s in 2004-2006 compared with A330 prices paid by new customers in that period.
3180 United States' comments on European Union's response to Panel question Nos. 169 and 170,
para. 203.
3181 See paras. 9.311-9.314 above.
3182 The empirical problems with the European Union's price trend data are discussed in further detail in
Section 9.4.3.1.4 below in connection with the Panel's evaluation of the European Union's claims of significant
price suppression of the A320neo and A320ceo. A number of the problems identified in that Section regarding
the price trend data for the A320neo and A320ceo apply equally to the European Union's price trend data for
the A330. First, since a claim of significant price suppression requires establishing where prices would have
been in the absence of the subsidies, price trend data alone is not sufficient to demonstrate the existence of
this market phenomenon; it is also necessary to present counterfactual argumentation demonstrating that, in
the absence of the subsidies, prices would have been higher (see paras. 9.450 through 9.462 below for further
explanation). Second, we consider that the European Union cannot rely on sales campaigns that Boeing won to
substantiate its claims that Airbus LCA prices were suppressed (see 9.457 through 9.460 below for further
explanation). Third, the European Union ultimately appears to repudiate its own price trend data on the basis
of methodological flaws (see paras. 9.463 and 9.464 below for further explanation).
3183 European Union's first written submission, paras. 1277-1289; second written submission,
paras. 1465-1481; response to Panel questions Nos. 152, paras. 10 and 11, and 170, paras. 559-563.

Original A3503184 and that the original panel rejected the European Union's argument that the price
suppression of the Original A350 would necessarily lead to price suppression of the A350XWB
when the orders were converted.3185
9.323. We consider that the European Union's argument that the serious prejudice, in the form of
significant lost sales found to exist in the original reference period , continues into the
post-implementation period as significant lost sales of A350XWB is inconsistent with the findings
made in the original proceeding in that, first, the original pan el made findings of significant lost
sales in respect of the A330 and Original A350, not the A350XWB and, second, the European Union
relies on several sales campaigns in respect of which no findings of significant lost sales were
actually made in the original proceeding.
9.324. First, the original panel found, with respect to four sales campaigns, that, but for the
effects of aeronautics R&D subsidies that had contributed in a genuine and substantial way to
Boeing's development of technologies for the 787, "Airbus would have made additional sales of the
A330 and Original A350 over the same period, and to that extent, would not have suffered
significant lost sales in the 200 -300 seat wide -body LCA product market, within the meaning of
Article 6.3(c) of the SCM Agre ement".3186 Thus, the relevant findings of lost sales made in the
original proceeding pertained to the A330 and Original A350.
9.325. The European Union argues in this proceeding that the United States has failed to
"remove{} the adverse effects related to these si gnificant lost sales at Qantas, Ethiopian Airlines,
Icelandair and Kenya Airways" because "{t}hese sales constitute present significant lost sales to
the extent that deliveries flowing from those sales remain outstanding". 3187 The European Union
makes this argument as support for its claim that "the US subsidies benefiting Boeing's 787 family
LCA presently cause present adverse effects, in the form of significant lost sales of A350XWB
family LCA". 3188 In other words, the European Union effectively argues that the significant lost
sales that it alleges have continued to exist at present because the aircraft remain undelivered are
significant lost sales of the A350XWB rather than of the A330 and A350 in respect of which the
findings of significant lost sales were ma de in the original proceeding. The European Union does
not request the Panel to make a finding of present adverse effects in the form of significant lost
sales to the A330 and Original A350. In our view, the European Union has not provided a
convincing explanation as to why "it is irrelevant whether or not the 787 orders found to be lost
sales in the original reference period are lost sales for the A350XWB, rather than the A330 or
Original A350".3189 The lost sales, which according to the European Union's theo ry that lost sales
continue until the aircraft are delivered, the United States failed to remove as a result of the fact
that the deliveries of the Boeing 787 remained outstanding at the expiry of the implementation
period, were lost sales of A330 and Orig inal A350 aircraft. There is no logical basis to now treat
those lost sales as lost sales of A350XWB LCA. We do not see how the fact that the 787 and the

3184 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1792.
3185 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1793.
3186 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1794; see also para. 7.1786. The
Appellate Body discussed this panel finding at paragraphs 1056-1063 of its report.
3187 European Union's first written submission, para. 1339.
3188 European Union's first written submission, para. 1329.
3189 European Union's second written submission, para. 1207:
However, for the US failure to remove the adverse effects, it is irrelevant whether
or not the 787 orders found to be lost sales in the original reference period are lost
sales for the A350XWB, rather than the A330 or Original A350. Instead, when the
subsidies caused the airlines to order these 787 aircraft under conditions of
competition contemporaneous wi th the original reference period , these orders
represented lost sales to the A330 or Original A350, as these were the Airbus
aircraft that competed with the 787 in the same product market at that point in
time. That the 787 competes in the same product mar ket with the A350XWB under
present conditions of competition does not alter the fact that, under conditions of
competition contemporaneous with the original reference period, the original panel
and the Appellate Body found that Airbus suffered lost A330 an d Original A350
sales to the 787. With its argument, the United States ignores the findings in the
original proceedings, which served as the basis for the DSB's recommendations
and rulings.
(emphasis original)
See also European Union's second written submission, para. 1209.

A350XWB now compete in the same product market 3190 can alter the fact that at the time the 787
sales were made, they caused lost sales of the A330 and Original A350, not the A350XWB , which
had not even been launched at that time.
9.326. Therefore, even assuming that, in light of the panel's observation that lost sales "continue
up to and including the time at which that aircraft is delivered", sales of Boeing 787 that were
found to be lost sales in respect of Airbus LCA in the original proceeding should be considered to
give rise to present serious prejudice where the aircraft have not been delivered, there is no bas is
to find any such present serious prejudice in relation to the A350XWB.
9.327. Second, the European Union relies on the notion that adverse effects in the form of
significant lost sales continue where the aircraft remain undelivered not only with regard to the
sales campaigns that resulted in findings of lost sales but also in relation to certain sales
campaigns in respect of which the Panel in the original proceeding found that the aeronautics R&D
subsidies at issue were not a cause of lost sales to Airbus. 3191 The original panel found that in ten
sales campaigns 3192, including the five sales campaigns that the European Union treats as
"additional significant lost sales in the original reference period" 3193, "factors other than the
performance characteristics of the 787 over the A330 or Original A350, and the 2008 delivery date
for the 787, played a significant part in the Boeing sale".3194
9.328. The European Union submits with respect to these additional lost sales that the claim it
presented in the original proceeding "remains unresolved". While the Appellate Body found that
the original panel erred in not cumulating the price effects of the B&O tax rate reductions with the
technology effects of the aeronautics R&D subsidies in causing significant lost sales 3195 and also
clarified the causation standard in a way that implies that the non -subsidy factors identified by the
original panel as having contributed to the 787 sales at issue cannot be the basis for vitiating a
genuine and substantial causal link 3196, the Appellate Body found i tself unable to complete the
analysis.3197 The European Union argues for each of these additional sales that "to the extent
deliveries remain outstanding, these 787 sales constitute present significant lost sales, and that
the US subsidies are a genuine and s ubstantial cause thereof", including follow -on orders and
option exercises resulting from those sales.3198
9.329. We consider that the European Union is factually incorrect when it argues that the matter
was left unresolved because the Appellate Body did not complete the analysis.3199 Indeed, as noted
by the United States3200, these sales campaigns were not left unresolved: the panel's finding in the
original proceeding that these sales campaigns were not lost sales attributable to the subsidies
was not appealed. The Appe llate Body found that the original panel erred in assuming that
different causal mechanisms precluded cumulation of two aggregated groups of subsidies.
However, contrary to the European Union's assertion, the Appellate Body did not find that
subsidies with a technology and price causal mechanism should be cumulated. The Appellate Body
did not attempt to complete the analysis because the European Union did not request it to do
so.3201 Since no findings of lost sales were made in the original proceeding in respe ct of the five

3190 European Union's second written submission, para. 1209.
3191 European Union's first written submission, paras. 1345-1406.
3192 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1786 and fn 3724.
3193 European Union's first written submission, para. 1345. Specifically, the European Union's argument
concerns the following sales campaigns: (a) All Nippon Airways (2004, 2009 and 2012); (b) Japan Airlines
(2005, 2007 and 2012); (c) Air Canada (2005 and 2007); (d) Continental Airlines (2004, 2006 and 2007); and
(e) Northwest Airlines (2005). Thus, in most of these cases, the European Union includes both the orders at
issue in the original proceeding and follow-on orders.
3194 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1786 and fn 3725.
3195 European Union's first written submission, paras. 1347-1349 (referring to Appellate Body Report, US
3196 European Union's first written submission, paras. 1350 and 1351 (referring to Appellate Body
Report, US – Large Civil Aircraft (2nd complaint), para. 913).
3197 European Union's first written submission, paras. 1349 and 1351.
3198 European Union's first written submission, para. 1352.
3199 European Union's first written submission, paras. 1345, 1349, and 1351; second written submission,
para. 1212.
3200 United States' second written submission, paras. 1005-1012.
3201 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1321: "{b}y closing its mind
to such an approach, 'owing to the very different way' in which the two groups of subsidies operate and their
'entirely distinct causal mechanisms', the Panel failed to give full consideration to the possibility of cumulating

sales campaigns that the European Union treats as "additional lost sales in the original reference
period", the question of whether any lost sales have continued into the post-implementation period
on the grounds that the aircraft at issue have not been delivered does not arise.
9.330. In sum, the nine sales campaigns considered in the original proceeding upon which the
European Union relies in this proceeding to support its argument that adverse effects in the form
of lost sales found in the origi nal proceeding continue with respect to the A350XWB include four
sales campaigns in which findings of lost sales were made in respect of a product other than the
A350XWB and five sales campaigns in which no finding of lost sale was made at all.3202
9.331. Finally, in support of its argument that the serious prejudice found to exist in the original
proceeding continue s at present as serious prejudice in respe ct of the A350XWB, the
European Union also asserts that the United States has failed to remove the threat of displacement
from the Australian market because there continue to be outstanding deliveries of 787 family LCA
to Qantas under the order that formed the basis for this finding in the original proceeding.3203 First,
we have explained above that we find that this type of argument is problematic in terms of the
underlying interpretation of Article 7.8. Second, we note that the original panel based its finding of
a threat of displacement on a sales campaign involving the Original A350. 3204 There is no basis to
treat this now as a finding of a threat of displacement in respect of the A350XWB. As in the case of
the European Union's argument that serious prejudice in the form of lost sales found to exist in the
original proceeding in respect of the A330 and Original A350 c ontinues as serious prejudice in
respect of the A350XWB, we consider that the European Union does not offer a convincing reason
to explain why a particular form of serious prejudice found to exist during the original reference
period in respect of a particular aircraft should now be considered to continue to exist as a form of
serious prejudice in respect of a different aircraft.
9.332. We reject the European Union's argument that certain past serious prejudice of
the pre -2007 aeronautics R&D subsidies continue i nto the post -implementation period
as present serious prejudice in relation to the A330 and A350XWB . This is because: (a)
the European Union's reliance on the role of deliveries of aircraft in the post -
implementation period as evidence of a continuation of serious prejudice (and more
generally its theory that Article 7.8 applies to continuing effects of past adverse effects)
is inconsistent with a prospective interpretation of Article 7.8 and leads to results that
we consider to be illogical; and (b) the Eu ropean Union's arguments are unsupported by
the evidence and/or in contradiction with the findings made in the original proceeding.
9.3.4 Summary of findings on whether subsidies benefiting the 787 and 777X cause
serious prejudice to the interests of the Europea n Union in respect of the A350XWB and
A330 in the post-implementation period
9.333. As regards the European Union's main case ; i.e. whether the pre -2007 aeronautics R&D
subsidies and certain post-2006 aeronautics R&D subsidies, operating through a technology caus al
mechanism, combined with the other post -2006 subsidies operating through a price causal
mechanism, cause serious prejudice to the interests of the European Union in respect of the
A350XWB in the post-implementation period, we find as follows:
a. The Europe an Union has failed to demonstrate the existence of original technology
effects of the pre -2007 aeronautics R&D subsidies, or of so -called spill-over technology
effects or sleeper technology effects of the pre-2007 aeronautics R&D subsidies in
respect of the 787-9/10 or 777X, in the post-implementation period.

the effects of these two groups of subsidies. We therefore find that the Panel erred in failing to consider
whether the price effects of the B&O tax rate reductions complement and supplement the technology effects of
the aeronautics R&D subsidies in causing significant lost sales and significant price suppression, and a threat of
displacement and impedance, in the 200-300 seat LCA product market. The European Union does not request
us to complete the analysis on this issue." (emphasis original, fn omitted)
3202 For these reasons, we consider that these nine sales campaigns also cannot support the
European Union's argument that the lost sales found in the original proceeding constitute evidence of (threat
of) impedance of exports of A350XWB.
3203 European Union's first written submission, para. 1569.
3204 For the finding of the original panel, see Panel Report, US – Large Civil Aircraft (2nd complaint),
para. 7.1791.

b. The European Union has failed to demonstrate the existence of so-called new technology
effects of certain post -2006 aeronautics R&D subsidies in respect of the 787 -9/10 or
777X in the post-implementation period.
c. The European Uni on has failed to demonstrate any effect of the tied tax subsidies, the
state and local cash flow subsidies, or the post -2006 aeronautics R&D subsidies on
Boeing's 787 or 777X pricing in the post-implementation period.
d. Because the European Union has failed to demonstrate any effect of the pre -2007
aeronautics R&D subsidies, or of certain post -2006 aeronautics R&D subsidies, on
Boeing's product development in respect of the 787 or 777X in the post -implementation
period, there is no basis on which these subsidies can be found to be a genuine and
substantial cause of any of the forms of serious prejudice alleged in respect of the
A350XWB in the post -implementation period through a technology causal mechanism.
By the same token, because the European Union has failed to demonstrate any effect of
the post -2006 subsidies (tied tax subsidies, state and local cash flow subsidies and
aeronautics R&D subsidies) on Boeing's 787 or 777X prices in the post -implementation
period, the possibility of any consequent impact of those subsidies on sales and prices of
the A350XWB does not arise, and there is no basis on which those subsidies can be
found to be a genuine and substantial cause of any of the forms of serious prejudice
alleged in respect o f the A350XWB in the post -implementation period through a price
causal mechanism.
9.334. We also find, with respect to the European Union's parallel argument, that t he
European Union has also failed to establish that certain forms of past serious prejudice , which
were the effects of the pre-2007 aeronautics R&D subsidies, continue into the post-implementation
period as present serious prejudice in respect of the A330 and A350XWB.
9.335. The European Union has therefore failed to establish that subsidies benefiting the
787 an d 777X cause serious prejudice to its interests , within the meaning of
Articles 5(c) and 6.3, in respect of the A350XWB and A330 in the post -implementation
period.
9.4 Whether subsidies benefiting the 737 MAX and 737NG cause serious prejudice to
the inte rests of the European Union , within the meaning of Articles 5(c) and 6.3, in
respect of the A320neo and A320ceo in the post-implementation period
9.4.1 Introduction
9.336. In this Section we evaluate the European Union's case that the United States grants or
maintains subsidies to Boeing benefiting the 737 MAX and 737NG , which cause present adverse
effects in the form of certain kinds of serious prejudice to the European Union's interests in respect
of the A320neo and A320ceo, respectively, in the post-implementation period. The European Union
has divided its discussion of the effects of the U.S. subsidies benefiting the 737 MAX and adversely
affecting the A320neo, and of the effects of the U.S. subsidies benefiting the 737NG and adversely
affecting the A320ceo, on the basis that the narrow-body, single-aisle LCA product market actually
consists of two p roduct markets: the market for new technology single-aisle LCA (comprising the
737 MAX and A320neo) and the market for existing technology LCA (comprising the 737NG and
the A320ceo). For reasons we explain in paragraphs 9.35 through 9.40 above, we disagree with
the European Union's proposed market del ineation and instead treat the new technology A320neo
and 737 MAX a s competing in the same product market for nar row-body, single-aisle aircraft as
the existing technology A320ceo and 737NG.
9.337. As previously explained, the European Union for the most part presents its arguments as
to how certain aeronautics R &D subsidies op erate through a technology causal mechanism, and
how the majority of post -2006 subsidies operate through a price causal mechanism, on a
horizontal basis; i.e. based on the nature of the particular subsidy or subsidy groups at issue,
rather than the particu lar Boeing LCA said to be subsidized by the various subsidies in
combination.3205 Accordingly, in Section VII.E of its first written submission, the European Union

3205 See e.g. European Union's first written submission, section VII.E (Technology Causal Mechanism)
and section VII.F (The U.S. Subsidies Cause Adverse Effects Through a Price Causal Mechanism), dealing in a

purports to establish a "genuine" and "substantial" causal link between certain aeronautics R&D
subsidies and "present adverse effects through a technology effects causal mechanism". 3206 In
Section VII.F of its first written submission, the European Union purports to establish a "genuine"
and "substantial" causal link between the majority of the post -2006 subsidies and present adverse
effects through a price causal mechanism.3207
9.338. In Section VII.I of its first written submission, dealing with the effects of the subsidies
benefiting the 737 MAX on the A320neo, the European Union presents its case that the e ffects of:
(a) certain aeronautics R&D subsidies which improve the quality and accelerate the launch and
delivery positions of the 737 MAX LCA family aircraft (the technology causal mechanism); and (b)
the majority of the post-2006 subsidies which enable Boeing to lower its 737 MAX prices (the price
causal mechanism), collectively, are a genuine and substantial cause of: significant lost sales (and
a threat of significant lost sales) of the A320neo; significant price suppression (and a threat of
significant price suppression) of the A320neo; impedance and a threat of impedance of the
A320neo in the U.S. market and a number of third country markets.3208
9.339. In Section VII.J of its first written submission, dealing with the effects of the subsidies
benefiting the 737NG on the A320ceo, the European Union presents its case that the effects of the
majority of the post -2006 subsidies which enable Boeing to lower its 737NG prices (the price
causal mechanism) are a genuine and substantial cause of: significant lost sales ( and a threat of
significant lost sales) of the A320ceo; significant price suppression of the A320ceo; displacement,
impedance and a threat of thereof of the A320ceo in the U.S. market and a number of third
country markets.3209
9.340. The European Union's serious prejudice allegations concerning the effects of the subsidies
benefiting the 737 MAX and 737NG on the A320neo and A320ceo, respectively, are as follows:
a. Significant lost sales, within the meaning of Article 6.3(c) of the SCM Agreement, and a
threat thereof.3210
b. Impedance of imports of the A320neo and A320ceo to the United States, within the
meaning of Article 6.3(a) of the SCM Agreement, and a threat thereof.3211
c. Impedance and/or displacement of exports of the A320neo and A320ceo , within the
meaning of Article 6.3(b) of the SCM Agreement, to the third -country markets of
Australia3212, Brazil 3213, Canada 3214, Iceland 3215, Indonesia 3216, Malaysia 3217, Mexico3218,

horizontal fashion with the arguments concerning the technology causal mechanism and price causal
mechanism, compared to section VII.H (Effects of U.S. Subsidies Benefiting the 787 and 777X on the A330 and
A350XWB), section VII.I (Effects of U.S. Subsidies Benefiting the 737 MAX on the A320neo), and section VII.J
(Effects of the U.S. Subsidies Benefiting the 737NG on the A320ceo), dealing with the collective effects of all of
the subsidies benefiting the various Boeing aircraft on the competing Airbus aircraft.
3206 See European Union's first written submission, para. 1205.
3207 See European Union's first written submission, para. 1223.
3208 European Union's first written submission, paras. 1616 and 1617.
3209 European Union's first written submission, paras. 1840 and 1841.
3210 As evidenced by a number of LCA sales campaigns involving the 737 MAX in competition with the
A320neo occurring between 2007 and 2015 and involving the 737NG in competition with the A320ceo. The
relevant sales campaigns and aircraft are set forth in Section 9.4.3.1.1 below.
3211 As evidenced by certain sales campaigns alleged to be significant lost sales of the A320neo and
A320ceo, respectively, and involving a U.S. customer. The relevant sales campaigns are American Airlines
2011, Southwest Airlines 2011 and 2013, Delta Airlines 2011 and United Airlines 2012 and 2013. As regards
the impedance, and threat thereof, of imports with respect to the A320ceo, the European Union argues that, in
a duopoly environment, "rough parity in the distribution of market shares between the duopolists would be
expected", while the effect of the U.S. subsidies is that the vast majority of present and future deliveries of
existing technology single-aisle LCA will be 737NG family aircraft. (European Union's first written submission,
paras. 1903-1905). The European Union provides data concerning orders to date and deliveries due in the
United States for the 737NG and A320ceo. (See European Union's response to Panel question No. 169,
para. 509).
3212 Displacement of exports of the 320ceo. (European Union's first written submission,
paras. 1908-1910; second written submission, paras. 1959-1961; response to Panel question No. 169,
para. 511).
3213 Threat of impedance of exports of the A320neo: European Union's first written submission,
paras. 1831 and 1832; second written submission, paras. 1850-1852; and response to Panel question No. 169,
para. 493. The European Union adds that the GOL (2012) campaign won by the 737 MAX is a lost sale of the

Norway3219, Russia 3220, Singapore 3221, and the United Arab Emirates, and a threat
thereof.3222
d. Significant price suppression of the A320neo and A320ceo and a threat thereof.3223

A320neo due to the U.S. subsidies and is further evidence of the existence of a threat of impedance of exports
of the A320neo in the Brazilian market. In its first written submission, the European Union also argued that the
Brazilian market is a significantly large geographical market for new technology, single-aisle LCA and that in a
duopoly environment, "rough parity in the distribution of market shares between the duopolists would be
expected". (European Union's first written submission, para. 1831). Threat of displacement of exports of the
A320ceo: European Union's first written submission, paras. 1911 and 1912.
3214 Threat of impedance of exports of the A320neo: European Union's response to Panel question
No. 169, para. 494. The European Union adds that the Air Canada (2013) campaign won by the 737 MAX is a
lost sale of the A320neo due to the U.S. subsidies and is further evidence of the existence of a threat of
impedance of exports of the A320neo in the Canadian market. (European Union's response to Panel question
No. 169, para. 495). Impedance and threat of impedance of the A320ceo: European Union's first written
submission, paras. 1913-1914; second written submission, paras. 1953-1954; and response to Panel question
No. 169, paras. 512 and 513.
3215 Threat of impedance of exports of the A320neo: European Union's first written submission,
para. 1834; second written submission, paras. 1853-1855; and response to Panel question No. 169, para. 498.
3216 Threat of impedance of exports of the A320neo: European Union's first written submission,
para. 1835; second written submission, paras. 1856-1858; and response to Panel question No. 169, para. 499.
The European Union adds that the Lion Air (2012) campaign won by the 737 MAX is a lost sale of the A320neo
due to the U.S. subsidies and is further evidence of the existence of a threat of impedance of exports of the
A320neo in the Indonesian market. (European Union's response to Panel question No. 169, para. 500).
Displacement, impedance and threat of impedance of the A320ceo: European Union's first written submission,
paras. 1915-1920; second written submission, paras. 1955-1958; and response to Panel question No. 169,
paras. 514-516. The European Union refers to Lion Air's 2012 sales campaign, which it alleges is a lost sale of
the A320ceo due to the U.S. subsidies as a further illustration that Airbus would have achieved greater future
deliveries in the Indonesian existing technology single-aisle market absent the U.S. subsidies.
3217 Displacement of exports of the A320ceo, and threat thereof: European Union's first written
submission, paras. 1921 and 1922; second written submission, paras. 1953-1954; response to Panel question
No. 169, paras. 517-519.
3218 Threat of impedance of exports of the A320neo: European Union's first written submission,
para. 1836; second written submission, paras. 1859-1861; and response to Panel question No. 169, para. 501.
3219 Threat of impedance of exports of the A320neo: European Union's first written submission,
para. 1837; second written submission, paras. 1862-1864; and response to Panel question No. 169, para. 502.
The European Union adds that the portion of the Norwegian Air Shuttle (2012) campaign won by the 737 MAX
is a lost sale of the A320neo due to the U.S. subsidies and is further evidence of the existence of a threat of
impedance of exports of the A320neo in the Norwegian new technology single-aisle market. (European Union's
response to Panel question No. 169, para. 502). Impedance and threat of impedance of exports of the
A320ceo: European Union's first written submission, paras. 1923 and 1924; second written submission,
paras. 1953 and 1954; and response to Panel question No. 169, paras. 520 and 521. The European Union
refers to Norwegian Air Shuttle's 2012 sales campaign, which it alleges is a lost sale of the A320ceo due to the
U.S. subsidies as a further illustration that Airbus would have achieved greater future deliveries in the
Norwegian existing technology single-aisle market absent the U.S. subsidies.
3220 Displacement and threat of displacement of exports of the A320ceo: European Union's first written
submission, paras. 1925 and 1926; second written submission, paras. 1953 and 1954; and response to Panel
question No. 169, paras. 522 and 523.
3221 Threat of impedance of exports of the A320neo: European Union's first written submission,
para. 1838; second written submission, paras. 1865-1867; and response to Panel question No. 169, para. 503.
The European Union adds that the Silk Air (2012 and 2015) campaigns won by the 737 MAX are lost sales of
the A320neo due to the U.S. subsidies and further evidence of the existence of a threat of impedance of
exports of the A320neo to the Singaporean market. (European Union's response to Panel question No. 169,
para. 504). Displacement and impedance of exports of the A320ceo (and threats thereof): European Union's
first written submission, paras. 1927 and 1928; second written submission, paras. 1955-1958; and response to
Panel question No. 169, paras. 524 and 525. The European Union refers to Silk Air's 2012 sales campaign,
which it alleges is a lost sale of the A320ceo due to the U.S. subsidies as a further illustration that Airbus would
have achieved greater future deliveries in the Singaporean existing technology single-aisle market absent the
U.S. subsidies.
3222 Threat of impedance of exports of the A320neo: European Union's response to Panel question
No. 169, paras. 349-374 and 505. The European Union adds that the Fly Dubai (2013) campaign won by the
737 MAX is a lost sale of the A320neo due to the U.S. subsidies and is further evidence of the existence of a
threat of impedance of exports of the A320neo in the United Arab Emirates market. Displacement, impedance
(and threats thereof) of exports of the A320ceo: European Union's first written submission, paras. 1929-1932;
second written submission, paras. 1953-1954; and response to Panel question No. 169, paras. 526-528. The
European Union refers to Fly Dubai's 2008 and 2014 sales campaigns, which it alleges resulted in lost sales of
the A320ceo due to the U.S. subsidies as a further illustration that Airbus would have achieved greater future
deliveries in the United Arab Emirates existing technology single-aisle market absent the U.S. subsidies.

9.341. The Panel adopts a unitary approach to establishing causation, under which prices, sales,
market share, and other indicators of competitive harm are not assessed in isolation, but rather as
part of an integrated causati on analysis. 3224 Our analysis is counterfactual in nature . We ask
whether, but for the effects of the various subsidies, Airbus' sales, prices and market share would
be higher. We will analyse the effects of the subsidies in two related phases: First, we examine the
effects, if any, of the relevant category of subsidies on Boeing's product development and pricing
of the 737 MAX and pricing of the 737NG; and second , we examine whether any such effects of
the subsidies in question on Boeing's product development and prices have the alleged impact on
A320neo and A320ceo sales and prices in the post -implementation period , such that these
subsidies constitute a genuine and substantial cause of the particular forms of serious prejudice
alleged by the European Union with respect to the A320neo and A320ceo.
9.342. In Section 9.4.2 we address whether the European Union has established that certain
aeronautics R&D subsidies benefiting the 737 MAX cause serious prejudice with respect to the
A320neo i n the post -implementation period through a technology causal mechanism. In
Section 9.4.3, we evaluate the European Union's arguments that the post-2006 subsidies
benefiting the 737 MAX and 737NG cause serious prejudice with res pect to the A320neo and
A320ceo in the post-implementation period through a price causal mechanism.
9.4.2 Whether certain aeronautics R&D subsidies benefiting the 737 MAX cause serious
prejudice to the interests of the European Union, within the meaning of Articles 5(c) and
6.3, in respect of the A320neo in the post-implementation period, through a technology
causal mechanism
9.343. As explained in Section 9.3.2.1.2, the European Union argues that one of the ways in
which the pre -2007 aeronautics R&D subsidies continue to cause significant competitive harm to
the European Union's LCA-related interests in the post-implementation period is through spill-over
technology effects resulting from the application of the "subsidized 787 technologies" to Boeing's
more recent aircraft developments, including the 737 MAX. 3225 Additionally, the European Union
argues that certain post-2006 aeronautics R&D subsidies have given rise to new technology effects
in that they have enabled Boeing to develop new techn ologies for its more recent aircraft
developments, including the 737 MAX.3226
9.4.2.1 Spill-over technology effects of the pre-2007 aeronautics R&D subsidies
9.344. The European Union argues that Boeing's participation in the original NASA and DOD
programmes enabled Boeing to incorporate larger, more fuel -efficient engines, enhanced
aerodynamics, and modern flight controls onto the 737 MAX as inspired by the 787's design.
Overall, the European Union asserts that the technologies applied to the 737 MAX represent a 13%
fuel-burn savings over the 737NG. 3227 Without the contribution of the pre -2007 aeronautics R&D
subsidies, Boeing would have been unable to develop the proprietary technology to launch the
737 MAX in August 2011 and promise first deliveries in 2017.3228
9.345. The European Union submits that Boeing's incorporation of larger engines on the 737 MAX
is "one of the quintessential technology changes – and selling points – of the 737 MAX" and has
contributed "a significant part" of the fuel burn advantage of the aircraft. 3229 The European Union

3223 As evidenced by certain pricing and market share data for the A320neo and A320ceo as well as
certain of the sales campaigns alleged to be significant lost sales and which are said to demonstrate a pattern
of pricing behaviour in which Airbus was forced to lower its own prices in reaction to Boeing's aggressive
pricing. (European Union's first written submission, paras. 1808-1810).
3224 See Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1658.
3225 European Union's first written submission, para. 984.
3226 European Union's first written submission, para. 986.
3227 European Union's first written submission, para. 1621.
3228 European Union's first written submission, para. 1621. See also European Union's first written
submission, paras. 1038-1060 and 1620; and Airbus Engineer's Statement, (Exhibit EU-31) (BCI),
paras. 23-42 and 55-61.
3229 European Union's first written submission, para. 993. The European Union submits that its argument
is not directly related to the new engines, but instead, concerns Boeing's ability to integrate the engines
through close coupling of the engine nacelles and through the use of CFD codes. It considers that Boeing's role
as an integrator of different technologies was key in researching designing and developing the close coupling of
the engines to the 787 wing. (European Union's second written submission, para. 1596).

alleges that Boeing's engine integration design on the 737 MAX was enabled by: (a) the close
coupling of the engines to the wings, using new nacelles and new pylons, which Boeing had
developed previously for the 787; and (b) CFD codes that were de veloped and enhanced under
several original NASA aeronautics R&D programmes (HSR, AST, HPCC, and R&T Base). 3230 The
minimal ground clearance inherent in the 737 design means that, absent the innovative engine
integration design on the 737 MAX, Boeing would no t have been able to apply the larger diameter
CFM LEAP engines to the 737 MAX without either building a new wing for the 737 MAX or
otherwise devising its own engine integration. Both alternatives would have been more expensive
and involved greater risk.3231
9.346. The European Union contends that Boeing was able to make changes to the aerodynamic
shape of the overall aircraft using knowledge of CFD codes developed under the pre -2007
aeronautics R&D subsidies. This includes the incorporation of a "787 -style tail cone" for the conical
tail cone of the 737 MAX that reduces drag by 1%. Finally, the European Union contends that
Boeing was able to develop a partial fly -by-wire system on the 737 MAX incorporating manoeuvre
and gust load alleviation based on Boeing's experi ence in introducing load alleviation systems on
the 787.3232 The European Union submits that assertions that there were no spill -over effects from
the original pre -2007 aeronautics R&D subsidies affecting the 787 to the design of the 737 MAX
tail cone and fly -by-wire spoilers are contradicted by Boeing statements made outside this
dispute.3233
9.347. The United States argues that the acceleration effect of the pre -2007 aeronautics R&D
subsidies was relatively short-lived, and to the extent there is any technological con tinuity leading
to spill-over onto newer Boeing LCA such as the 737 MAX, the launch of the 787 in 2006 would
have left ample time for Boeing to adapt technologies to the 737 MAX well before its actual
launch.3234 As regards the alleged technological connectio ns between the 787 technologies and
those developed for the 737 MAX, the United States makes a number of arguments in response to
the European Union's assertions.
9.348. The United States argues that the 737 MAX "primarily involve{s}" improved engine
technology, which is outside the scope of this dispute. 3235 Although the European Union attempts
to link Boeing's engine integration design for the 737 MAX to the 787, Boeing's primary reference
points for the 737 MAX engine installation were in fact production configura tions for the 737NG
and to a lesser degree the 777, along with earlier work [***]3236 The United States explains that,
starting in [***], Boeing considered that improvements in engine technology had advanced to the
point where a re -engined 737 might be viable , and began intensive product development studies
and testing. This included wind tunnel tests at Boeing's Transonic Wind Tunnel in Seattle to

3230 More specifically, the European Union alleges that, based on research conducted under the NASA
Subsonic Fixed Wing Project on the "Multi-Objective Optimization of a Turbofan for an Advanced, Single-Aisle
Transport", Boeing was able to develop a technical solution to close couple the engine nacelles (i.e. the outer
casing of the engine) to the wing, allowing the engines to be located higher up and more forward relative to
the wing leading edge, based on the use of advanced computational fluid dynamics (CFD) codes to determine
optimal engine size and configuration.
3231 European Union's first written submission, para. 1624; and Airbus Engineer's Statement, (Exhibit
EU-31) (BCI), paras. 99 and 134.
3232 The European Union submits that the 737 MAX's fly-by-wire system is based on Boeing's experience
developing a more electric architecture for the 787. (European Union's first written submission, para. 1622).
See also European Union's response to Panel question No. 165, paras. 139-141; and Boeing Presentation #18,
(Exhibit EU-1680) (HSBI). This feature will specifically enable Boeing to reduce airframe weight, due to lower
sustained structural loads, thereby allowing higher permissible airplane gross weights for take-off and landing
and increasing payload range capability. (European Union's response to Panel question No. 165, para. 140
(referring to Boeing Presentation #18, (Exhibit EU-1680) (HSBI))).
3233 European Union's second written submission, paras. 1598-1601; Airbus Engineer's Statement,
(Exhibit EU-31) (BCI), para. 111.
3234 See United States' first written submission, paras. 3, 682, 703-711, 735-738, and 782-799;
United States' second written submission, paras. 732-739, 743-849, 881-904, and 1187-1204; response to
Panel question Nos. 45, 46, 47, 151, 152, 153, 156, 157, and 165; and comments on European Union's
response to Panel question Nos. 45, 46, 47, 151, 152, 153, 156, 157, and 165.
3235 United States' first written submission, para. 968. The United States submits this is "the same
engine technology" as features on A320neo update. See also United States' first written submission, para. 972
and Boeing Engineers' Statement, (Exhibit USA-283) (BCI), para. 44.
3236 United States' first written submission, para. 980 (citing Boeing Engineers' Statement, (Exhibit
USA-283) (BCI), para. 54).

evaluate engine installation configurations. 3237 Boeing concluded that, since [***], Boeing would
be able to make co mmitments for the 737 MAX to American Airlines in July 2011. 3238 As for the
European Union's allegations regarding the contribution of CFD codes to the 737 MAX engine
integration design, the United States argues, based on the statement of the Boeing engineers, that
Boeing's would have replicated in six months its experience with CFD codes from its work under
the various NASA aeronautics R&D programmes.3239 Finally, the United States considers that while
statements by the European Union that the chevron technology for the 787 is the same or similar
to that of the 737 MAX [***], the two types of chevrons are [***].3240
9.349. The United States argues that the European Union's arguments regarding the alleged spill -
over effects of the design of the conical tail cone for the 787 on the 737 MAX tail cone are based
on "superficial similarity" 3241. The two designs are only broadly similar in the sense that they are
both conical. 3242 The Boeing engineers explain that, while the 737NG represented a hybrid
between cone and blade, for the 737 MAX, Boeing returned to the conical shape. This was part of
improvements to the aft body design to improve the steadiness of air flow and eliminate the need
for vortex generators on the tail. The basis for the final 737 MAX tail cone design was [***]. That
basis for the design used the [***3243]3244 Overall, even if the 787 did not exist, Boeing would
have designed the 737 MAX tail cone as it is, in the same timeframe.3245
9.350. The United States argues that the fly -by-wire system on the 737 MAX "is very different
from that of the 787, in terms of its extent, its systems architecture, and its suppliers". 3246 It is
partial, applied on [***], rather than all of the aircraft's spoilers. The allocation of spoiler pairs on
the 737 MAX is the same as the 737NG, involving [***] for airplane control and [***] as speed
brakes for ground operations. The control architecture for the 737 MAX's fly-by-wire spoilers is
most similar to the control architecture applied to the fly-by-wire spoilers on the 767 and the
757.3247 The actuators are su pplied by [***]. The United States argues that the 787 uses a
different, digital fly -by-wire system on all spoilers, with actuators supplied by Moog. The 787
system also includes a vertical gust suppression droop spoiler that is not on the 737 MAX. If the
787 did not exist, Boeing would still have designed the 737 MAX fly -by-wire system exactly as it
is.3248
9.351. As we have previously explained in the context of our evaluation of the European Union's
arguments regarding the alleged spill -over technology effects of the pre -2007 aerona utics R&D
subsidies to the technological developments of the 787 -9/10 and the 777X, the European Union's
spill-over technology effects theory raises two issues. The first is whether , conceptually, the
original technology effects of the pre-2007 aeronautics R&D subsidies could have "spilled-over" to
other aircraft , bearing in mind that these effects pertain to the acceleration of Boeing's
development of 787-related technologies and not to the existence , as such, of those technologies.
If so, the second issue is whether any of the alleged technologies identified by the European Union
in relation to the 737 MAX are related or linked to the 787 technologies such that the latter bear a
meaningful technological connection to the former.

3237 Boeing Engineers' Statement, (Exhibit USA-283) (BCI), para. 44. See also United States' first
written submission, paras. 980 and 972; and Boeing Engineers' Statement, (Exhibit USA-283) (BCI), para. 54.
3238 Boeing Engineers' Statement, (Exhibit USA-283) (BCI), para. 47.
3239 United States' second written submission, para. 1188; Boeing Engineers' Statement, (Exhibit
USA-283) (BCI), para. 30.
3240 United States' second written submission, paras. 788 and 1191-1192; Boeing Engineers' Statement,
(Exhibit USA-283) (BCI), para. 56; Boeing Engineers' Reply, (Exhibit USA-359) (BCI), para. 33.
3241 United States' first written submission, para. 982.
3242 United States' second written submission, paras. 791 and 1197; Boeing Engineers' Reply, (Exhibit
USA-359) (BCI), paras. 37 and 38.
3243 Boeing Engineers' Statement, (Exhibit USA-283) (BCI), para. 58.
3244 United States' second written submission, paras. 791 and 1197; Boeing Engineers' Reply, (Exhibit
USA-359) (BCI), paras. 37 and 38.
3245 Boeing Engineers' Statement, (Exhibit USA-283) (BCI), para. 58.
3246 United States' first written submission, para. 984 (referring to Boeing Engineers' Statement, (Exhibit
USA-283) (BCI), para. 58).
3247 United States' second written submission, paras. 789 and 1199; Boeing Engineers' Reply, (Exhibit
USA-359) (BCI), paras. 34 and 35; and comments on European Union's response to Panel question No. 165,
para. 169.
3248 United States' first written submission, para. 984 (referring to Boeing Engineers' Statement, (Exhibit
USA-283) (BCI), para. 58).

9.352. As previously noted, the causation finding in the original proceeding was that the pre -2007
aeronautics R&D subsidies accelerated the development by Boeing of the 787 technologies. The
relevant question before us is therefore whether, owing to that acceleration, any alleged so-called
spill-over technologies in relation to the 737 MAX also came into existence earlier than would
otherwise be the case, enabling an earlier than otherwise launch of this aircraft.
9.353. We conclude in Section 9.3.2.1.1 above, in our evaluation of the European Union's
arguments regarding the continuation of the alleged "original technology effects" of the pre -2007
aeronautics R&D subsidies, that the European Union fail s to demonstrate that, absent the pre -
2007 aero nautics R&D subsidies, Boeing would have launched the 787 after the end of the
implementation period in September 2012. We note that the end of the implementation period is
more than eight years after Boeing actually launched the 787 in 2004, and is ten or more years
after when Boeing began pre -launch R&D for the development of the 787 following its decision to
develop a replacement for the 767. At the point in time of an unsubsidized 787 launch, Boeing
would have undertaken all of the R&D necessary to laun ch 787 that the pre-2007 aeronautics R&D
subsidies had enabled it to undertake at an accelerated rate.
9.354. We find above that, although it is more difficult for us to confidently predict exactly when
Boeing would have been able to launch the 787 absent the pr e-2007 aeronautics R&D subsidies,
Boeing would have done so well before (i.e. at least several years before) the end of the
implementation period.3249 In our view, it is not unrealistic to believe that Boeing would have been
in a position to have launched the 737 MAX before the end of the implementation period. The
European Union has not provided credible evidence that the 787 technologies that an unsubsidized
Boeing would have developed could not have been adapted to the 737 MAX in sufficient time to
enable its respective launch in August 2011. We recall in this respect our earlier observation that
the European Union misconstrues the findings from the original proceeding as to the effects of the
pre-2007 aeronautics R&D subsidies.3250
9.355. Accordingly, we conclude that the European Union has failed to demonstrate the existence
of so-called spill-over technology effects of the pre-2007 aeronautics R&D subsidies in respect of
the 737 MAX in the post-implementation period .3251
9.4.2.2 New technology effects of certain post-2006 aeronautics R&D subsidies
9.356. We recall that the European Union points to a relatively small number of individual
post-2006 aeronautics R&D subsidies which it argues operate through a technology causal
mechanism (rather than a price causal mechanism) to contribu te to "Boeing's development of
innovative technologies for its current aircraft", such as the 737 MAX. 3252 In this Section of the
Report, we evaluate the European Union's arguments regarding th ese post-2006 aeronautics R&D
subsidies that are said to operate t hrough a technology causal mechanism to affect the
development of technologies for the 737 MAX and thereby cause serious prejudice to the
European Union's interests in the post-implementation period.
9.357. The European Union argues that Boeing's participation in : (a) NASA's ERA Project, and the
Subsonic Fixed Wing Project under NASA's Fundamental Aeronautics Program; (b) the DOD KC -46
Next Generation Aerial Refueling Aircraft program element; and (c) the ecoDemonstrator
programme pursuant to the Boeing CLEEN Agre ement enabled Boeing's development of

3249 See para. 9.176 above.
3250 As previously explained, the causation finding in the original proceeding was that the pre-2007
aeronautics R&D subsidies accelerated the development by Boeing of the 787 technologies; they did not create
those 787 technologies. The knowledge and experience gained through the pre-2007 aeronautics R&D
subsidies were not the effect of the subsidies per se. This finding therefore provides no basis for the argument
that the pre-2007 aeronautics R&D subsidies provided the advantage each time a technology is put into use by
Boeing, unless the European Union could have established that, by the end of the implementation period,
Boeing would still not have developed the 787 technologies and launched the 787, a proposition which we
rejected on the evidence before us.
3251 In light of this conclusion, we need not address the second question, which is whether any of the
alleged technologies identified by the European Union in relation to the 737 MAX are in some way related or
linked to those on the 787.
3252 European Union's first written submission, para. 979.

technologies for the 737 MAX (as well as for the 787 -9/10 and 777X, discussed in
Section 9.3.2.1.4), thereby contributing to adverse effects caused through that aircraft.3253
9.358. The European Union alleges that Boeing conducted research under NASA's Subsonic Fixed
Wing Project on the "Multi -Objective Optimization of a Turbofan for an Advanced Single -Aisle
Transport", to identify a design solution for incorporating larger engines on a next -generation
single-aisle aircraft that helped Boeing determine the configuration for the 737 MAX. 3254 In
addition, the European Union submits that Boeing learned how to integrate large format
multifunction primary displays into the legacy architecture of the 737 MAX c ockpit through
participation in the DOD KC -46, Next Generation Aerial Refueling Aircraft program element,
specifically related to the 767 -2C.3255 Finally, the European Union argues that Boeing has tested
and validated various technologies related to the devel opment of the 737 MAX as part of the 2012
ecoDemonstrator 737-800 flight test bed, including adaptive trailing edges and variable area fan
nozzle (VAFN) technology that could contribute to additional fuel burn savings of 2% and reduce
take-off noise as well as Boeing-proprietary winglet technology.3256
9.359. The United States denies that Boeing conducted research under the "Multi -Objective
Optimization of a Turbofan for an Advanced, Single -Aisle Transport". Rather, the document on
which the European Union relies for its assertions regarding the contribution of the NASA Subsonic
Fixed Wing Project on the "Multi -Objective Optimization of a Turbofan for an Advanced,
Single-Aisle Transport" argument is a " NASA study by NASA employees Jeffrey Berton and
Mark Guynn, which used public data on Boeing's 737NG aircraft".3257
9.360. The United States further argues that the DOD KC -46 Next Generation Aerial Refueling
Aircraft program element is outside the scope of this proceeding and therefore warrants no further
consideration. The Unite d States also denies that the KC -46 Next Generation Aerial Refueling
Aircraft program element contributed to Boeing's ability to incorporate multifunction primary
displays in the 737 MAX. While it is true that the 737 MAX primary displays are derived from the
displays developed for the 787, this was done by Boeing and its supplier Rockwell Collins without
any U.S. Government funding. Although both the 737 MAX and 767 -derivative KC -46 primary
displays are derived from those on the 787, there was no transfer of technology or learning from
the KC-46 displays to those on the 737 MAX. 3258 The 737 MAX and KC -46 displays are different
devices; the KC-46 displays are designed to interact with military night vision systems, while those
on the 737 MAX are not. The United States submits that Boeing has updated the legacy
architecture of the 737 and 767 "numerous times" over the years and there is no legacy
architecture display integration challenge in common between the two aircraft. 3259 Contrary to the
European Union's argum ent, the flow of technology is from civil to military, with the display
technology from the 787 being incorporated into the KC-46.

3253 The European Union argues that, should the Panel disagree that any of these alleged post-2006
aeronautics R&D subsidies operate, at present, through a technology causal pathway, they should in the
alternative be understood to operate through a price causal pathway. (See European Union's response to Panel
question No. 43, fn 352).
3254 European Union's first written submission, paras. 1095 and 1096; Airbus Engineer's Statement,
(Exhibit EU-31) (BCI), section IV.B.1 (referring to J. J. Berton and M. D. Guynn, NASA, Multi-Objective
optimization of a Turbofan for an advanced, single-aisle transport, (April 2012), (Exhibit EU-666), p. 22).
3255 European Union's first written submission, paras. 1095-1099 and 1623; Airbus Engineer's
Statement, (Exhibit EU-31) (BCI), section IV; and Airbus Engineers' Response, (Exhibit EU-1014) (BCI),
para. 104. (fn omitted)
3256 European Union's first written submission, paras. 1090-1094; Airbus Engineer's Statement, (Exhibit
EU-31) (BCI), section IV; and C. Wilsey and R. Stoker, "Continuous Lower Energy, Emissions and Noise
(CLEEN) Technologies Development – Boeing Program Overview", Presentation at the CLEEN Consortium Public
Session, 27 October 2010, (Exhibit EU-665), p. 6
3257 See United States' first written submission, para. 976 (referring to J. J. Berton and M. D. Guynn,
NASA, Multi-Objective optimization of a Turbofan for an advanced, single-aisle transport (April 2012), (Exhibit
EU-666)) (emphasis original). See also Boeing Engineers' Statement, (Exhibit USA-283) (BCI), paras. 49 and
50 ("{s}cientists preparing documents of this nature usually thank other scientists who have reviewed their
work or provided other input. The absence of any Boeing employees from the acknowledgement page of the
NASA study confirms that Boeing played no role in that project").
3258 Boeing Engineers' Reply, (Exhibit USA-359) (BCI), paras. 39 and 40.
3259 United States' second written submission, para. 1195 (referring to Boeing Engineers' Reply, (Exhibit
USA-359) (BCI), paras. 39 and 40).

9.361. The United States acknowledges that FAA CLEEN funding under the Boeing CLEEN
Agreement was used for preparation of the aircr aft/instrumentation specific to CLEEN test
requirements, operation, fuel and support of the aircraft during 51.5 hours of dedicated adaptive
trailing edge flight testing based in Glasgow, Montana, and subsequently, an apportioned
percentage was used on pos t-test refurbishment costs of the aircraft to make it suitable for
commercial operation with American Airlines. However, it submits that Boeing's proprietary
adaptive trailing wing edge technology [***].3260 The United States argues that testing for
Boeing's proprietary VAFN technology, multi-spar winglet design, and deployment of RFID devices
was not conducted pursuant to the Boeing CLEEN Agreement on the 737 -800 ecoDemonstrator
test bed, but was funded at Boeing's own expense. In cases where technologies are tested on the
737-800 ecoDemonstrator test bed, the United States submits that great care is employed to
segregate CLEEN costs from ecoDemonstrator costs. At most, it is possible that the Boeing CLEEN
Agreement funded a small portion of the fuel cost incu rred for a given technology. In this regard,
only a small amount of FAA CLEEN funding may be allocated to testing of VAFN technology or RFID
devices. It is unreasonable to suggest that a possible fuel cost contribution had a meaningful
impact on Boeing's t esting of these technologies, let alone on Boeing's ability to develop the 737
MAX. In any case, the Boeing CLEEN Agreement was not a source of funding of fuel costs for
testing of the multi -spar winglet that the 737 MAX design incorporates, as the winglet was not
even installed on the test aircraft during the CLEEN phase of flight testing in Glasgow, Montana. In
addition, the United States also emphasizes that VAFN technology [***].3261
9.362. We begin by addressing the European Union's argument that knowledge and e xperience
gained under the Multi -Objective Optimization of a Turbofan for an Advanced, Single -Aisle
Transport aspect of NASA's Subsonic Fixed Wing Project helped Boeing in its decision to integrate
larger engines on the 737 MAX and proceed with the overall 737 MAX design as opposed to a clean
sheet replacement design. While the European Union submits a copy of the results of the NASA
research effort, it does not identify how Boeing participated in this effort, or indeed whether this
participation occurred through a NASA procurement contract or other agreement funded under any
of the challenged NASA aeronautics R&D programmes. 3262 Nor does the European Union provide
evidence of the contribution of the study to Boeing's decision to incorporate the relevant
technologies onto the 737 MAX, or of the extent to which this project contributed towards an
earlier launch of the 737 MAX or a launch that would otherwise not have been possible. The Airbus
engineers concede that "{t}he choice {to proceed with the 737 MAX design} was certainly not
based on the result of this study alone". 3263 On the basis of the evidence before us, we are not
persuaded that Boeing was directly involved in the research in question, or even that the research
contributed to the development of the rele vant 737 MAX technologies or to enabling an earlier
launch of the 737 MAX.
9.363. We next address the European Union's allegations that Boeing's participation in the KC-46,
Next Generation Aerial Refueling Aircraft program element enabled Boeing to integrate larg e
format multifunction primary displays into the legacy architecture of the 737 MAX cockpit. We
recall that in Section 7.3.3.3, we have ruled that the KC-46 New Generation Aerial Refueling
Aircraft program element is outside the scope of th e compliance proceeding. We therefore do not
further consider the European Union's argument regarding the implications of Boeing's
participation in this program element for Boeing's development of the legacy architecture of the
737 MAX cockpit.
9.364. Finally, we turn to the European Union's allegations concerning Boeing's participation in
the FAA CLEEN Program through the Boein g CLEEN Agreement in respect of the 737 MAX. The
European Union alleges that Boeing tested variable area fan nozzles and adap tive trailing edges

3260 United States' second written submission, para. 1203; and Boeing Engineers' Reply, (Exhibit
USA-359) (BCI), para. 43.
3261 United States' second written submission, para. 1203. See also United States' first written
submission, para. 989; second written submission, paras. 1201, and 1202; Boeing Engineers' Statement,
(Exhibit USA-283) (BCI), paras. 64-68; and Boeing Engineers' Reply, (Exhibit USA-359) (BCI), paras. 44-47.
3262 J. J. Berton and M. D. Guynn, NASA, Multi-Objective optimization of a Turbofan for an advanced,
single-aisle transport, (April 2012), (Exhibit EU-666).
3263 Airbus Engineer's Statement, (Exhibit EU-31)(BCI), para. 136.

under the 2012 ecoDemonstrator 737 -800 test bed, and that these technologies both appear on
the 737 MAX.3264
9.365. In Section 9.3.2.1.4 above, we reject the European Union's argument that Boeing's
participation in t he FAA CLEEN Program, through the Boeing CLEEN Agreement, created or
accelerated the creation of RFID technology or HLFC technologies for use on the 787 -9/10 or
777X. In reaching this conclusion, we distinguished the types of early -stage, high -risk R&D at
issue in the original proceeding from the type of testing and validation of technologies that are
already i n a late stage of development , which takes place under Boeing's ecoDemonstrator
programme. As we explain in paragraph s 9.205 and 9.206 above, we are not persuaded that
Boeing would not have undertaken the testing and validation work on its own, absent its work
under the Boeing CLEEN Agreement.
9.366. Therefore we are similarly not persuaded that Boein g's participation in the FAA CLEEN
Program through the Boeing CLEEN Agreement materially helped Boeing to undertake R&D in
relation to the alleged technologies that now feature on the 737 MAX, that it would not otherwise
have undertaken, or to achieve the same gains that it would not otherwise have achieved within
essentially the same time -frame. Rather, if anything, Boeing's participation in a cost -sharing
arrangement such as the Boeing CLEEN Agreement merely somewhat lower the cost at which it
was able to undertake research it would have undertaken in any case . We therefore conclude that
the European Union has failed to demonstrate that Boeing's participation in the FAA CLEEN
Program, through the Boeing CLEEN Agreement, created or accelerated the developme nt and
creation of the variable area fan nozzles and adaptive trailing edges that are alleged to feature on
the 737 MAX. T he European Union has therefore failed to demonstrate the existence of new
technology effects of the particular post-2006 aeronautics R&D subsidies in respect of the 737 MAX
in the post-implementation period.3265
9.4.2.3 Summary of c onclusions on whether certain aeronaut ics R&D subsidies
benefiting the 737 MAX cause serious prejudice to the interests of the European Union,
within the meaning of Ar ticles 5(c) and 6.3, in respect of the A320neo in the
post-implementation period, through a technology causal mechanism
9.367. In this Section, we evaluate the European Union's arguments that the pre -2007
aeronautics R&D subsidies, through their effects on Boeing 's development of 787 technologies,
have "spilled over" to affect the technological development of the 737 MAX and the timing of its
launch (the spill -over technology effects), and that certain post -2006 aeronautics R&D subsidies
have led Boeing to develop other technologies which also affect this aircraft's technological
development and the timing of its launch (the new technology effects).
9.368. As regards the spill-over technology effects of the pre-2007 aeronautics R&D subsidies, we
refer to the original pan el's finding that the effect of the pre -2007 aeronautics R&D subsidies was
to accelerate Boeing's development of the 787 technologies (rather than to create technologies
that would not otherwise exist), and our conclusion in Section 9.3.2.1.1, that the European Union
has failed to demonstrate that, absent the pre -2007 aeronautics R&D subsidies, Boeing would
have launched the 787 after the end of the implementation period in September 2012. We explain
that, owing to this finding, the onus is on the European Union to demonstrate that, absent the
acceleration effect of the pre -2007 aeronautics R&D subsidies on Boeing's development of 787
technologies, Boeing would not have had sufficient time to further develop technologies that wou ld
have enabled it to launch the 737 MAX in 201 1. We conclude that the European Union has not
provided credible evidence that, absent the pre -2007 aeronautics R&D subsidies, the 787
technologies that Boeing would have developed could not have been adapted and further
developed for the 737 MAX in sufficient time to enable Boeing to launch the 737 MAX in

3264 Airbus Engineer's Statement, (Exhibit EU-31) (BCI), para. 121. See also Airbus Engineer's
Statement, (Exhibit EU-31) (BCI), para. 16 (referring to Boeing, Fact Sheet, "The Suite of Technologies on the
ecoDemonstrator Tests New Ways to Reduce Fuel Consumption and Community Noise", June 2012, (Exhibit
EU-262)).
3265 Given the European Union's request that if we reject its arguments that the particular, identified
post-2006 aeronautics R&D subsidies operate through a technology causal mechanism, we consider in the
alternative whether they should be analysed as operating through a price causal mechanism, we will address
whether these particular, identified post-2006 aeronautics R&D subsidies operate through a price causal
mechanism in Section 9.4.3.3 below.

August 2011. This is sufficient to enable the Panel to reject the European Union's argument
regarding spill-over technology effects in relation to the 737 MA X without addressing whether
there is in any case a sufficient technological link between the 787 technologies and the features of
the 737 MAX that the European Union alleges are derived from the 787 technologies.
9.369. As regards the new technology effects of certain post-2006 aeronautics R&D subsidies, we
explain that there are three such subsidies that are alleged to have affected Boeing's development
of certain technologies for the 737 MAX: (a) NASA's ERA Project and the Subsonic Fixed Wing
Project under NAS A's Fundamental Aeronautics Program; (b) the DOD KC -46, Next Generation
Aerial Refueling Aircraft program element; and (c) the ecoDemonstrator programme pursuant to
the Boeing CLEEN Agreement.
9.370. We reject the arguments regarding the NASA aeronautics R&D programmes above because
they are based on results of a study published by NASA, without any indication of whether Boeing
participated in the study in question, and if so, how and through which instruments. There is also
no evidence as to the degree to which the study in question contributed to solving the
technological problems or to Boeing's decision to incorporate the relevant technologies onto the
737 MAX. We reject the arguments regarding the DOD KC-46, Next Generation Aerial Refueling
Aircraft program el ement because the KC -46, Next Generation Aerial Refueling Aircraft program
element is outside the scope of the proceeding. Finally, we decline to analyse the Boeing CLEEN
Agreement as contributing to Boeing's development of technologies for the 737 MAX bec ause the
nature of the R&D performed is testing, validation and refinement of late -stage technologies.
Unlike the R&D that Boeing performed under the pre -2007 aeronautics R&D subsidies, the R&D
performed by Boeing under the Boeing CLEEN Agreement is R&D that Boeing would otherwise (and
could otherwise) have performed itself. As the Boeing CLEEN Agreement is a cost -sharing
arrangement, we consider the material contribution of that subsidy is to lower Boeing's costs of
undertaking late stage testing and valid ation work. We will therefore consider whether, analysed
as operating through a price causal mechanism, this post -2006 aeronautics R&D subsidy can be
said to affect Boeing's LCA prices.
9.371. Finally, in Section 9.3.2.1.4, we reject the European Union's argument that research
Boeing conducted under NASA's Subsonic Fixed Wing Project related to the development of
PRSEUS composite materials or Boeing's research and testing of VAFN, RFID devices, adaptive
trailing wing edge technology or a modified winglet can give rise to "future technology effects" that
could constitute a threat of serious prejudice, within the meaning of Article 5(c) and footnote 13
and Article 6.3 of the SCM Agreement. This finding is similarly relevant to our assessment here.
9.372. In conclusion, we reject the European Union's arguments concerning the existence of
various alleged technology effects of the pre -2007 aeronautics R&D subsidies and certain post -
2006 aeronautics R&D subsidies in respect of the 737 MAX in the post-implementation period.
9.373. Because the European Union has failed to demonstrate any effect s of the pre -2007
aeronautics R&D subsidies, or of the particular, identified post-2006 aeronautics R&D subsidies, on
Boeing's product development in re spect of the 737 MAX in the post -implementation period, the
possibility of any consequent impact of those subsidies on sales and prices of the A320neo does
not arise.3266 Accordingly, there is no basis on which the pre-2007 aeronautics R&D subsidies or
the particular, identified post -2006 aeronautics R&D subsidies can be found to be a genuine and
substantial cause of any of the forms of serious prejudice alleged in respect of the A320neo in the
post-implementation period, through a technology causal mechanism.
9.4.3 Whether the post -2006 subsidies benefiting the 737 MAX and 737NG cause
serious prejudice to the interests of the European Union, wit hin the meaning of
Articles 5(c) and 6.3, in respect of the A320neo and A320ceo in the post-implementation
period, through a price causal mechanism
9.374. The European Union argues that certain unwithdrawn subsidies that the United States
grants and maintains since the end of the reference period in the original proceeding (the
post-2006 subsidies), through their effects on Boeing's pricing of the 737 MAX in certain
price-sensitive LCA sales campaigns, considered collectively with the effects of certain aeronautics
R&D subsidies on Boeing's technology developments for the 737 MAX, cause various forms of

3266 See para. 9.341 above.

serious prejudice with respect to the A320neo in the post-implementation period. It further argues
that the post -2006 subsidies, through their effects on Boeing's pricing of the 737NG in certain
price-sensitive LCA sales campaigns, cause various forms of serious prejudice with respect t o the
A320ceo in the post-implementation period.
9.375. In Section 9.4.2 above, the Panel conclude s that the European Union has failed to
demonstrate the first part of its serious prejudice argument in relation to the 737 MAX and
A320neo; namely, that the various aeronautics R&D subsidies affected Boeing's development of
technologies for the 737 MAX in the post -implementation period. The consequence of this
conclusion is that the technological advancements (including the timing of del ivery) of the 737
MAX cannot be considered to be an effect of the subsidies.
9.376. This means that the remaining element of the European Union's serious prejudice case
regarding the A320neo that we must address is whether the post-2006 subsidies have enabled
Boeing to lower the prices of the 737 MAX in certain highly competitive LCA sales campaigns ,
thereby causing serious prejudice with respect to the A320neo in the pos t-implementation period.
We note that the European Union also argues that the post-2006 subsidies have enabled Boeing to
lower the pri ces of the 737NG only in certain highly competitive LCA sales campaigns , thereby
causing serious prejudice with respect to the A320ceo in the post-implementation period. Given
our finding that the 737 MAX, 737NG, A3 20neo and A320ceo compete in one LCA product market
for narrow-body, single-aisle LCA, we will consider whether the post -2006 subsidies, through their
effects on Boeing's prices of the 737 MAX and 737NG, are a genuine and substantial cause of
significant l ost sales of the A320neo and A320ceo, of i mpedance as well as displace ment of
A320neo and A320ceo imports (to the United States) and exports (to certain third country
markets), and of significant price suppression of the A320neo and A320ceo , and threats of all of
the foregoing, in the post-implementation period.
9.377. In Section 9.2.3, we explain that we shall conduct our anal ysis of the effects of the
post-2006 subsidies that operate through a price causal mechanism by aggregating them into one
of three categories: (a) tied tax subsidies, comprising the Washington State and City of Everett
B&O tax rate reductions, the receipt of which is contingent on the sale of particular Boein g LCA on
a per-unit basis; (b) state and local cash flo w subsidies, comprising incentives provided by state
and municipal authorities in Washington and South Carolina related to Boeing's LCA production
activities in those jurisdictions, but which are not related to LCA production on a per -unit basis;
and (c) post-2006 aeronautics R&D subsidies, which the European Union argues enable Boeing to
use intellectual property to continue developing technologies for future LCA without having to pay
licence fees.
9.4.3.1 The Washington State B&O tax rate reduction
9.378. The subsidy within the tied tax subsidies aggregated category that is alleged to benefit the
737 MAX and 737NG is the Washington State B&O tax rate reduction. This subsidy reduces the
state B&O taxes applicable to the revenues earned from the sale of 737 MAX and 737NG aircraft,
lowering Boeing's taxes and thereby increasing Boeing's after-tax profits.3267
9.379. We have previously explained the parties' general arguments as to t he nature and
operation of the tied tax category of post -2006 subsidies in connection with our analysi s of the
effects of these subsidies on Boeing's 787 and 777X prices in the wide -body, twin -aisle LCA
markets.3268 In Section 9.3.2.2.1 of this Report we explain ed the approach taken by the Appellate
Body to determining whether the FSC/ETI subsidies and Washington State B&O tax rate reduction
in the original proceeding, given their nature as tied tax subsidies, the dynamics of price
competition between Boeing and Airbus in a duopolistic market, and the way that the tied tax
subsidies are said to be applied by Boe ing to lower prices in certain price-sensitive sales
campaigns, contributed in a genuine and substantial way to the lowering of Boeing's prices. 3269
Based on this approach, we then proceeded to evaluate the sales campaign evidence to determine
whether any of the sales campaigns involving wide-body, twin-aisle aircraft were price-sensitive, in
the sense that Boeing appeared to be under particular pressure to reduce its prices in order to
secure the sales, and whether there were any non-price factors that explained Boeing's success in

3267 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1806.
3268 See paras. 9.235 through 9.237 above.
3269 See paras. 9.239 through 9.241 above.

obtaining the sale ; e.g. Boeing's incumbency and a consequent switching cost advantage, the
suitability of the aircraft for the particular customer's requirements (in terms of range, capac ity
and delivery availability). Had we concluded that Boeing appeared to be under particular pressure
to reduce its prices in order to secure the sales, and that there were no non-price factors that
explained Boeing's success in obtaining the sale, we would have concluded that the tied tax
subsidies contributed in a genuine and substantial way to the lowering of Boeing's LCA prices in
the wide -body, twin -aisle LCA markets . As a second step in the analysis, we would then have
addressed the United States' argument concerning the relative insignificance of the magnitudes by
determining whether, on the basis of the evidence before us, the magnitudes of the tied tax
subsidies were enough to "cover the margin of victory between the final net prices of Boeing and
Airbus"3270 such that the tied tax subsidies, through their effects on Boeing's prices, are a genuine
and substantial cause of lost sales of the A350XWB.
9.380. We will follow the same approach in analysing the effects of the Washington State B&O tax
rate reduction on Boeing's 737 MAX and 737NG prices in so-called price-sensitive sales campaigns,
and their consequent effect on A320neo and A320ceo sales. We therefore begin by examining the
sales campaign evidence involving the 737 MAX and 737NG on the one hand, and the A320neo
and A320ceo, on the other, to determi ne whether, in any of these campaigns, Boeing appeared to
be under particular pressure to reduce its prices in order to secure the sales, and whether there
were no non-price factors that explained Boeing's success in obtaining the sale.
9.4.3.1.1 The sales campaigns involving competition between the 737 MAX and
A320neo and the 737NG and A320ceo
9.381. The European Union submits eviden ce concerning certain LCA sales campaigns involving
the 737 MAX and A320neo, and the 737NG and A320ceo, betwe en 2007 and 2015 which it argues
are highly competitive, and instances where Boeing did in fact act on its incentive, enabled by the
receipt of subsidies, to offer pricing concessions that enabled it to secure the sales at the expense
of Airbus. The main details concerning these sales campaigns are set forth in Table 12 below3271:

3270 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1263.
3271 The year following the name of the airline customer designates the date of the order, although in
some cases much of the sales campaign activity may have taken place in the preceding year. For this reason,
the years of the sales campaigns as designated by the Panel may differ in certain cases from the years of those
campaigns as indicated in the European Union's submissions, which appear generally to refer to the year in
which the sales campaign was conducted.

Table 12: Alleged lost sales of the A320neo and A320ceo in the post-implementation
period due to the 737 MAX and 737NG
Sales campaigns alleged to demonstrate lost sales of both the A320neo and the A320ceo due to the
737 MAX and the 737NG3272

Campaign Number of 737NG
orders
Number of 737 MAX
orders A320neo /A320ceo3273
American Airlines 2011 100, plus 40 options 100, plus 60 options 260 single-aisle aircraft
Southwest Airlines 2011 58 150 None
Southwest Airlines 2013
("Follow-on")
5 50 None
Avolon 2012 10 15 20 (A320neo)
Norwegian Air Shuttle
2012
22 100 100 (A320neo)
United Airlines 2012 and
2013
64, of which 50 in 2012
and 14 in 2013
100 None

SilkAir 2012 23 31 None
Lion Air 2012 29 201 174 (A320neo)
60 (A320ceo)
Fly Dubai 2014 11 75, plus 25 purchase
rights
None

Sales campaigns alleged to demonstrate lost sales of the A320neo due to the 737 MAX

Campaign Number of 737NG
orders
Number of 737 MAX
orders A320neo/A320ceo
GOL 2012 None 60 None

Avolon 2014 ("Follow-on")

None 5 None
Aviation Capital Group
2012
None 60 30 (A320neo)
Aeromexico 2012

None 60 None
Icelandair 2013

None 16 None
TUI Travel 2013

None 60, plus 90 options None
Air Canada 2013

None 61, plus 18 options and
30 purchase rights
None
Monarch Airlines 2014

None

30, plus 15 options None
SilkAir 2015 ("Follow-on")

None 63274 None

3272 The European Union had also challenged the Air Lease Corp 2012 and GECAS 2012 single-aisle
campaigns, but does not pursue its arguments in relation to these campaigns on account of both airlines
having subsequently announced a number of Airbus orders. (European Union's response to Panel question
No. 169, para. 408).
3273 Certain of the campaigns cited by the European Union are "split campaigns" in that the customer
divided the order across both Airbus and Boeing.
3274 We note that the European Union argues that this "follow-on" order consisted of seven 737 MAX
aircraft. However, the evidence presented by the European Union only shows an order for six 737s, without
specifying whether the aircraft concerned are 737 MAX or NG. (European Union's response to Panel question
No. 169, para. 407, and table at para. 329; and Boeing website, Orders and Deliveries – 2015 Net Orders,
through 22 September 2015, available at <http://www.boeing.com/commercial/#/orders-deliveries>,
accessed 8 August 2016, (Exhibit EU-1568)).

Sales campaigns alleged to demonstrate lost sales of the A320ceo due to the 737NG

Campaign Number of 737NG
orders
Number of 737 MAX
orders A320neo/A320ceo
Fly Dubai 2008

50 None None
Delta Airlines 2011

100 None None
The data in Table 12 above is supported by the following ev idence: Boeing Press Release, "Boeing and
American Airlines Agree on Order for up to 300 Airplanes", 20 July 2011, (Exhibit EU -883); "American Airlines
Deal Seen as Win for Airbus, Bad Omen for Boeing", Ascend Advisory, 21 July 2011, (Exhibit EU-886); "Boeing
Orders Likely to Survive American Bankruptcy" , Seattle Times, 29 November 2011 , (Exhibit EU-891); Boeing
Press Release, "Boeing 737 MAX Logs First Firm Order from Launch Customer Southwest Airlines", 13
December 2011, (Exhibit EU -896); Boeing website, Orders and deliveries – 2013 Orders Detail, available at
<http://www.boeing.com/commercial/#/orders-deliveries>, last accessed 8 August 2016, (Exhibit EU -1647);
Boeing Press Release, "Boeing Announces Historic 737 Order for United Airlines", 12 July 2012, (Exhibit
EU-912); Boeing website, Orders and Deliveries – 2013 Net Orders, through 9 July 2013, available at
<http://www.boeing.com/commercial/#/orders-deliveries>, last accessed 7 August 2016, (Exhibit EU -1185);
Boeing website, Orders and Deliveries – 2013 Orders Detail, through June 2013, available at
<http://www.boeing.com/commercial/#/orders-deliveries>, accessed 8 August 2016, (Exhibit EU -1151);
Boeing Press Release, "Boeing Statement on SilkAir Commitment to order 737s", 3 August 2012, (Exhibit
EU-922); Boeing website, Orders and Deliveries – Customer Summary SilkAir, through February 2013,
available at <http://www.boeing.com/commercial/#/orders -deliveries>, accessed 8 August 2016, (Exhibit EU -
923); Boeing Press Release, "Boeing, Lion Air Finalize Hist oric Order for up to 380 737s", 14 February 2012,
(Exhibit EU-961); Airbus Press Release, "Lion Air orders 234 A320 Family aircraft", 18 March 2013, (Exhibit
EU-962); Boeing Press Release, "Boeing, flydubai Finalize Order for 75 737 MAXs", 6 January 2014, (Exhibit
EU-1598); Boeing Press Release, "Boeing, GOL Announce order for 60 737 MAX Airplanes", 1 October 2012,
(Exhibit EU-940); Boeing Press Release, "Boeing and Norwegian Announce Order for 100 737 MAX; 22 Next -
Generation 737s", 25 January 2012, (Exhibit EU-944); Airbus Press Release, "Norwegian firms up order for 100
Airbus A320neo", 8 June 2012, (Exhibit EU -948); Boeing Press Release, "Boeing, Avolon Announce
Commitment for 737 MAXs and Next -Generation 737s", 11 July 2012, (Exhibit EU -965); Boeing webs ite,
Orders and Deliveries – Customer Summary Avolon, through February 2013, available at
<http://www.boeing.com/commercial/#/orders-deliveries>, last accessed 8 August 2016, (Exhibit EU -966);
Airbus Press Release, "Avolon increases initial NEO commitment by signing order for 20", 10 January 2013,
(Exhibit EU -967); Boeing Press Release, "Boeing, Avolon Announce Commitment for 787 Dreamliners,
Additional 737 MAXs", 14 July 2014 , (Exhibit EU -1646); Boeing Press Release, "Boeing, Aeromexico Finalize
Order for 737 MAX 8s and 9s", 6 November 2012, (Exhibit EU -871); Boeing Press Release, "Boeing, Icelandair
Finalize Order for 16 737 MAX Airplanes", 13 February 2013, (Exhibit EU -988); "TUI Travel to Buy 60 Boeing
737 MAX Aircraft", BBC News, 31 May 2013, (Exhibit E U-1217); C. Buyck, "TUI Travel Firms Up Boeing 737
MAX Order", Aviation Week, 17 June 2013, (Exhibit EU -1218); Air Canada Press Release, "Air Canada Selects
Boeing 737 MAX to Renew Mainline Narrowbody Fleet", 11 December 2013, (Exhibit EU -1571); Boeing Pre ss
Release, "Boeing Statement on Air Canada 737 MAX Commitment", 11 December 2013, (Exhibit EU -1572);
Boeing Press Release, "Boeing, Air Canada Finalize Order for 61 737 MAXs", 1 April 2014, (Exhibit EU -1573);
Boeing Press Release, "Monarch Airlines Finali ze Order for 30 787 MAX 8s ", 31 October 2014, (Exhibit
EU-1624); Boeing Press Release, "Monarch Airlines Selects Boeing as Preferred Bidder for Fleet Replacement",
14 July 2014, (Exhibit EU -1625); Boeing website, Orders and Deliverie s – 2015 Net Orders, th rough
22 September 2015, available at <http://www.boeing.com/commercial/#/orders -deliveries>, accessed
8 August 2016, (Exhibit EU -1568); Boeing Press Release, "Boeing, Fly Dubai Announce Next -Generation 737
Order", 14 July 2008, (Exhibit EU -1008); and Delta Press Release, "Delta Announces Order for 100 Boeing
737-900ER Aircraft", 25 August 2011, (Exhibit EU-1001).

9.382. The evidence submitted in relation to the above sales campaigns includes information
concerning: (a) the aircraft that were offered by Airbus an d Boeing, respectively, to customers in
each sales campaign; (b) the particular needs of the airline customer in terms of factors such as
seating capacity, range and routes to be served, efficiency and delivery dates; and (c) the
dynamics of the pricing in teractions between Airbus and Boeing, on the one hand, and the airline
customer or leasing company on the other, through repeated rounds of negotiations. This evidence
allows the Panel to assess with a high degree of confidence the extent to which the sale s
campaigns were or were not particularly price -sensitive. While some of the sales campaign
evidence is in the public domain (e.g. the information concerning the terms of the aircraft orders
ultimately placed by the customer), a significant part of it, especially as regards the internal Airbus
communications describing Airbus' sales strategies and evaluating the competing Airbus and
Boeing offers, is designated as HSBI. Therefore, in the discussion that follows, we provide a non -
confidential summary of our conclusions regarding the extent to which the outcomes of the
individual sales campaigns appeared to turn on the price of the competing offers. Our detailed

analysis of the evidence pertaining to each sales campaign is set forth in an HSBI Appendix to the
Report.3275
9.383. We conclude, based on our evaluation of the sales campaign evidence concerning the
A320neo and A320ceo, that in five sales campaigns between 2007 and 2015 , Boeing appeared to
be under particular pressure to reduce its pri ces in order to secure th e sale, and there were no
non-price factors that explain Boeing's success in obtaining the sale .3276 While pricing was
discussed in certain of the other single-aisle sales campaigns, Boeing does not appear to have
been under particular pressure to reduce its prices in order to secure these sales, and there were
non-price factors that explain Boeing's success in obtaining the order s, or in the case of split
orders, the portion of the order s that it obtained. In the majority of these LCA sales campaigns, a
critical factor was Boeing's status as the incumbent aircraft supplier. 3277 Another critical factor in
many of these campaigns was the airline customer's preference for the delivery availability of the
Boeing aircraft over the competing Airbus aircraft. 3278 The size and timing of certain airline
customers' fleet replacement needs also featured as a decisive factor in some campaigns, meaning
that some orders could simply not be met by a single manufacturer and therefore necessarily
resulted in split orders.3279 In other campaigns, vital factors included the technical performance of
competing aircraft.3280 We conclude that in each of these other sales campaigns there were other
factors that explain why Airbus either did not win the sale, or in the case of the sales campaigns
that involved split orders, why there was no basis to conclude that Boeing's pricing resulted in the
customer awarding a greater portion of the order to Boeing (and thus a lesser portion to Airbus)
than would otherwise have been the case.3281
9.384. Accordingly, based on the reasoning of the Appellate Body when analysing the effects of
the FSC/ETI subsidies on Boeing's prices in the original proceeding, we conclude that the
Washington State B&O tax rate reduction contributed in a genuine and substantial way to the
lowering of Boeing's prices of narrow -body, single-aisle LCA in five LCA sales campaigns between
2007 and 2015.
9.385. As the European Union has demonstrated that the Washington State B&O tax rate
reduction affected Boeing's pricing behaviour with respect to the 737 MAX and 737NG in five price-
sensitive sales campaigns between 2007 and 2015, we will next consider whether , on the basis of
the evidence before us, the magnitudes of the Washington State B&O tax rate reduction were
enough to "cover the margin of victory between the final net prices of Boeing and Airbus" 3282 such
that this subsidy, through its effects on Boeing's prices, is a genuine and substantial ca use of lost
sales of the A320neo and A320ceo.
9.4.3.1.2 Whether the Washington State B&O tax rate reduction is a genui ne and
substantial cause of significant lost sales of the A320neo and A320ceo in the
post-implementation period
9.386. The principal argument that the United States makes is that the magnitudes of the tied tax
subsidies are too small to cause adverse effects. 3283 The United States emphasi zes that, in the
original proceeding, the Washington State and City of Everett B&O tax rate reductions were found
to cause adverse effects only when aggregated with FSC/ETI subsidies. It considers that, now that
the FSC/ETI subsidies are not relevant to the analysis, the B&O tax rate reductions are too small
to cause the alleged market phenomena and therefore cannot support a conclusion that they are a
genuine and substantial cause of such phenomena.3284

3275 See HSBI Appendix (Appendix 2).
3276 Fly Dubai 2008, Delta 2011, Icelandair 2013, Air Canada 2013, and Fly Dubai 2014.
3277 See HSBI Appendix (Appendix 2), paras. 179, 187, 194, 210, 216, 222, 237, 243, and 257.
3278 See HSBI Appendix (Appendix 2), paras. 194, 200, 216, and 237.
3279 See HSBI Appendix (Appendix 2), paras. 179 and 222.
3280 See HSBI Appendix (Appendix 2), paras. 216 and 257.
3281 Several of the single-aisle LCA sales campaigns involved split orders of both Airbus and Boeing
aircraft: American Airlines (2011), Norwegian Air Shuttle (2012), Lion Air (2012), Avolon (2012 and 2014), and
Aviation Capital Group (2012).
3282 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1263.
3283 United States' first written submission, paras. 719-721; second written submission, paras. 863-865.
3284 To recall, in the original proceeding the FSC/ETI subsidies amounted to USD 435 million between
2004 and 2006. The Washington State and City of Everett B&O tax rate reductions amounted to USD 13.8 and

9.387. We do not agree with the United States that, simply because the amounts of the
Washington State B&O tax rate reduction were considered too small to cause adverse effects on
their own in 2004-2006, far greater amounts of th is subsidy in the 2013-2015 period are similarly
incapable of causing adverse effects after the end of the implementation period.
9.388. The amount of the FSC/ETI subsidies, which were found in the original proceeding to have
caused adverse effects, was USD 435 million over a 2004 -2006 reference period. The combined
amounts of the Washington State and City of Everett B&O tax rate reductions over the same three
year period was USD 16 million. 3285 Although the FSC/ETI subsidies are no longer relevant to the
analysis, the amounts of the Washington State B&O tax rate reduction have increased significantly
from the amounts that were found to exist in the 2004 -2006 reference period in the original
proceeding.3286 We estimate the total amount of the Washington State B&O tax rate reduc tion to
be approximately USD 325 million over the equivalent three year period 2013 - 2015.3287
9.389. In its first written submission in this proceeding, the United States estimates the average
annual amounts of the tied tax subsidies between 2007 and 2012, divided by the number of
relevant Boeing aircraft (787, 737 MAX, and 737NG) implicated in the sales campaigns between
2007 and 2012 that the European Union alleges are evidence of significant lost sales. 3288 This
results in a per-aircraft rate of subsidisation of USD [***] for each 737 MAX and 737NG involved
in the allegedly price-sensitive LCA sales campaigns submitted by the European Union as evidence
of significant lost sales of the A320neo and A320ceo .3289 The United States compares these per -
aircraft subsidization rates to average list prices of the 737 MAX and 737NG, as well as average
actual prices of the Boeing LCA in sales campaigns subject to the Panel's request for information
pursuant to Article 13 of the DSU.3290 These comparisons are presented in Table 13 below. Owing
to the fact that the a verage actual prices are HSBI, the Panel has calculated estimated average
actual prices, based on an assumed average discount off list prices, in order to provide a sense of
those average actual prices.

USD 2.2 million respectively, over the same period. (See Panel Report, US – Large Civil Aircraft (2nd
complaint), para. 7.1811).
3285 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1811.
3286 Section 8.2.7.2.2 above.
3287 See para. 8.670 above.
3288 The subsidy amounts used by the United States in this calculation are based on its own estimates,
which as explained in Section 8.2.7.2.2.1, are somewhat [***] the Panel's estimates (although not
significantly so).The number of aircraft alleged to be lost sales of the A350XWB, A320neo and A320ceo
between 2007 and 2012 is 1,830. The United States says that its allocation of the annual tax savings from the
B&O tax rate reductions over 305 aircraft per year is conservative because it is based on the assumption that
Boeing would only use the tied tax subsidies to lower LCA prices in the sales campaigns that the
European Union alleges to be lost sales in this proceeding, rather than all sales campaigns that Boeing won
over this period. (United States' first written submission, paras. 821 and 822).
3289 Compilation of Number of Boeing Aircraft Sold in Alleged Lost Sales Campaigns and Related
Calculations, (Exhibit USA-295) (HSBI). The United States' methodology determines the average annual
amount of the Washington State (and where applicable, City of Everett) B&O tax rate reductions between 2007
and 2012. It then determines the number of sales of the 787 and 737 (both MAX and NG) between 2007 and
2012, and determines the average number of sales of each plane per year in the sales campaigns challenged
by the European Union. It divides the annual amount of the Washington State B&O tax rate reduction by the
number of sales of the 787, 737 MAX, and 737NG, and the annual amount City of Everett B&O tax rate
reduction by the number of sales of the 787. This is to take into account that the Washington State B&O tax
rate reduction applies to both the 787 and the 737 families of LCA.
3290 United States' response to Panel question No. 164, paras. 69-77. For the sales campaigns subject to
the Panel's request for information pursuant to Article 13 of the DSU, see annex 1 to the Panel's request to the
United States for information pursuant to Article 13 of the DSU, dated 18 December 2012.

Table 13: Comparisons of per-aircraft rates of subsidization with per aircraft prices
LCA model
Per-aircraft rate of
subsidisation3291
USD
Average 2012 list
price3292
USD
Average actual
2012 price3293
USD
Estimated
average actual
price3294
USD
787

[***] 225 million [[HSBI]] 126 million
737 MAX

[***] 96.6 million [[HSBI]] 54.1 million
737NG3295

[***] 86.2 million [[HSBI]] 48.3 million

9.390. The United States concludes that the per -aircraft rates of subsidization are dwarfed by the
actual prices of the aircraft in question, demonstrating that the tie d tax subsidies could not
possibly have caused the adverse effects alleged by the European Union.3296
9.391. In the original proceeding, the Appellate Body discu ssed how the magnitudes of the tied
tax subsidies should be taken into account in assessing their impact on Boeing's prices:
Depending on the circumstances of each case, an assessment of whether subsidy
amounts are significant should not necessarily be limited to a mere inquiry into what
those amounts are, either in absolute or per-unit terms. Rather, such an analysis may
be situated within a larger inquiry that could, for instance, entail viewing these
amounts against considerations such as the size of the market as a whole, the size of
the subsidy recipient, the per -unit price of the subsidised product, the price elasticity
of demand, and, depending on the market structure, the extent to which a subsidy
recipient is able to set its own prices in the market, and the extent to which rivals are
able or prompted to react to each other's pricing within that market structure.3297
9.392. We therefore briefly set forth the evidence before the Panel pertaining to the factors
identified by the Appellate Body as being potentially relevant to an assessment of the magnitudes
of subsidies and their impact on Boeing's prices. Narrow -body, single-aisle LCA represented in the
vicinity of USD 61.9 billion, 63.4 billion and 18 billion in sales, based on the Panel's approximation
of order values, in the 2013 -2015 period.3298 Boeing's Commercial Airplanes segment 3299 reported

3291 United States' first written submission, paras. 820-824.
3292 United States' response to Panel question No. 164 (citing European Union's first written submission,
paras. 894, 898, and 923). The United States calculates the average list price of the 737 MAX, 737NG, and 787
by averaging the 2012 list price across each family's size variations.
3293 United States' response to Panel question No. 164, paras. 69-76. These are the average actual
prices paid in sales campaigns subject to the Panel's Article 13 request (see annex 1 to the Panel's request to
the United States for Information pursuant to Article 13 of the DSU, dated 18 December 2012).
3294 This calculation was made using an estimated discount of 44% off the average 2012 list-price of the
relevant LCA. The 44% discount is the average discount from 2012 list prices of Boeing LCA estimated in the
International Trade Resources Report submitted by the European Union in connection with its calculation of the
annual amounts of the Washington State B&O tax rate reduction. (See ITR Report, (Exhibit EU-25), para. 11).
3295 The United States appears to have made an error in calculating the 2012 average list price of the
737NG. It states that the average list price of the 737NG is USD 96.6 million, which is the same as the average
list price for the 737 MAX. The correct 2012 average list price for the 737NG, based on the figures that the
United States cites from the European Union's first written submission, is USD 86.2 million. (See United States'
response to Panel question No. 164 (citing European Union's first written submission, para. 894)).
3296 United States' first written submission, paras. 819-824; response to Panel question No. 164,
paras. 69-79; and comments on the European Union's response to Panel question No. 164, paras. 146-155.
3297 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1193. (emphasis original)
3298 These approximate order values were obtained by multiplying estimates of actual prices for the 737
MAX and 737NG by the number of orders of each LCA model between 2013 and 2015, reported in the Ascend
data base submitted by the European Union. (See Ascend data base, Orders, data request as of
29 September 2015, (Exhibit EU-1658)). The estimated actual prices of USD 54.1 million and USD 48.3 million
for the 737 MAX and 737NG, respectively, were obtained by applying a 44% discount rate to their 2012
average list prices. The estimated discount rate of 44% is from the International Trade Resources Report
submitted by the European Union. (See ITR Report, (Exhibit EU-25)).
3299 Boeing's activities are organized into five principal segments, of which "Commercial Airplanes" is
one. The other segments are the three Defense, Space & Security segments (Boeing Military Aircraft, Network
& Space Systems and Global Services & Support), and Boeing Capital. Boeing's Commercial Airplanes segment
occupies floor space for manufacturing, warehousing, engineering, and other productive uses in Greater Seattle
(the State of Washington), Greater Charleston (South Carolina), Portland (Oregon), Greater Los Angeles

revenues of approxim ately USD 49 billion, 53 billion and 60 billion in 2012, 2013, and 2014,
respectively.3300 Its reported R&D expenses over the same period were approximately
USD 2 billion, 1.8 billion and 1.8 billion, respectively. 3301 As already noted in Table 13 above, the
estimated actual per -unit prices of a 737 MAX and 737NG (based on 2012 average list prices of
USD 96.6 million and USD 86.2 million, respectively) were approximately USD 54.1 million and
USD 48.3 million.
9.393. We have calculated the number and estimated value of Boeing 737 MAX and 737NG orders
(as well as the number and estimated value of 787, 777, and 777X orders) from 2013 -2015, as
set forth in Table 14 below.
Table 14: Number and estimated value of orders of Boeing LCA 2013-20153302
 Number and value of
orders in 2013
Number and value of
orders in 2014
Number and value of
orders to
September 20153303

777 55 orders 63 orders 34 orders
USD 8.7 billion USD 10 billion USD 5.4 billion

777X 66 orders 220 orders 20 orders
USD 13.7 billion USD 45.5 billion USD 4.1 billion

787 183 orders 50 orders 52 orders
USD 23.1 billion USD 6.3 billion USD 6.6 billion

737 MAX 699 orders 900 orders 206 orders
USD 37.8 billion USD 48.7 billion
 USD 11.1 billion

737NG 498 orders 305 orders 143 orders
USD 24.1 billion USD 14.7 billion USD 6.9 billion

Total value
of orders USD 107.4 billion USD 125.2 billion

USD 34.1 billion

9.394. We recall that the estimated total amount of the Washington State B&O t ax rate reduction
is approximately USD 325 million over the equivalent three year period 2013 - 2015.3304 It appears
that the ratios of subsidy to order value are not unlike those before the panel in the original
proceeding.3305 Of the figures in the original pr oceeding, the Appellate Body stated that, while it
was possible to observe "at a high level of generalization" that the annual value of Boeing's sales is
"many orders of magnitude greater than the annual value of the subsidies", this alone is not

(California), Greater Salt Lake City (Utah), Australia, and Canada. (Subsidies to Boeing's LCA Division
(2013-2014 Update), (Exhibit EU-1451), annex A: Boeing's Annual Report on Form 10-K for the fiscal year
ended 31 December 2014, p. 16).
3300 Subsidies to Boeing's LCA Division (2013-2014 Update), (Exhibit EU-1451), annex A: Boeing's
Annual Report on Form 10-K for the fiscal year ended 31 December 2014, item 6, Selected Financial Data.
3301 Subsidies to Boeing's LCA Division (2013-2014 Update), (Exhibit EU-1451), annex A: Boeing's
Annual Report on Form 10-K for the fiscal year ended 31 December 2014, p. 23.
3302 As explained in fn 3298 above, the estimated value of the orders each year is calculated by
multiplying the number of orders of each LCA model by an estimate of the actual price of that LCA model (as
opposed to list prices). The estimate of the actual price of each LCA model is obtained by applying a 44%
discount rate to the average 2012 list price of each model. The estimated discount rate of 44% is obtained
from the International Trade Resources Report submitted by the European Union. (See ITR Report, (Exhibit
EU-25)). The number of orders of each LCA model per year is based on the Ascend data base submitted by the
European Union. (See Ascend data base, Orders, data request as of 29 September 2015, (Exhibit EU-1658)).
3303 Includes orders until September 2015. (See Ascend data base, Orders, data request as of
29 September 2015, (Exhibit EU-1658)).
3304 See para. 8.670 above.
3305 See Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1814 and 7.1815.

indicative of the significance of the subsidy amounts. 3306 According to the Appellate Body, this is
because "even relatively small subsidies may have significant effects, depending on the nature of
the subsidies, and the circumstances in which those subsidies are rece ived, including the relevant
market structure and conditions of competition in that market."3307
9.395. The Panel sought to determine whether a price reduction enabled by a relatively small
subsidy could nevertheless have determined the outcome of a price -sensitive sales campaign.
Accordingly, in its third set of questions to the parties, the Panel asked both parties to provide
some indication of the magnitude of difference in Airbus and Boeing LCA pricing that had
determined the outcomes of any of the highly compet itive LCA sa les campaigns that the
European Union had identified as evidence of Airbus lost sales in this proceeding.
9.396. In response, t he United States points to two types of evidence on the record that it
considers useful in making this determination. The f irst involves the magnitudes of price
movements in the sales campaigns, based on information such as price lists and the initial and
final offer data in the sales campaign evidence. 3308 For sales campaigns involving single -aisle
aircraft, the United States refers to HSBI evidence for select single-aisle campaigns where Boeing's
final offer involved increases in direct price discounts in the range of USD [[HSBI]].3309 According
to the United States, the scale of such direct price discounts arising through the cour se of
negotiations in a campaign show s that the amounts of Washington State B&O tax rate reduction
are too small to plausibly be a genuine and substantial cause of significant lost sales. The second
type of evidence involves the European Union's calculatio ns of the differences between Boeing's
net aircraft prices and its appraised values, which the European Union had submitted as an
objective indicator of low pricing by Boeing given the difficulty of assessing net aircraft prices in a
non-transparent market context.3310 The United States argues that, although the European Union's
calculations are flawed, the magnitude of the differences, which for single -aisle aircraft average in
the vicinity of USD [[HSBI]], also reveals the relative insignificance of the Washington State B&O
tax rate reduction amounts.3311
9.397. The European Union considers that airframe list prices and discounts from list prices are
irrelevant as indicators of whether the subsidy magnitudes could have affected the outcomes of
the sales campaigns because published list prices are well known to be wholly unreliable guides to
the prices that customers actually pay. 3312 The levels of additional price discounts between initial
and final offers are no more illuminating, because LCA manufacturers understand that a sales
campaign will involve several rounds of bidding, requiring improved offers, and they therefore
factor the expectation of this strategic interaction into their initial offers. 3313 The European Union
similarly considers that differences between Boeing' s net prices and its appraised values say
nothing about the relative value between Boeing and Airbus offers, which is the relevant metric
that drives customers' purchasing decisions.3314
9.398. The European Union also argues that differences in actual pricing of LC A are not
meaningful in and of themselves because the "net prices" of Airbus and Boeing LCA offers obscure
price differences that arise from differences between the competing but nevertheless
"non-identical" aircraft in terms of their size and range, per -trip and per-seat operating costs and
timing of their availability, all of which must be assessed against the specific requirements of a
customer and that customer's cost of capital, among other factors. 3315 To overcome this lack of

3306 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1254.
3307 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1254. The Panel also
acknowledges Canada's argument that the fact that the effects of subsidies will likely vary depending on their
relative magnitude as compared to prices, production costs, overall size of the market or sales of a company in
the market holds true, in particular, in the case of a small subsidy. According to Canada, while a small subsidy
may have an effect on prices (depending on its nature, the circumstances of its provision, market structure and
conditions of competition), a panel must provide a reasoned and adequate explanation if it so concludes.
(Canada's third-party submission, paras. 50-53).
3308 United States' response to Panel question No. 164, para. 68.
3309 United States' response to Panel question No. 164, paras. 75 and 76.
3310 See European Union's comments on the United States' response to Panel question No. 164,
para. 144.
3311 United States' response to Panel question No. 164, paras. 78 and 79.
3312 European Union's comments on the United States' response to Panel question No. 164, para. 143.
3313 European Union's comments on the United States' response to Panel question No. 164, para. 143.
3314 European Union's comments on the United States' response to Panel question No. 164, para. 144.
3315 European Union's response to Panel question No. 164, para. 108.

comparability of prices offered by Airbus and Boeing for their competing LCA, customers account
for non-price factors through NPV assessments for the respective offers. 3316 The European Union
argues that the differences in NPVs between the respective offers of Airbus and Boeing in
particular sales campaigns are a "reliable surrogate" for the information concerning the differences
in sales campaign pricing requested by the Panel.3317
9.399. The European Union does not, however, provide an indication of the differences in
customers' NPV assessment s of the respective Airbus and Boeing offers for any individual sales
campaigns before the Panel. Rather, it submits a statement by Kiran Rao, Airbus' Executive Vice
President Strategy and Marketing. 3318 Mr Rao states that [[HSBI]]. The European Union then
presents a calculation of its allegations of the total amounts of all measures alleged to be specific
subsidies in this proceeding from 2007 through 2014 (including its estimates of the amounts of the
"financial contributions" provided through the post -2006 NASA aeronautics R&D measures based
on the " top-down" methodology discussed in Section 8.2.2.6) compared to Boeing's total annual
deliveries of aircraft between 2007 and 2014. The European Union's calculations result in
generalized per-aircraft subsidy amounts of USD 1.95 million, 1.93 million, and 1.86 million for
2012, 2013, and 2014, respectively, which the European Union argues exceeds the NPV difference
discussed by Mr Rao. On the basis of this comparison, the European Unio n asserts that the "per -
aircraft" amount of all of the subsidies significantly exceeds the typical difference in value between
the respective Airbus and Boeing offers in "closely fought and very competitive sales
campaigns".3319
9.400. We agree with the European Uni on that an analysis of the degree of magnitudes of price
movements in sales campaigns, or of the differences between Boeing's net prices and appraised
values, however measured, is of limited assistance in assessing whether a comparatively small
subsidy may make a difference to the outcome of a sales campaign. While we are mindful of the
limits to which customers' NPV analyses of competing offers can be relied upon, we consider that
this information could at least provide some indication of the potential for a comparatively small
price reduction to determine the outcome of a sales campaign.
9.401. However, w e do not accept the European Union's estimates of per -aircraft subsidy
amounts, because they are based on significantly flawed estimates of the amounts of the
subsidies. First, the amount estimate on which the European Union bases its per -aircraft subsidy
calculations covers not only the annual amounts of the tied tax subsidies benefiting the relevant
Boeing aircraft, but the alleged annual amounts of all post -2006 measures challenged by the
European Union, which it aggregates together into one single annual subsidy amount that is then
allocated over the number of Boeing LCA delivered in that year. Second, the European Union's
total amount estimate includes amount estimates for measures that we f ind are not specific
subsidies, and amount estimates for subsidies which we have rejected as not being an appropriate
measure of the amount of the subsidy, or otherwise not being the best evidence.3320
9.402. If the Panel replicates the United States' methodology for calculating the per -aircraft rates
of subsidization in 2007-2012 for the 2013-2015 period, based on our estimates of the amounts of
the Washington State B&O tax rate reduction in 2013-2015 and the aircraft involved in th e price-
sensitive sal es campaigns that occurred in the post -implementation period, we arrive at a per -

3316 As explained earlier in para. 9.21 when evaluating competing offers, airline and leasing company
customers quantify the projected economic value of the aircraft to that customer over a defined period of time,
taking into account price as well as various non-price factors such as delivery availability, fuel efficiency,
performance guarantees or financing assistance to arrive at a "net present value" (NPV) represented by each
aircraft manufacturer's offer. (Mourey Statement, (Exhibit EU-34) (BCI), paras. 44-61).
3317 European Union's response to Panel question No. 164, para. 108. The United States responds that
the European Union overstates the importance of NPV differences by treating them as determinative in sales
campaigns. According to the United States, NPV analysis is an important tool, but it is understood by
customers to be sensitive to inputs and assumptions that are uncertain or subjective. For this reason, small
differences in NPV between two offers would likely be viewed as immaterial by customers, and other factors
would determine the outcome of the sale. (United States' comments on European Union's response to Panel
question No. 164, para. 118). The United States provides a more detailed explanation of the specific limitations
of NPV analyses in paras. 119-129 and in the Statement of J. Wojick, Senior Vice President, Global Sales &
Marketing, Boeing Commercial Airplanes, (Exhibit USA-600) (HSBI).
3318 Statement of K. Rao, 6 October 2015, (Exhibit EU-1668) (HSBI). Mr Rao has responsibility for
pricing and the competitive positioning of Airbus products.
3319 European Union's response to Panel question No. 164, paras. 114 and 115.
3320 See Section 8.3 above.

aircraft rate of subsidization of approximately USD 1.99 million per 737 MAX and 737NG. 3321 This
amount does exceed the NPV difference that the evidence before us suggests can be determinative
of the outcomes of sales campaigns involving single -aisle aircraft, as well as what we are
reasonably able to infer regarding the differences in final net prices for the price-sensitive sales
campaigns in the post -implementation period , based on our analysis of the sales campaign
evidence.
9.403. While the sales campaign evidence does not provide direct evidence of the net prices of
the final Boeing and Airbus offers, the parties do allege approximate differences in net prices
between the competing Airbus and Boeing offers for some of the sales campaigns .3322 There is
HSBI evidence from the sales campaign that led to the Fly Dubai 2014 order from which it is
possible to infer that the difference between Boeing and Airbus final net p rices was in the vicinity
of [[HSBI]].3323 There is also evidence from the Air Canada 2013 campaign regarding the
magnitudes of the incremental proposals made by Airbus in the concluding stages of the campaign
that suggests that Airbus thought it was close en ough to Boeing on price that relatively small
improvements on price could affect the outcome of the campaign. 3324 The evidence from the sales
campaigns in respect of the Icelandair 201 3 order could suggest a somewhat larger price
differential than appears fro m the evidence in the Fly Dubai and Air Canada campaigns, however,
this is somewhat contradicted by other evidence that Airbus' final offer for both the A320neo and
A320ceo was [[HSBI]], which suggests that at the final stage, Airbus had closed the gap. 3325 We
also recall the evidence submitted by the European Union, which the United States does not
appear to contradict, that in certain price -sensitive sales campaigns involving single-aisle LCA, the
NPV differences can be as small as [[HSBI]].3326 The HSBI evidence from the Fly Dubai 2008 and
Delta 2011 campaigns suggests that the difference in net prices in those campaigns were
approximately [[HSBI]]3327 and [[HSBI]]3328 which indicates that the magnitudes of the
Washington State B&O tax rate reduction were capable of enabling at least a portion of Boeing's
pricing advantage, contributing in substantial part to its winning those campaigns.
9.404. We are therefore satisfied that the Washington State B&O tax rate reduction , through the
effects on Boeing's pricing, contributed i n a genuine and substantial way to determining the
outcome of price -sensitive sales campaigns involving the 737 MAX and 737NG and the A320neo
and A320ceo in the Fly Dubai 2014, Air Canada 2013 and Icelandair 2013 campaigns.3329
Accordingly, we consider that the effects of the Washington State B&O tax rate reduction were lost
sales of the A320neo and A320ceo in the Fly Dubai, Air Canada, and Icelandair sales campaigns in
the 2013-2015 period.3330

3321 Applying the United States' methodology, the Panel divides the total amount of the Washington
State B&O tax rate reduction for 2013-2015, based on the Panel's estimate (USD 325 million) for an average of
USD 108.3 million per year, by an average of 54.3 single-aisle aircraft orders per year for 2013-2015
(calculated from the total of 11 737NGs and 152 737 MAX ordered from the Fly Dubai 2014, Air Canada 2013
and Icelandair 2013 campaigns, divided by three), to arrive at approximately USD 1.99 million
(USD 1.994 million) per single-aisle aircraft ordered in price-sensitive LCA sales campaigns between 2013 and
2015.
3322 However, neither party provides direct evidence concerning the magnitudes of difference in Boeing
and Airbus pricing that had determined the outcomes of any of the sales campaigns at issue.
3323 HSBI Appendix (Appendix 2), fn 588. Three of the five LCA sales campaigns that we find to be
price-sensitive occurred in the post-implementation period: Fly Dubai 2013, Air Canada 2013 and
Icelandair 2012. Although the Icelandair sales campaign took place from May 2012, the order did not occur
until February 2013. (European Union's first written submission, para. 1788).
3324 HSBI Appendix (Appendix 2), para. 264.
3325 HSBI Appendix (Appendix 2), paras. 249 and 250.
3326 Statement of K. Rao, 6 October 2015, (Exhibit EU-1668) (HSBI), para. 2.
3327 HSBI Appendix (Appendix 2), para. 164.
3328 HSBI Appendix (Appendix 2), para. 170.
3329 Although not necessary for our findings concerning the existence of significant lost sales in the
post-implementation period, we also consider that the Washington State B&O tax rate reduction was a genuine
and substantial cause of lost sales of the A320ceo in the Fly Dubai 2008 and Delta Airlines 2011 sales
campaigns.
3330 The European Union further argues that U.S. subsidies benefiting the 737 MAX and 737NG cause a
present threat of significant lost sales, within the meaning of Article 6.3(c) and footnote 13 of the SCM
Agreement. (European Union's first written submission, paras. 1649, 1658, 1676, 1691, 1705, 1721, 1746,
1759, and 1795; second written submission, paras. 1790-1797 and 1910-1915; and response to Panel
question No. 169, paras. 447-452). In support of this argument, the European Union relies on evidence of the
existence of options and purchase rights negotiated in connection with the relevant orders (including evidence

9.405. Finally, we address whether these lost sales can be considered "sign ificant". The Appellate
Body has stated that something that is "significant" can be characterized as "important, notable or
consequential".3331 The Appellate Body has also expressed the view that an assessment of whether
a lost sale is significant can have bo th quantitative and qualitative dimensions. 3332 In the original
proceeding, the Appellate Body referred to the size of the orders that Boeing had won, the
price-competitive nature of the sales campaigns and their strategic importance in concluding that
the lost sales represented by the SALE and JAL campaigns were significant lost sales within the
meaning of Article 6.3(c) of the SCM Agreement.3333
9.406. The Fly Dubai, Air Canada and Icelandair sales campaigns involve orders for approximately
152 737 MAX and 11 737NG a ircraft. These orders are comparable in size to the SALE and JAL
orders for the 737NG, which the Appellate Body considered to be significant lost sales in the
original proceeding. Moreover, there is evidence that each of these campaigns was strategically
important to Boeing and Airbus, for various reasons. 3334 We are satisfied that these lost sales are
significant lost sales, within the meaning of Article 6.3(c) of the SCM Agreement.3335
9.407. We find that the Washington State B&O tax rate reduction is a genuine and
substantial cause of serious prejudice in the form of significant lost sales of A320neo
and A320ceo families of LCA in the post -implementation period, in respect of the sales
campaigns Fly Dubai 2014, Air Canada 2013, and Icelandair 2013.
9.4.3.1.3 Whether the Washin gton State B&O tax rate reduction is a genuine and
substantial cause of impedance or a threat thereof , and displacement or a threat
thereof, in respect of the A320neo and A320ceo in the post-implementation period
9.408. In this Section of the Report, we determine whether the Washington State B&O tax rate
reduction is a genuine and substantial cause of impedance (or a threat thereof) and displacement
(or a threat thereof) of A320neo and A320ceo imports to the United States, within the meaning of
Article 6.3(a) of t he SCM Agreement, and of A320neo and A320ceo exports to various third
country markets, within the meaning of Article 6.3(b) of the SCM Agreement.

of purchase commitments submitted by the United States in response to the Panel's request for information
pursuant to Article 13 of the DSU, showing purchase commitments accompanying firm orders of Boeing LCA.
(Boeing Aircraft Commitments, (Exhibit US-13-331) (HSBI)). The European Union makes this threat of
significant lost sales argument in relation to the following sales campaigns that we find to evidence significant
lost sales: Icelandair 2013 (European Union's first written submission, para. 1795, second written submission,
para. 1777), Air Canada 2013 (European Union's response to Panel question No. 169, para. 348), and Fly
Dubai 2014 (European Union's response to Panel question No. 169, para. 374). We do not consider that the
mere fact that an LCA customer was additionally granted options or purchase rights is sufficient to demonstrate
that lost sales in relation to these options and purchase rights are clearly foreseen and imminent, and thus give
rise to a threat of significant lost sales. The Panel does not possess sufficient information about the nature of
these options and purchase rights, including the conditions under which they may be exercised, to justify
treating them as firm orders that are waiting to materialize. Indeed, there is evidence before us to suggest that
not all options will be exercised. (See European Union's response to Panel question No. 169, para. 451). We
are therefore not persuaded that the European Union has demonstrated that further significant lost sales are
likely and "imminent". (Appellate Body Report, EC and certain member States – Large Civil Aircraft,
para. 1171). Finally, we acknowledge the European Union's argument that "follow-on" orders have occurred,
which it considers to demonstrate: (a) the materialization of the threat of significant lost sales; as well as (b)
the existence of a threat of further significant lost sales. (European Union's second written submission,
para. 1797). However, the European Union's use of the term "follow-on" order is not necessarily synonymous
with the subsequent exercise of previously acquired options or purchase rights arising out of a previous order.
Rather, the European Union uses this term to encompass more broadly situations where Boeing has an
incumbency advantage by virtue of a previously won LCA sales campaign. As such, the existence of "follow-on"
orders is unconvincing as evidence of a threat of further significant lost sales because such "follow-on" orders
in fact arise out of new LCA sales campaigns.
3331 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1272.
3332 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1218.
3333 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1272.
3334 Airbus' pricing in the Icelandair campaign, discussed at paragraphs 245-251 of the HSBI Appendix,
itself suggests the importance of this sale to Airbus. The factors that explain the strategic importance of the Air
Canada and Fly Dubai campaigns are discussed at paragraphs 261 and 268, respectively, of the HSBI Appendix
(Appendix 2).
3335 Although not necessary for our findings concerning the existence of significant lost sales in the
post-implementation period, we also consider that the lost sales of the A320ceo in the Fly Dubai 2008 and
Delta Airlines 2011 sales campaigns were significant lost sales, within the meaning of Article 6.3(c) of the SCM
Agreement.

9.409. The European Union argues that "certain developments in Airbus' market shares and
delivery volumes in various product markets" constitute a threat of impedance, within the meaning
of Articles 6.3(a) and 6.3(b) (with respect to the A320neo), and displacement or impedance, or a
threat thereof, within the meaning of Article 6.3(a) and 6.3(b) (with respect to the A320 ceo), in
each case, caused in a genuine and substantial manner by the non-withdrawn U.S. subsidies.3336
9.410. In respect of its claims of threat of impedance of imports of the A320neo to the
United States and of exports to various third country markets, the European Union argues that the
U.S. subsidies enable Boeing's product development and pricing decisions that result in deliveries
of the 737 MAX family LCA at the expense of deliveries of Airbus' A320neo family LCA. In this
respect, the European Union refers to its arguments and evidence concerning the alleged
technology effects of the aeronautics R&D subsidies, which the European Union argues have
enabled the advanced technology, early launch and early delivery availability of the 737 MAX, and
which allegedly gi ve that aircraft family a competitive advantage in the context of the global
market for new technology, single -aisle aircraft.3337 It also refers to its arguments and evidence
concerning the effects of the post-2006 subsidies on Boeing's LCA pricing, which it argues result in
an increase in Boeing's market share at Airbus' expense. 3338 The European Union asserts that
"consequently", Boeing's future delivery advantage in these markets, based on present orders, is
the result of U.S. subsidies.3339
9.411. Additionally, for c ertain geographic markets of substantial size, such as the Brazilian
market, the European Union asserts that "rough parity in the distribution of market shares
between duopolists" would be expected. It alleges that Boeing's significantly greater than 50%
market share of present and future deliveries of narrow -body, single-aisle LCA in these markets,
for several years, along with other evidence of causation, supports the argument that the
deviation is the result of the U.S. subsidies.3340 Finally, the European Union refers to its allegations
of significant lost sales of A320neo family LCA due to U.S. subsidies benefiting the 737 MAX. It
argues that, as a result of those lost sales, deliveries of A320neo family LCA will be impeded in the
relevant country markets.3341
9.412. In respect of its claims of displacement or impedance, or threats thereof, of imports of the
A320ceo to the United States and of exports to various third country markets, the European Union
refers to its arguments and evidence concerning the effects of the post-2006 subsidies on Boeing's
LCA pricing, which it argues result in an increase in Boeing's market share at Airbus' expense. 3342
The European Union also refers to certain "large volume country markets" in which Boeing has,
and will continue to have , a m ajority of present and/or future deliveries of 737NGs over the
A320ceo (United States, Canada and Indonesia). The European Union asserts that "rough parity in
the distribution of market shares between duopolists" would be expected 3343 and that Boeing's
delivery advantage in these markets results from Boeing's "aggressive pricing" which is enabled by
the U.S. subsidies. 3344 Additionally, the European Union refers to its allegations of significant lost
sales of A320ceo family LCA due to U.S. subsidies benefiting the 737NG. It argues that, as a result
of those lost sales, deliveries of A320ceo family LCA are displaced or impeded, and/or there is a
threat that A320ceo deliveries will be displaced or impeded in the relevant country markets.3345
9.413. The United States responds that, based on the Appellate Body's guidance in the original
proceeding, claims of impedance should be supported by evidence of changes in the relative
market shares, over a sufficiently representative period, to demonstrate clear trends. 3346 The
United States argues that the market share data provided by the European Union in support of its

3336 European Union's first written submission, paras. 1823 and 1893; second written submission,
paras. 1837 and 1946.
3337 European Union's first written submission, para. 1826.
3338 European Union's first written submission, para. 1826.
3339 European Union's first written submission, para. 1827.
3340 European Union's first written submission, para. 1831; second written submission, para. 1840;
response to Panel question No. 169, para. 537.
3341 European Union's first written submission, para. 1828.
3342 European Union's first written submission, para. 1898.
3343 European Union's first written submission, paras. 1903, 1913, and 1917.
3344 European Union's first written submission, para. 1900; second written submission, para. 1950; and
response to Panel question No. 169, para. 537.
3345 European Union's first written submission, para. 1902.
3346 United States' first written submission, para. 1041.

claims does not establish that, absent the alleged subsidies, Boeing would have been unable to
offer the 737 MAX as and when it did, or that 737 MAX or 737NG prices would be higher. The
magnitudes of any alleged subsidies that could conceivably be found to affect Boeing's pricing are
far too small to cause impedance.3347
9.414. The United States argues that the European Union's reliance on 50% market share as a
"benchmark" for assess ing impedance, displacement and threat thereof in large volume markets
such as the Brazilian, United States, Indonesian and Canadian geographic markets , where the
market participants are two duopolists , lacks any support in the SCM Agreement. In addition, the
European Union has not shown that, absent the subsidies, the market shares would be 50% in any
market, much less all large volume markets.3348
9.415. The United States also argues that the Appellate Body in the original proceeding
unambiguously indicated that th e mere recitation of lost sales in a market is insufficient to
establish displacement, impedance, or threat s thereof. The United States argues that the alleged
lost sales on which the European Union bases its claims of displacement, impedance, or threats
thereof are not genuinely and substantially caused by the alleged subsidies.3349
9.416. We begin our evaluation of the European Union's claims of impedance, displacement and
threats thereof by first explaining our understanding of the phenomena of impedance and
displacement, and the evidence that is relevant or necessary to support the existence of each
phenomenon, based on the explanations of the Appellate Body in EC and certain member States –
Large Civil Aircraft.
9.417. "Displacement", within the meaning of Article s 6.3(a) and 6.3(b) of the SCM Agreement ,
refers to an economic mechanism in which imports or exports of a like product are replaced by the
sales of the subsidized product. 3350 Specifically, displacement connotes a "substitution effect
between the subsidized produ ct and the like product of the complaining Member" and in the
context of Article 6.3(b), displacement arises where exports of the like product of the complaining
Member are substituted in a third country market by exports of the subsidized product.3351
9.418. The e xistence of displacement depends upon there being a competitive relationship
between the two sets of products in the market. An analysis of displacement should assess
whether the phenomenon is discernible by examining trends in data relating to export volu mes
and market shares over an appropriately representative period. 3352 The Appellate Body's analysis
in EC and certain member States – Large Civil Aircraft suggests that the following characteristics
will normally be necessary before a panel can reach a findi ng of displacement under
Article 6.3(b): First, 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 disce rn trends in volume and market share. 3353 Article 6.4 of the
SCM Agreement, which applies to the phenomenon of displacement referred to in Article 6.3(b),
requires that a finding of displacement 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. A panel assessing a claim of
displacement of exports would have to look at whether trends are discern ible, with the
identification of a trend being more accurate the larger the data set used in the analysis.3354

3347 United States' second written submission, paras. 1309 and 1380.
3348 United States' first written submission, paras. 1043 and 1085; second written submission,
paras. 1313 and 1382.
3349 United States' first written submission, paras. 1042, 1045,1046,1050, 1052,1054, 1056, 1058,
1099, and 1108; second written submission, paras. 1310,1315, 1317, 1319, 1321, 1323, 1326, 1329, and
1382.
3350 Appellate Body Reports, EC and certain member States – Large Civil Aircraft, para. 1119; and US –
3351 Appellate Body Reports, EC and certain member States – Large Civil Aircraft, para. 1160; and US –
3352 Appellate Body Reports, EC and certain member States – Large Civil Aircraft, paras. 1165, 1166,
and 1170; and US – Large Civil Aircraft (2nd complaint), para. 1071.
3353 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1082.
3354 Appellate Body Reports, EC and certain member States – Large Civil Aircraft, paras. 1166 and 1167;
and US – Large Civil Aircraft (2nd complaint), para. 1081.

9.419. "Impedance" arises both in situations where the exports or imports of the like product of
the complaining Member would have expanded had they not be en obstructed or hindered by the
subsidized product, as well as where such exports or imports did not materialize at all because
production was held back by the subsidized product. 3355 The concept of impedance may involve a
broader range of situations than di splacement, and while there may be some overlap between the
concepts of displacement and impedance, they are not interchangeable.3356
9.420. As with claims of displacement under Article 6.3(b), Article 6.4 of the SCM Agreement
provides that a finding of impedance of exports under Article 6.3(b) 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. However, since impedance may not be a "visible" phenomenon (unlike displacement),
evidence of trends may not be dispositive, or may hold less probative value , for a finding of
impedance.3357
9.421. The Appellate Body has explained that there are important distinctions between the
phenomena of displacement, impedance and lost sales, even though the concepts may potentially
overlap in that these phenomena all relate to a firm's sales. 3358 Importantly for the present claims,
the Appellate Body considered that the original pa nel had implicitly accepted the European
Communities' argument that every lost sale to Airbus in a particular country necessarily resulted in
the displacement or impedance of exports of Airbus aircraft in that third-country LCA market. The
Appellate Body s tated that it did not agree with the implication of the panel's reasoning that the
phenomena of displacement and impedance necessarily follow from a finding of significant lost
sales.3359
9.422. The European Union seeks to demonstrate the existence of impedance, di splacement and
threats thereof , by reference to data showing deliveries of sin gle-aisle LCA due in the
United States and in various third -country markets over periods that extend as far as 2025.
Underpinning this data are the European Union's causation arg uments in support of its claims of
impedance, displacement and threats thereof: (a) the combined effects of the aeronautics R&D
subsidies that operate through a technology causal mechanism with those of the post -2006
subsidies that operate through a price causal mechanism, collectively, give the 737 MAX a
competitive and pricing advantage over the A320neo ; and (b) the effects of the post -2006
subsidies that operate through a price causal mechanism give the 737NG a pricing advantage over
the A320ceo.
9.423. The Eu ropean Union's approach to demonstrating the existence of impedance,
displacement and threats thereof is therefore based on an implicit aggregation of all of the
subsidies at issue in this proceeding into one group, and an argument that the collective effects of
these subsidies provides an explanation for Airbus' market shares in the various geographic
markets. As we explain in Section 9.2.3.4, we have aggregated various subsidies into groups
depending on our analysis of their n ature and operation. We do not, however, consider it
appropriate to aggregate all of the subsidies into one single group and to assess their effects on
Airbus' sales, market shares or prices in an integrated manner. Consistent with the approach to
collective assessment of multiple subsidies articulated by the Appellate Body in the original
proceeding, provided we find that one aggregated group of subsidies is a genuine and substantial
cause of any of the alleged serious prejudice phenomena in the narrow -body, single-aisle product
market, we would then consider whether to cumulate those effects with the effects of any other
aggregated group of subsidies that we find to be a genuine cause of the same phenomena. The
European Union's approach to analysing whethe r the U.S. subsidies benefiting the 737 MAX and
the 737NG are a genuine and substantial cause of any of the Article 6.3 (a) and (b) market
phenomena is necessarily at odds with the Panel's conclusions as to the appropriate way to

3355 Appellate Body Reports, EC and certain member States – Large Civil Aircraft, para. 1161; US –
Large Civil Aircraft (2nd complaint), paras. 1071 and 1086.
3356 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1071.
3357 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1086.
3358 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1241. According to the
Appellate Body, the assessment of displacement or impedance has a well-defined geographic focus, whereas
the relevant geographic market for assessing lost sales is not similarly confined. The fact that lost sales must
be "significant" implies that the assessment has both a quantitative and qualitative dimension, whereas the
assessments of displacement or impedance is primarily quantitative in nature.
3359 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 1240 and 1241.

collectively assess the eff ects of the subsidies at issue in this proceeding, given their nature and
operation.
9.424. We recall that, in analysing whether the U.S. subsidies, operating through either a
technology causal mechanism or a price causal mechanism, cause any of the alleged forms of
serious prejudice with respect to Airbus single -aisle aircraft in the post-implementation period, the
structure of the Panel's analysis is necessarily as follows: (a) to analyse whether an aggregated
group of subsidies (aggregated in accordance with ou r explanation in Section 9.2.3) is a genuine
and substantial cause of any one or more of the Article 6.3 market phenomena; and (b) if so, to
analyse whether any other aggregated group of subsidies is a genuine cause of any of t he same
Article 6.3 market phenomena, so that the effects of the latter aggregated group can be cumulated
with those of the former.
9.425. In Section 9.4.2, we evaluate the various alleged technology effects on the 737 MAX of the
pre-2007 aeronautics R&D subsidies and of certain post -2006 aeronautics R&D subsidies, and find
that the European Union has not demonstrated that these technology effects arise, and thus that
the effects of the subsidies in question are any of the alleged Art icle 6.3 market phenomena with
respect to the A320neo.3360
9.426. In Section 9.4.3.1, we evaluate the European Union's arguments that the Washington
State B&O tax rate reduction b enefiting the 737 MAX and 737NG, through its effects on Bo eing's
pricing of narrow-body, single-aisle LCA, is a genuine and substantial cause of significant lost sales
of Airbus narrow -body, single -aisle LCA in the post -implementation period. To recall, in
Section 9.4.3.1.2, we identi fy five LCA sales campaigns involving the 737 MAX/737NG and
A320neo/A320ceo between 2007 and 2015 which were price -sensitive in the sense that Boeing
was under particular pressure to reduce its prices in order to secure the sales and there were no
non-price factors that explain Boeing's success in obtaining the sale. We therefore conclude that
the Washington State B&O tax rate reduction , in these sales campaigns, contributed in a genuine
and substantial way to the lowering of Boeing's prices, and moreover, that the effects of this
subsidy were three significant lost sales of Airbus narrow -body, single -aisle LCA in the
post-implementation period.
9.427. Accordingly, we next analyse here, in this Section 9.4.3.1.3, whether the Washington State
B&O tax rate reduction is a genuine and substantial cause of the next category of Article 6.3
market phenomena alleged by the European Union ; i.e. impedance and/or displacement (and/or
threats of the foregoing) of imports and/or exports of Airbus si ngle-aisle LCA in the
post-implementation period , within the meaning of Articles 6.3(a) and 6.3(b) of the SCM
Agreement.3361 To do this, we necessarily begin with our conclusion from Section 9.4.3.1.1 above,
that the Washington State B&O tax rate reduction affected Boeing's pricing behaviour in five price -
sensitive sales campaigns between 2007 and 2015. We also take into account our finding s at the
conclusion of Section 9.4.3.1.2 above that all five of those LCA sales campaigns were significant
lost sales which are the effects of the Washington State B&O tax rate reduction.3362
9.428. The European Union has not advanced an additional causal theory to support the alleged
causal link between the Washington State B& O tax rate reduction benefiting the 737 MAX and the
737NG, and the phenomena of impedance, displacement and threats thereof, beyond that
advanced and discussed comprehensively in connection with our evaluation of whether this subsidy
was a genuine and subs tantial cause of significant lost sales. 3363 To the extent that the
European Union relies on lost sales in the single -aisle market (as the effects of the Washington
State B&O tax rate reduction) to support its claims of impedance and displacement (including
threats thereof), it can only validly do so for the geographic markets related to the sales
campaigns for which we f ind the Washington State B&O tax rate reduction w as a genuine and
substantial cause of Boeing's lower prices, and of the lost sales to Airbus . For the other geographic
markets, there is no basis for considering whether the effects of the Washington State B&O tax

3360 See Section 9.4.2.3 above.
3361 Should the Panel find that the remaining aggregated categories of subsidies benefiting the 737 MAX
and 737NG; i.e. the state and local cash flow subsidies, or the post-2006 aeronautics R&D subsidies that
operate through a price causal mechanism, through their effects on Boeing's pricing of those aircraft, are a
genuine cause of any of the Article 6.3 market phenomena, we will then cumulate the effects of those subsidies
with those of the Washington State B&O tax rate reduction.
3362 Only three occurred in the post-implementation period.
3363 See Sections 9.4.3.1.1 and 9.4.3.1.2 above.

rate reduction are impedance, displacement or threats thereof because it has not been established
that the subsid y in question affecte d Boeing's prices and thus ha s any causal connection to
Boeing's share of orders or deliveries in those markets.
9.429. The European Union does additionally argue that, for large volume markets such as Brazil,
United States, Canada, and Indonesia, it can be assum ed that, in the absence of one duopolist's
product being subsidi zed, market share should be roughly 50% each. 3364 Accordingly, Boeing's
significantly greater than 50% market share of present and future deliveries of narrow -body,
single-aisle LCA in these mark ets, for several years, along with other evidence of causation,
supports the argument that the deviation from rough parity is the result of the U.S. subsidies. 3365
We are not persuaded by the European Union's counterfactual argument that, in the absence of
the Washington State B&O tax rate reduction, Airbus' market share in these markets would have
been close to 50%.
9.430. We see no reason to as sume that, due to the nature of the global LCA product markets as
duopolies, LCA deliveries to certain geographic markets should be more or less evenly split
between Airbus and Boeing. It is not uncommon for multiple airlines from a particular region to
maintain a long -term preference for either Airbus or Boeing, due their pre -existing relationships
with the manufacturer and the costs associated with switching LCA manufacturers. There is no
basis to conclude that the dynamics of the LCA market s are such that for each large volume
country market, Airbus and Boeing should generally each maintain a 50% share of deliveries.
9.431. Although the European Union argues that data showing trends in Airbus' and Boeing's
relative shares of actual and projected LCA deliveries for the various geographic markets supports
its claims of impedance and displacement and threats thereof, without a causal theory that
explains how the subsid y in question affected Boeing's pricing behaviour, leading to the
consequent impact on Airbus' sales, the Panel is unable to attribute the alleged impedance or
displacement of Airbus' imports and exports to the effects o f the Washington State B&O tax rate
reduction.
9.432. We will therefore examine whether the European Union's evidence demonstrates that the
effect of the Washington State B&O tax rate reduction was displacement , impedance or threat s
thereof for the four geograph ic markets for which we f ind Boeing and Airbus were involved in
price-sensitive, single-aisle LCA sales campaigns, and therefore, for which a causal connection is
established between the Washington State B&O tax rate reduction and Boeing's LCA prices. 3366 For
those geographic markets, we will compare the combined market shares of the A320neo and the
A320ceo to the combined market share s of the 737 MAX and the 737NG.3367 Specifically, we will
base our analysis of relative market shares on actual and projected Airbus and Boeing deliveries of
single-aisle LCA over the period from 2007 to 2025.3368

3364 European Union's first written submission, para. 1582.
3365 European Union's first written submission, para. 1831; second written submission, para. 1840; and
response to Panel question No. 169, para. 537.
3366 United States (Delta Airlines 2011); United Arab Emirates (Fly Dubai 2008 and 2014); Canada (Air
Canada 2013) and Iceland (Icelandair 2013). For these geographic markets, there is accordingly a causal
phenomenon in which Boeing's receipt of the Washington State B&O tax rate reduction gave rise to lower than
otherwise 737 MAX and 737NG prices, and lost sales of competing Airbus single-aisle aircraft.
3367 For reasons we explain in paras. 9.35 through 9.39 we disagree with the European Union's proposed
product market delineation and instead treat the existing technology A320ceo and 737NG and the new
technology A320neo and 737 MAX as competing in the same product market for narrow-body, single-aisle
aircraft. Our comparison of the relative market share data is based on the European Union's evidence as
submitted in the Ascend data base, Deliveries made, data request as of 22 September 2015, (Exhibit
EU-1660); and the Ascend data base, Deliveries due, data request as of 22 September 2015, (Exhibit
EU-1659).
3368 As the original panel explained, displacement, impedance, and threat thereof of the complaining
party's imports or exports necessarily involves the existence of goods crossing borders. For the LCA market, in
which there is often a significant time-lag between order and delivery, this means any demonstration of market
share trends for the purposes of a displacement, impedance or threat thereof claim should be based on
delivery data, rather than order data. (See Panel Report, US – Large Civil Aircraft (2nd complaint),
paras. 7.1683-7.1686). With respect to the time-period over which we evaluate the existence of market share
trends, 2007 to 2025 is the time-period over which the European Union presents its market share data. We
note that this period extends both prior to and beyond the reference period of 2013-2015 that we use
elsewhere in our findings. We take this longer period in order to ensure, in accordance with the Appellate

9.433. We are aware that the Appellate Body has cautioned against panels mechanistically
assuming that a finding of significant lost sales will of itself suffice to additionally est ablish the
existence of impedance. We will examine the market share data submitted by the European Union
in support of its claims of impedance and threat of impedance for these four geographic markets in
order to determine whether, in light of the Panel's conclusions that in these markets the
Washington State B&O tax rate reduction affected Boeing's prices in a manner that gave rise to
significant lost sales, it is possible to identify "clear trends".
9.434. We begin with the data for the United States market, whi ch covers claims of threat of
impedance of imports of the A320neo and impedance and threat thereof of imports of the A320ceo
pursuant to Article 6.3(a) of the SCM Agreement.
Table 15: U.S. single-aisle sales volume and market share data
Year 737NG 737 MAX A320ceo A320neo Boeing market
share
Airbus market
share
2007 77 -- 35 -- 69% 31%
2008 91 -- 34 -- 73% 27%
2009 89 -- 23 -- 79% 21%
2010 98 -- 11 -- 90% 10%
2011 46 -- 40 -- 53% 47%
2012 96 -- 32 -- 75% 25%
2013 99 -- 52 -- 66% 34%
2014 126 -- 73 -- 63% 37%
2015 104 -- 77 1 57% 43%
2016 109 -- 75 8 57% 43%
2017 91 26 86 33 50% 50%
2018 45 86 25 71 58% 42%
2019 5 128 -- 143 48% 52%
2020 -- 155 -- 152 50% 50%
2021 -- 130 -- 143 48% 52%
2022 -- 113 -- 56 67% 33%
2023 -- 45 -- 40 53% 47%
2024 -- 22 -- 9 71% 29%
2025 -- -- 9 0% 100%
Total 1076 705 563 665 59% 41%
Source: Ascend database, Deliveries made, data request as of 22 September 2015, (Exhibit EU-1659); and
Ascend database, Deliveries due, data request as of 22 September 2015, (Exhibit EU-1660).

9.435. The market share data shows that Boeing has enjoyed the majority of the market share for
deliveries of single-aisle LCA in the United States between 2007 and 2016. While Boeing's share of
deliveries is projected to decrease to 50% in 2017, recover to 58% in 2018 and then hover around
the 50% level until 2021, it appears that Boeing has been, and overall will remain, the dominant
duopolist for deliveries of single-aisle LCA in the United States' market. If anything, the trend that
seems to emerge is that for the next several years until 2021, Airbus' market share will increase.
We are aware that an increase in Airbus' market share does not necessarily refute the existence of
impedance or threat of impedance, as the relevant question is whether, but for the subsidies at
issue, Airbus' imports of single-aisle LCA to the United States would otherwise be higher than they
are.

Body's guidance, that the effects of the subsidy are examined over a period of time that is long enough to
discern the existence of clear trends. (Appellate Body Report, US – Large Civil Aircraft (2nd complaint),
para. 1081 (citing Appellate Body Reports, EC and certain member States – Large Civil Aircraft, para. 1166;
and US – Upland Cotton, para. 478)). This is particularly important for the European Union's threat of
displacement and impedance claims, which necessarily require evidence of projected future deliveries.

9.436. However, the only Boeing sale to a U.S. customer that can be causally connected to the
Washington State B&O tax rate reduction is the order of 100 737NG aircraft by Delta Airlines in
2011. The Panel was not persuaded that the Washington State B&O tax rate reduction could be
causally linked to orders of Boeing single -aisle aircraft by other U.S. customers (A merican Airlines'
2011 order of 100 737 MAX and 100 737NG, Southwest Airlines' 2 011 order of 150 737 MAX and
50 737NG and 2013 order of five 737NG, and United Airlines' 2 012 order of 100 737 MAX and
50 737NG and 2013 order of 14 737NG) . As explained in the HSBI Appendix and summarized in
paragraph 9.383. , Boeing does not appear to have been under particular pressure to reduce its
prices in those sales campaigns, and there were non -price factors that explain Boeing's success in
obtaining those orders, or the portion of the order that it obtained.
9.437. Although it seems logical to us that, owing to Airbus losing the 2011 Delta Airlines sales
campaign due to the effects of the Washington State B&O tax rate reduction , its imports of
single-aisle LCA to the United States market will, to that extent be obstructed, hindered or held
back, we are mindful that the phenomenon of impedance is not synonymous with that of lost
sales. In any case, there would be little to be gained by the Panel ma king a finding of impedance
of imports in relation solely to lost sales that are already the subject of a finding of significant lost
sales.
9.438. However, in this instance, because the Delta Airlines order arose in 2011, the Delta Airlines
2011 campaign is not part of the Panel's finding of significant lost sales in the post-implementation
period. The threat of impeded imports of A320ceos into the United States market that arises from
that 2011 Delta Airlines lost sale does, however, arise in the post -implementation period. In these
circumstances, we consider it appropriate to make a finding in relation to the threat of impedance
arising from that lost sale. We therefore find that the effect of the Washington State B&O tax rate
reduction is a threat of impedance of imports of Airbus single -aisle LCA into the United States
market.
9.439. We next examine the market share data for each of the third -country markets of Canada,
Iceland and the United Arab Emirates in relation to claims of impedance and threat thereof, and
displacement and threat thereof.
Table 16: Canada single-aisle sales volume and market share data
Year 737NG 737 MAX A320ceo A320neo Boeing market
share
Airbus market
share
2007 7 -- -- -- 100% --
2008 7 -- -- -- 100% --
2009 10 -- -- -- 100% --
2010 6 -- -- -- 100% --
2011 6 -- -- -- 100% --
2012 3 -- -- -- 100% --
2013 5 -- -- -- 100% --
2014 9 -- -- -- 100% --
2015 13 -- -- -- 100% --
2016 9 -- -- -- 100% --
2017 1 3 -- -- 100% --
2018 -- 27 -- -- 100% --
2019 -- 35 -- -- 100% --
2020 -- 20 -- -- 100% --
2021 -- 16 -- -- 100% --
2022 -- 8 -- -- 100% --
2023 -- 5 -- -- 100% --
2024 -- 3 -- -- 100% --
2025 -- 5 -- -- 100% --
Total 76 122 -- -- 100% 0%
Source: Ascend data base, Deliveries made, data request as of 22 September 2015, (Exhibit EU-1659); and
Ascend data base, deliveries due, data request as of 22 September 2015, (Exhibit EU-1660).

Table 17: Iceland single-aisle sales volume and market share data3369
Year 737NG 737 MAX A320ceo A320neo Boeing market
share
Airbus market
share
2018 -- 3 -- -- 100% --
2019 -- 6 -- -- 100% --
2020 -- 5 -- -- 100% --
2021 -- 2 -- -- 100% --
Total -- 16 -- -- 100% 0%
Source: Ascend data base, Deliveries made, data request as of 22 September 2015 (Exhibit EU-1659); and
Ascend data base, deliveries due, data request as of 22 September 2015 (Exhibit EU-1660).
Table 18: United Arab Emirates: Historic and scheduled volumes and market share in
2007-2025
Year 737NG 737 MAX A320ceo A320neo Boeing market
share
Airbus market
share
2007 -- -- 3 -- 0.0% 100.0%
2008 -- -- 5 -- 0.0% 100.0%
2009 6 -- 10 -- 37.5% 62.5%
2010 4 -- 4 -- 50.0% 50.0%
2011 11 -- 8 -- 57.9% 42.1%
2012 7 -- 10 -- 41.2% 58.8%
2013 7 -- 12 -- 36.8% 63.2%
2014 8 -- 15 -- 34.8% 65.2%
2015 9 -- 13 -- 40.9% 59.1%
2016 5 -- 8 -- 38.5% 61.5%
2017 6 5 -- -- 100.0% 0.0%
2018 -- 9 -- -- 100.0% 0.0%
2019 -- 3 -- -- 100.0% 0.0%
2020 -- 18 -- 3 85.7% 14.3%
2021 -- 17 -- 7 70.8% 29.2%
2022 -- 22 -- 7 75.9% 24.1%
2023 -- 1 -- 3 25.0% 75.0%
2024 -- -- -- 6 0.0% 100.0%
2025 -- -- -- -- 0.0% 0.0%
Total 63 75 80 26 56.6% 43.4%
Source: Ascend data base, Deliveries made, data request as of 22 September 2015, (Exhibit EU-1659); and
Ascend data base, deliveries due, data request as of 22 September 2015, (Exhibit EU-1660).

9.440. As regards the market share data for Canada and Iceland, Boeing maintains 100% of
actual and projected deliveries. We note that no deliveries of single -aisle LCA were made or are
scheduled to be made into th e Icelandic market between 2007 and 2018 or after 2021. Moreover,
the volumes of 3, 6, 5 and 2 737 MAX deliveries between 2018 and 2021 are quite low, and are
similar to the volumes involved in the Kenyan third -party market for 200 -300 seat LCA in the
original proceeding.3370

3369 No deliveries of single-aisle LCA were made or are scheduled to be made between 2007 and 2018 or
after 2021.
3370 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1073, table 5, and 1078.

9.441. The issue that arises with respect to the Canadian and Icelandic markets is whether the
data is sufficient to identify clear trends as contemplated in Article 6.4. We are mindful that, in the
original proceeding, the Appellate Body consi dered that data showing that Boeing's market share
remained at 100% for all periods, and data showing sporadic and low volumes of deliveries, were
insufficient to demonstrate clear trends. To recall, the panel considered that there was a threat of
impedance in the third -country markets of Ethiopia, Kenya and Iceland based on data showing
actual and projected future deliveries of Airbus and Boeing LCA over a period of years from the
early 2000s to 2012. 3371 For these third -country markets, however, Boeing's mar ket share
remained at 100% over all of the periods considered by the panel. The data for Iceland covered
only the years 2010 and 2011, with Boeing deliveries remaining stable at two per year, while the
data for Kenya related to 2001, 2010, 2011 and 2012, w ith very small numbers of deliveries. The
Appellate Body considered that this data did not represent a "clear trend". The Appellate Body also
expressed reservations as to whether the data for Ethiopia, in terms of the years in which
projected deliveries we re recorded and the number of deliveries amounted to a "clear trend". 3372
Consequently, the Appellate Body considered the data insufficient to demonstrate clear trends of a
threat of impedance as required by Article 6.4 of the SCM Agreement and the panel's fi ndings of
threat of impedance in respect of these third-country markets were reversed.3373
9.442. Notwithstanding our findings of lost sales of the A320neo being the effects of the
Washington State B&O tax rate reduction in relation to Air Canada's order of 61 737 MAX in 2013
and Icelandair's 2013 order of 16 737 MAX, we are unable to see in the data or in the
European Union's impedance and threat of impedance arguments regarding the Canadian and
Icelandic single-aisle LCA markets anything that would justify us depa rting from the approach that
the Appellate Body took to similar data (and lost sales findings), showing that Boeing enjoyed and
will enjoy 100% market share at all relevant times in respect of the Kenyan, Icelandic and
Ethiopian third-country markets in the original proceeding.
9.443. With respect to the United Arab Emirates, the data shows a clear trend in which Boeing's
single-aisle LCA deliveries are increasing, at least from 2017 until 2022. Airbus maintained a
majority of deliveries in every year from 2007 to 2016 except for one. In 2017, when deliveries of
the 737 MAX are due to begin, Boeing will overtake Airbus and retain a market share of between
70 and 100% for the subsequent six years. We also f ind that Fly Dubai's 2008 and 2014 orders of
50 737NG and 75 737 MAX , respectively, are significant lost sale s for Airbus. 3374 We conclude,
based on the evidence concerning market share trends in the United Arab Emirates market and the
evidence of the se lost sales , that the effect of the Washington State B&O tax rate reduction is a
threat of impedance in the United Arab Emirates market in the post-implementation period.
9.444. We find that the Washington State B&O tax rate reduction is a genuine and
substantial cause of serious prejudice to the interests of the European Unio n in the form
of a threat of impedance of imports of the A320ceo to the United States market , within
the meaning of Article 6.3(a) of the SCM Agreement, and in the form of a threat of
impedance of Airbus single -aisle exports to the United Arab Emirates , within the
meaning of Article 6.3(b) of the SCM Agreement, in each case, in the post -
implementation period.
9.4.3.1.4 Whether the Washington State B&O tax rate reduction is a genuine and
substantial cause of significant price suppression (including threat thereof) in respect of
the A320neo and A320ceo in the post-implementation period
9.445. The European Union argues that the effects of the Washington State B&O tax rate
reduction are significant price suppression , and threat of significant price suppression, of the
A320neo and A320ceo, within the meaning of Article 6.3(c) of the SCM Agreement.
9.446. We have already found, in paragraph 9.383 above, that in five sales campaigns between
2007 and 2015 , Boeing appeared to be under particular pressure to red uce its prices in order to
secure the sales, and that there were no non -price factors that explain Boeing's success in

3371 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1073, table 5.
3372 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), para. 1087.
3373 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 1089 and 1090.
3374 See para. 9.404 above.

obtaining the sales.3375 Accordingly, based on the reasoning of the Appellate Body when analysing
the effects of the FSC/ETI subsidies on Bo eing's prices in the original proceeding, the Washington
State B&O tax rate reduction contributed in a genuine and substantial way to the lowering of
Boeing's prices of narrow -body, single-aisle LCA in these five LCA sales campaigns. We will now
examine whether the evidence submitted by the European Union demonstrates that the effect of
this impact of the Washington State B&O tax rate reduction on Boeing's 737 MAX and 737NG
prices is suppression of Airbus' prices of the A320neo and A320ceo in the post -implementation
period.
9.447. The European Union argues that the U.S. subsidies cause significant price suppression of
the A320neo and A320ceo through a price causal mechanism because they enabled Boeing to: (a)
lower the prices of the 737 MAX in competitive sales ca mpaigns and Airbus was required to react
to such low pricing by Boeing by reducing the prices at which it offered the A320neo in an attempt
to maintain market share 3376; and (b) lower the prices of the 737NG in competitive sales
campaigns and Airbus was requi red to react to such low pricing by Boeing by reducing the prices
at which it offered the A320ceo. 3377 The European Union bases its arguments concerning the
existence of significant price suppression of the A320neo and A320ceo on the conditions of
competition in the market for "new technology single -aisle LCA" and in the market for "existing
technology single-aisle LCA", respectively.3378 The European Union's significant price suppression
claims rely on two types of evidence: (a) price trend data which purport s to demonstrate that,
absent the U.S subsidies, prices for the A320neo and A320ceo in the post -implementation period
would be higher3379; and (b) certain sales campaigns that Boeing won, which the European Union
nonetheless considers are illustrative examples o f Boeing's strategy of "aggressive pricing" which
adversely impacts Airbus' pricing.3380
9.448. The European Union presents average aggregated prices at order data and average price
per seat data for A320neo family aircraft , showing that average A320neo family pric es have
[***].3381 As regards the A320ceo, the European Union presents average aggregated prices at
order data and average price per seat data showing that A320ceo order prices have [***].3382 The
European Union compares A320neo and A320ceo price movements to Ai rbus' changing input costs

3375 Fly Dubai 2008, Delta 2011, Icelandair 2012, Air Canada 2013, and Fly Dubai 2014.
3376 The European Union's claims of significant price suppression with respect to the A320neo are also
based on the alleged effects of the aeronautics R&D subsidies that operate through a technology causal
mechanism to enable early 737 MAX delivery slots than would otherwise have been available, see
Section 9.4.2.
3377 European Union's first written submission, paras. 1805 and 1873.
3378 European Union's first written submission, paras. 1806, 1807, 1873, and 1883.
3379 European Union's first written submission, paras. 1801 (for A320neo), 1876 (for A320ceo price
trends); and Airbus proprietary presentation, "Price and price per seat evolution of net order intakes of A330,
A320ceo, A320neo and A350XWB family LCA", Airbus proprietary presentation, 13 February 2013, (Exhibit
EU-690) (BCI). The European Union presents the following diagrams: (a) A320neo net order prices from
2010-2012 plotted against Airbus' input costs to produce the A320neo, as reflected in Airbus' price escalation
formula, showing that, while Airbus production costs have increased, A320neo prices have [***]; and (b)
A320ceo net order prices plotted against Airbus' input costs to produce the A320ceo, as reflected in Airbus'
price escalation formula, showing that, while Airbus production costs have increased, A320ceo prices have

3380 The European Union presents seven sales campaigns involving single-aisle LCA which Boeing won,
but which the European Union presents as "illustrative" of Boeing's aggressive pricing of the 737 MAX:
Southwest Airlines 2011, SilkAir 2012, Aeromexico 2012, United Airlines 2012, GOL 2012, Norwegian Air
Shuttle 2012, and American Airlines 2011. (See European Union's first written submission, para. 1808). In
support of its significant price suppression claims with respect to the A320ceo, the European Union refers to
the Delta Airlines 2011, Fly Dubai 2008, American Airlines 2011, Southwest Airlines 2011, United Airlines 2012,
SilkAir 2012, and LionAir 2012 campaigns. (European Union's first written submission, para. 1887). Although
the European Union updated the data on which it relies to demonstrate the existence of lost sales of the
A320neo and A320ceo in the post-implementation period to include a number of single-aisle sales campaigns
which occurred in 2013-2015, it does not indicate that it wishes to also rely on any of these sales campaigns as
illustrating Boeing's "aggressive pricing" in relation to its claims of significant price suppression of the A320neo
and A320ceo.
3381 European Union's first written submission, para. 1802; and Airbus proprietary presentation, "Price
and price per seat evolution of net order intakes of A330, A320ceo, A320neo and A350XWB family LCA", Airbus
proprietary Presentation, 13 February 2013, (Exhibit EU-690) (BCI).
3382 European Union's first written submission, paras. 1876-1882; and Airbus proprietary presentation,
"Price and price per seat evolution of net order intakes of A330, A320ceo, A320neo and A350XWB family LCA",
Airbus proprietary Presentation, 13 February 2013, (Exhibit EU-690) (BCI).

over time for th e same period, as reflected in Airbus' price escalation formula .3383 The European
Union's position is that, because Airbus' input costs (as reflected in Airbus' price escalation
formula) have increased over time, Air bus' LCA prices should have increased to a commensurate
degree (and would have increased, absent the U.S. subsidies). In its response to the Panel's third
set of questions, the European Union updated the pricing information underpinning its significant
price suppression arguments to cover the 2013 and 2014 period.3384 The European Union considers
that this new data indicates that: (a) [***]; and (b) [***].3385
9.449. The United States argues that the European Union has failed to establish significant price
suppression because it does not demonstrate the requisite genuine and substantial causal link
between the U.S. subsidies and Airbus' prices, under either a technology causal mechanism or a
price causal mechanism.3386 The United States also considers that the pricing data provided by the
European Union is distorted and unreliable because it is aggregated for all models of the A320neo
and A320ceo families. In any case, the pricing data fails to show that any impact on A320neo and
A320ceo prices arises from the effects of th e subsidies on, respectively, 737 MAX and 737NG
prices, rather than from competition from single -aisle LCA more generally.3387 Price trend data for
the A320neo shows a [***].3388 With respect to the A320ceo, whereas 737NG prices [***]
between 2007 and 2012, A320 ceo prices [***].3389 The United States further notes that the
majority of the sales campaigns that the European Union considers to evidence Boeing's
"aggressive pricing" involve all-Boeing customers in which Boeing enjoyed an incumbency
advantage: "{p}rying these customers away from Boeing necessarily required offering the
A320neo on more attractive terms than would be the case where Boeing was not the
incumbent."3390 Moreover, Airbus' significant production rate increases for the A320ceo are an
additional reason why A320ceo prices are not higher than they are.3391
9.450. We begin our analysis by recalling that "price suppression" refers to a situation where
"prices" either are prevented or inhibited from rising (i.e. they do not increase when they
otherwise would have) or they do actually increase, but the increase is less than it would otherwise
have been.3392 The Appellate Body has further noted:
{P}rice suppression is not {a directly observable phenomenon} … price suppression
concerns whether prices are less than they woul d otherwise have been … The
identification of price suppression, therefore, presupposes a comparison of an
observable factual situation (prices) with a counterfactual situation (what prices would
have been) where one has to determine whether, in the absenc e of the subsidies (or
some other controlling phenomenon), prices would have increased or would have
increased more than they actually did.3393

3383 European Union's first written submission, paras. 1802 and 1875. The European Union explains that
pricing escalation is used by Airbus and by Boeing to reflect increased costs in the same period. An escalation
formula is applied to aircraft pricing to reflect changing costs and economic conditions over time.
(European Union's first written submission, para. 1802 and fn 3327). See also Panel Report, US – Large Civil
Aircraft (2nd complaint), para. 7.1685.
3384 European Union's response to Panel question No. 170, para. 546; "Price Evolution Net Order
Intakes", Airbus Presentation, October 2015, (Exhibit EU-1669) (BCI), pp. 3 and 4. The European Union did
not, however, update the information concerning Airbus' input costs based on Airbus' price escalation formula,
so there is no data on the record to indicate the level of Airbus' input costs for the A320neo and A320ceo in the
post-implementation period.
3385 European Union's response to Panel question No. 170, para. 571.
3386 United States' first written submission, paras. 1001 and 1071; second written submission,
paras. 1233 and 1358; and comments on the European Union's response to Panel question Nos. 166 and 170,
paras. 206-209.
3387 United States' first written submission, paras. 1005-1008 and 1076-1077; second written
submission, paras. 1233, 1358, and 1367; comments on the European Union's response to Panel question
Nos. 166 and 170, paras. 211-213.
3388 United States' comments on the European Union's response to Panel question No. 170, para. 223.
3389 United States' comments on the European Union's response to Panel question No. 170, paras. 221
and 222.
3390 United States' first written submission, para. 1008; second written submission, para. 1233; and
comments on the European Union's response to Panel question Nos. 166 and 170, paras. 214 and 215.
3391 United States' first written submission, para. 1077; second written submission, paras. 1368 and
1369.
3392 Appellate Body Report, US – Upland Cotton, para. 423.
3393 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 351.

9.451. A counterfactual analysis is therefore an "inescapable part" of analysing the effect of a
subsidy under Article 6.3 (c) of the SCM Agreement. 3394 The Panel must compare the observable
factual situation of the prices for Airbus' A320neo and A320ceo with the counterfactual situation of
what those prices would have been absent the Washington State B&O tax rate reduction.
9.452. In addition, Article 6.3(c) requires that the Panel determine that the effect of the subsidy
in question is significant price suppression in the same market . As explained in Section 9.2.1, the
European Union has argued its serious prejudice claims on the basis of a market delineation that
places in distinct product markets existing technology aircraft such as the 737NG and A320ceo,
which are less fuel efficient but avail able for earlier delivery, and new technology aircraft such as
the 737 MAX and A320 neo, which are more fuel efficient but may not be available for delivery for
many years, despite the similarities in seating capacity, range , and MTOW that might otherwise
exist between all of these aircraft. For reasons we explain in paragraphs 9.35 through 9.39, we
disagree with the European Union's proposed market delineation and instead treat the existing
technology A320ceo and 737NG and the new technology A320neo and 737 MAX as competing in
the same product market for narrow -body, single -aisle aircraft. The practical implication of our
delineation of one narrow -body, single-aisle product market is that we should take into account
any evidence that prices for the A320ceo and 7 37NG (and not just the 737 MAX) exercised
constraints on A320neo pricing, and prices for the A320neo and 737 MAX (and not just the 737NG)
exercised constraints on A320ceo pricing.3395
9.453. Airbus launched the A320neo family LCA in December 2010, with first deliver ies scheduled
for October 2015. Some eight months later, in August 2011, Boeing launched the 737 MAX family,
with first deliveries scheduled for 2017. 3396 There is evidence that Airbus priced the A320neo at a
premium of USD 7 -8 million over the A320ceo, which represents one half of the NPV of the 15%
fuel saving that the A320neo was expected to deliver over the A320ceo and 737NG. 3397 An Airbus
presentation in early 2013 declared that the A320neo had 35% more orders than the 737 MAX in
the first year after its lau nch.3398 As can be seen from the order data set forth in Table 19 below,
Airbus gained significant market share in the single -aisle market in 2011 following the A320neo
launch. This declined following Boeing's launch of the 737 MAX i n the latter part of 2011.
Airbus' share of the single-aisle market has increased since so that it was at 57% by 2014.
Table 19: Airbus & Boeing Single-Aisle Orders and Market Share (2007-2014)3399

2007 2008 2009 2010 2011 2012 2013 2014
Airbus A320ceo/neo orders 662 436 228 450 1526 756 1303 1597
Boeing 737NG/MAX orders 707 447 177 416 579 1165 1197 1205
Grand Total 1369 883 405 866 2105 1921 2500 2802
Airbus market share 48% 49% 56% 52% 72% 39% 52% 57%
Boeing market share 52% 51% 44% 48% 28% 61% 48% 43%
9.454. The LCA markets pose particular challenges for th e analysis of claims of price suppression,
owing to the difficulty of identifying and measuring a "price" for LCA. As discussed in Section 9.2.2
of this Report, the pric e at which a particular LCA is sold can vary significantly depending on the
customer and the campaign. Actual negotiated LCA prices are commercially sensitive and highly
confidential. Factors such as performance guarantees, credit terms, buying back of old aircraft and
other aspects of an overall transaction also make it difficult to compare in a meaningful way the
prices of the same aircraft sold to different customers (or even the same customers), at different

3394 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil), para. 351.
3395 The European Union appears to agree with this, noting that to the extent that any price suppression
for the A320neo results from the 737NG, or for the A320ceo from the 737 MAX, these would be "non-subsidy"
factors based on the structure of the European Union's arguments. (European Union's response to Panel
question No. 170, para. 568).
3396 Mourey Statement, (Exhibit EU-34) (BCI), para. 81.
3397 S. Hamilton, "A320 NEO to have $7-8 million Price Premium", Flight International, 23 August 2010,
(Exhibit USA-361).
3398 F. Bregier, "Airbus Results 2012, Outlook 2013", Presentation at the Annual Press Conference,
17 January 2013, (Exhibit USA-296).
3399 Ascend data base, Orders, data request as of 29 September 2015, (Exhibit EU-1658).

points in time .3400 Prices for aircraft will differ for a number of reasons, including the size of the
order, incumbency and "product availability issues".3401
9.455. In the original proceeding, the panel found that the aeronautics R&D subsidies enabled
Boeing to launch the technologically advanced 787 earlier than would have otherwise been
possible, and that this required Airbus to lower its A330 prices in order to compete. The "economic
logic" of the impact of the aeronautics R&D subsidies, through the accelerated launch of the 787,
on prices of the A330, was consistent with the trend of decreases in indexed A330 price data in the
original reference period, coupled with overall trends demonstrating erosion of Airbus' market
share as compared with the period prior to the launch of the 787. 3402 The panel reasoned that,
absent the launch of the 787 in 2004, the A330 would have continued its pre -2004 dominant
position in the 200 -300 seat LCA product market for a longer period of time, and for that
additional period, would have been able to command higher prices in general.3403
9.456. In Section 9.4.2, we reject the European Union's arguments concerning the alleged
spill-over effects and new technology effects of the aeronautics R&D subsidies in relation to the
737 MA X in the post -implementation period and thus the argument that the aeronautics R&D
subsidies are causally related to any of the forms of serious prejudice alleged in respect of the 737
MAX in the post-implementation period. Therefore, unlike the situation involving the 787 and A330
in the original proceeding, there is no event or factor such as the accelerated launch of a
technologically advanced aircraft that is the effect of the U.S. subsidies that can clearly and
rationally be expected to have a generally suppressing effect on prices of the A320neo or A320ceo.
9.457. Another difference between the significant price suppression claims of the European
Communities in the original proceeding, and those made in this proceeding is that in the original
proceeding, the European Communities supported its price suppression claims with evidence from
sales campaigns which Airbus had won, at the cost of significantly reducing its A330 and Original
A350 prices to offset the technological advantages of the 787. 3404 By contrast, evidence on which
the European Union relies to support its significant price suppression claims in this proceeding
comprises the sales campaigns that Boeing won; i.e. campaigns that Airbus lost and for which
there is necessarily no Airbus LCA "price" that w as suppressed. The European Union argues that
these campaigns are still evidence of price suppression because they are "illustrative" of Boeing's
aggressive pricing which, according to the European Union, suppresses Airbus' prices more
generally.

3400 See paras. 9.20 and 9.21 above. The global LCA market can be contrasted with international
commodity markets, such as market at issue in US – Upland Cotton. In that case, there were discernible "world
prices" for upland cotton that allowed for the use of modelling exercises to predict such prices in a
counterfactual scenario. See Appellate Body Report, US – Upland Cotton, para. 415: "{t}he Panel found that
'the A-index can be taken to reflect a world price in the world market for upland cotton that is sufficient to form
the basis for our analysis as to whether there is price suppression". See also Appellate Body Report, US –
Upland Cotton (Article 21.5 – Brazil), para. 357: "because the examination of price suppression necessarily
involves an analysis of what would have been the case in the absence of an intervening event, modelling
exercises are likely to be an important analytical tool that a panel should scrutinize".
3401 European Union's second written submission, paras. 1493-1497; response to Panel question
No. 166, paras. 147-151; and comments on the United States' response to Panel question No. 171, para. 164.
3402 See Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 1106-1113; and Panel
Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1781-7.1785.
3403 Panel Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1785-7.1797. The original panel's
findings of price suppression in the 100-200 and 300-400 seat markets, which were not based on an event
such as the launch of a competing, technologically advanced aircraft, were overturned by the Appellate Body
on the basis that they were insufficiently supported by evidence on the record. The original panel in EC and
certain member States – Large Civil Aircraft, which also considered a price suppression claim in the context of
the LCA market, found that while Boeing's LCA prices were being suppressed in some way, the United States
had failed to establish that this phenomenon was caused by the subsidies. This finding was made on the basis
of a "bifurcated" analysis, in which the panel first addressed whether the complainant had established the
existence of the market phenomena identified in Article 6.3, and then separately addressed whether the
complainant had established whether the price suppression phenomenon was caused by the subsidies. This
approach is in contrast to a "unitary" approach, which involves a "single, integrated analysis of both the market
phenomena and the issue of whether they have been caused by the subsidies at issue". The bifurcated
evaluation of the existence of Article 6.3 market phenomena has been criticised on the basis that it "may be
difficult to ascertain the existence of some of the market phenomena in Article 6.3 without considering the
effect of the subsidy at issue". (See Appellate Body Report, EC and certain member States – Large Civil
Aircraft, para. 1107).
3404 Panel Report, US – Large Civil Aircraft (2nd complaint), para. 7.1792.

9.458. We examine the sales campaigns that occurred between 2007 -2012, which the
European Union alleges evidence Boeing's "aggressive pricing", in the context of our evaluation of
whether the Washington State B&O tax rate reduction affected Boeing's 737 MAX and 737NG
prices. Of those sales campaigns, only two (the Fly Dubai 2008 and Delta 2011 campaigns, both
involving the 737NG and A320ceo) are campaigns where the Panel finds that: (a) the outcomes
were price-sensitive, in the sense that Boeing was under particular press ure to reduce its prices in
order to secure sales and there were no other non -price factors that explain Boeing's success in
obtaining the sale; and (b) the Washington State B&O tax rate reduction was causally linked to the
outcome of the sale.
9.459. This means that there are many other campaigns in the single-aisle market which we have
either found were not price-sensitive in the sense described above , or where the European Union
itself does not allege that the campaigns were highly competitive. For example, in updating its lost
sales and displacement evidence to include the most recent data and developments since 20133405,
the European Union explains that it does not challenge campaigns such as an order by a group of
Chinese airlines for 300 Boeing aircraft, value d at approximately USD 38 billion 3406, Ryanair's
orders in 2013 for 175 737 -800s (valued at USD 15.6 billion) or in 2014 for 100 737 MAX aircraft
(valued at USD 11 billion). 3407 Nor does it challenge Turkish Airlines' 2013 order for 50 737MAX
and 20 737-800s (valued at USD 6.9 billion).3408 As for sales campaigns involving leasing company
customers, the European Union notes that it does not challenge orders such as AerCap's 2015
order for 100 737 MAX (valued at USD 10.7 billion), SMBC Aviation Capital's order for 80 737 MAX
(valued at USD 8.5 billion) or BO C Aviation's 2014 orders for 50 737 MAX and 30 737 -800s
(valued at USD 8.8 billion). 3409 The European Union adds that there are "many further small and
large Boeing orders that remain unchallenged in these proceedings , demonstrating that the
European Union's challenge is limited to a relatively small portion of Boeing's overall sales".3410
9.460. The European Union acknowledges that some sales campaigns are price -sensitive and
some are not. It argues that Boeing uses the subsid ies in the price -sensitive campaigns.3411 We
have found that this is the case in relation to a limited number of single -aisle sales campaigns that
Boeing won. In this context, the fact that Boeing used subsidies to win a comparatively small
number of price-sensitive campaigns does not illustrate that Boeing similarly used the subsidies in
other single-aisle sales campaigns that Airbus won at prices that were consequently suppressed
due to the effects of the subsidies. Had the European Union submitted evidence from sales
campaigns that Airbus won, which were price -sensitive in the above sense , or had there been
additional evidence that Airbus' offer prices in the sales campaigns that it lost were transmitted to
affect the prices Airbus achieved in sales campaign s that it won, there would have been a basis to
consider a causal link between the subsidies enabling Boeing's lower prices in price -sensitive sales
campaigns, and suppression of Airbus' prices. As it stands, however, there is insufficient evidence
to support the proposition that, but for the Washington State B&O tax rate reduction benefiting the
737 MAX and 737NG, A320neo and A320ceo prices obtained by Airbus in sales campaigns not
before us in evidence, which Airbus won, would be higher than they are.
9.461. The European Union presents evidence of Airbus' cost escalation to show what
Airbus' prices should have been absent the U.S. subsidies. 3412 However, in markets in which a
producer can enjoy a temporary monopoly position or greater than normal profits for certai n LCA
models at certain points in time, it is not apparent to us why LCA prices would necessarily be
expected to track escalations in the input costs of LCA manufactu rers. In any case, the

3405 European Union's response to Panel question No. 169, para. 174.
3406 Boeing Press Release, "Boeing Hosts China President Xi Jinping, Announces Airplane Sale, Expanded
Collaboration with China's Aviation Industry", 23 September 2015, (Exhibit EU-1441).
3407 Boeing Press Release, "Boeing, Ryanair Finalize Order for 175 Next-Generation 737s",
19 June 2013, (Exhibit EU-1653); and Boeing Press Release, "Boeing, Ryanair Finalize Order for 100 737 MAX
200", 1 December 2014, (Exhibit EU-1442).
3408 Boeing Press Release, "Boeing, Turkish Airlines Finalize Order for 50 737 MAXs, 20 Next-Generation
737s", 14 May 2013, (Exhibit EU-1654).
3409 Boeing Press Release, "Boeing, AerCap Announce order for 100 737 MAX 8s", 16 June 2015, (Exhibit
EU-1655); Boeing Press Release, "Boeing, SMBC Aviation Capital Announces Order for 80 737 MAXs",
10 November 2014, (Exhibit EU-1656); and Boeing Press Release, "Boeing, BOC Aviation Announce Order for
82 Airplanes", 25 August 2014, (Exhibit EU-1657).
3410 European Union's response to Panel question No. 169, para. 174.
3411 See paras. 9.52 and 9.236 above.
3412 See fn 2723 above for an explanation of the concept of "escalation" in the context of the LCA
industry.

European Union did not update the information concerning Airbus' input costs so there is no data
on the record to indicate the level of Airbus' input costs for the A320neo and A320ceo in the post -
implementation period.3413
9.462. Moreover, when Boeing indexed average order prices for the 737 MAX are graphed against
Airbus A320neo a nd A320ceo indexed average order prices, there is a correlation between price
movements of the A320neo and A320ceo, but not between those two aircraft and the 737 MAX.3414
This suggests to us the possibility of a relationship between A320neo and A320ceo price s.
However, [***]. Without additional information to explain [***], all that we are able to deduce
from this evidence is that the relationship between 737 MAX prices and prices of the A320neo and
A320ceo is not apparent, and there is nothing to indicate th at 737 MAX prices are suppressing
A320neo prices.
9.463. More generally, the parties disagree as to the validity of price trend data presented on an
LCA-family, rather than a model -specific, basis in relation to the significant price suppression
claims in respec t of the A320neo and A320ceo , as well as the A350XWB and A330 . The
United States argues that aggregated data masks the different pricing trends that may occur
across differently -sized (and priced) LCA models. 3415 In its second written submission, the
European Union acknowledges the limitations of aggregated family data, but argues: (a) that it is
nonetheless more useful, since model -specific data is more likely to contain gaps and other flaws
related to the small and uneven number of sales of individual size v ariations per year3416; and (b)
the aggregated per-seat price trend data submitted by the European Union corrects for these
limitations, since it evens out the changing mix of size variations within each LCA family.3417 To the
extent that the United States has i dentified trends in the pricing relationship between Boeing and
Airbus LCA that contradict the European Union's argument, this is only because it is comparing
Airbus and Boeing aggregated net price trends, rather than aggregated per-seat price trends.3418
9.464. However, in its December 2015 comments on the United States' responses to the Panel's
third set of questions, the European Union argues that while per -seat price trend data is a "more
meaningful proxy" for trends in aircraft prices, it too is flawed and cann ot support the
United States' argument that price trend data undermines the European Union's position on price
suppression. The European Union refers to "limitations inherent in aggregated annual pricing data
for families or individual LCA, reflecting a sm all number of heterogeneous sales transactions" and
concludes that these limitations undermine the usefulness of the data as a true indicator of market
realities in a given year, and of competitive constraints between products that the parties agree
are in close competition.3419 At the same time, however, the European Union appears to maintain
its previous position that disaggregated, model-specific data is flawed, and disagrees on that basis
with the United States' arguments that a comparison of disaggregated Boeing and Airbus model-
specific price trend data also contradicts the European Union's price suppression argument.3420 The
European Union thus appears to repudiate not only the United States' data as providing a reliable
basis for drawing conclusions about market conditions, but also its own.

3413 This is also the case with respect to the European Union's significant price suppression claims with
respect to the A350XWB and A330. To the extent that the European Union relies on an alleged absence of
correlation between trends in A350XWB and A330 family prices and Airbus price escalation, the
European Union does not establish this for the post-implementation period.
3414 United States' comments on the European Union's response to Panel question Nos. 166 and 170,
para. 223; Indexed Model-Specific and Family-Wide Average Pricing for 787, 777X, 737 MAX, and 737NG
(2001-2014), (Exhibit USA-599) (BCI), p. 11; and "Price Evolution Net Order Intakes", Airbus Presentation,
October 2015, (Exhibit EU-1669) (BCI), pp. 3 and 4.
3415 United States' second written submission, paras. 946-949.
3416 European Union's second written submission, paras. 1485-1489.
3417 European Union's second written submission, para. 1488. The European Union also notes that,
despite its criticisms of aggregated price trend data, the United States has itself submitted aggregated pricing
data for the relevant Boeing LCA families and, unlike the European Union, has not submitted per-seat price
trend data. (European Union's second written submission, paras. 1492-1497).
3418 In its second written submission, however, the United States submits aggregated per-seat price
trend data, and maintains that this too contradicts the European Union's price suppression arguments.
3419 European Union's comments on the United States' response to Panel question No. 170, paras. 163
and 170.
3420 European Union's comments on the United States' response to Panel question No. 171,
paras. 163-171.

9.465. Finally, we pr ovide our views on a non -attribution factor raised by the United States that
we consider the European Union has failed to adequately address. It concerns the impact of
competition from existing technology single-aisle LCA (i.e. the A320ceo and 737NG) on the
A320neo and, conversely, the impact of new technology single-aisle LCA (i.e. the A320neo and the
737 MAX) on the prices of the A320ceo. As already noted, we treat the existing technology
A320ceo and 737 NG and the new technology A320neo and 737 MAX as competing in the same
product market for narrow -body, single -aisle aircraft. Indeed, of the sales campaigns involving
single-aisle LCA between 2007 -2015 that the European Union alleges are significant lost s ales to
Airbus, a not insignificant number involved both existing technology and new technology LCA. It is
clear to us that, especially where customers are c ontemplating ordering a mix of existing
technology and new technology aircraft of the same size, ra nge and MTOW, the prices of existing
technology single-aisle aircraft constrain those of new technology single-aisle aircraft and
vice-versa.3421 The European Union has failed to address this factor in its arguments owing to its
overly-narrow definitions of the relevant product markets.
9.466. In our view, for the reasons stated above, there is insufficient evidence to demonstrate
that, but for the Washington State B&O tax rate reduction benefiting the 737 MAX and 737NG,
prices of the A320neo and A320ceo, respectiv ely, in the post -implementation period, would be
higher.3422
9.467. We find that the European Union has failed to establish that the Washington
State B&O tax rate reduction is a genuine and substantial cause of serious prejudice to
its interests in the form of sign ificant price suppression (including threat thereof) in
respect of the A320neo or the A320ceo in the post-implementation period.
9.4.3.2 The state and local cash flow subsidies
9.468. We next address the effects of the state and local cash flow subsidies on Boeing's prices of
the 737 MAX and 737NG, and whether any such effects also contribute to the effects of the
Washington State B&O tax rate reduction as a cause of serious prejudice in respect of the A320neo
and A320ceo in the post -implementation period. 3423 We are mindful that, where a category of
subsidies has already been found t o be a genuine and substantial cause of serious prejudice, a
panel may ascertain whether any ot her category of subsidies is a genuine cause of serious
prejudice, and if so, whether the effects of the latter group of subsi dies complement and
supplement those of the former, and thereby also constitute a cause of serious prejudice.3424
9.469. Because the Panel finds that the Washington State B&O tax rate reduction is a genuine and
substantial cause of serious prejudice to Airbus narrow -body, single -aisle LCA in the post -
implementation period, we will evaluate the effects of the state and local cash flow subsidies by
asking: (a) whether these subsidies have a genuine causal connection with the relevant market
effects on Airbus' narrow -body, single -aisle aircraft; and if so, (b) whether the effects of these
subsidies should be cumulated with the effects of the Washington State B&O tax rate reduction
already found for the narrow -body, single -aisle market , and foun d to also contribute to the
relevant serious prejudice phenomena . However, if the P anel is not satisfied that the state and
local cash flow subsidies have a genuine causal connection with the relevant market effects on

3421 A 2013 article indicated that there A320ceos and 737NGs were being "massively discounted" owing
to customer preference for the more fuel-efficient versions of the A320neo and 737 MAX that were then in
development. ("Le vrai prix des avions d'Airbus et de Boeing", Challenges, 13 June 2013, (Exhibit EU-1709)).
3422 The European Union also argues that, in light of the continuation of the U.S. subsidies and the
unchanged conditions of competition in the relevant markets, there is a threat of further significant price
suppression. (European Union's first written submission, paras. 1821 and 1891). We find, however, that the
existing U.S. subsidies and conditions of competition do not give rise to significant price suppression. The
European Union's threat arguments do not provide a basis for any change in circumstances that would warrant
the conclusion that price suppression that does not currently exist is nevertheless clearly foreseeable and
imminent.
3423 See para. 9.253 above for a summary of the subsidies included within this category of post-2006
subsidies.
3424 Appellate Body Report, US – Large Civil Aircraft (2nd complaint), paras. 1287 and 1288.

Airbus' narrow-body, single-aisle, aircraft, there is no basis for finding that they contribute to the
relevant serious prejudice phenomena.3425
9.470. As previously explained, the European Union argues that the state and local cash flo w
subsidies generally operate to reduce costs that Boeing would otherwise have incurred with its own
resources, and thereby liberate funds that Boeing can and does apply to lower LCA pricing in
certain highly-competitive LCA sales campaigns. The European Union considers that Boeing is able,
and has strong incentives, to use the additional cash flow represe nted by the state and local cash
flow subsidies to lower prices for its LCA in competitive sales campaigns without reducing its
profits.3426 In Section 9.3.2.2.2, in evaluating the effects of the state and local cash flow subsidies
benefiting the 787 and 777X on the A350XWB, we note that the European Union relies on the
Appellate Body's finding with respect to the tax abatements related to the City of Wichita IRBs to
support the argument that, in light of the incentives that Boeing has to reduce its prices in
strategic LCA sales campaign s, and the subsidy magnitudes, untied subsidies such as the
Washington State tax subsidies, which have a close connection, or "link" to the production of the
relevant Boeing LCA, can be considered to have a genuine causal link to Boeing's pricing of those
aircraft.3427 For the reasons set forth in paragraphs 9.272 through 9.275 of this Report, we do not
consider that the Appellate Body's finding with respect to the tax abatements related to the City of
Wichita IRBs supports the Euro pean Union's argument that the state and local cash flow subsid ies
impact Boeing's LCA prices.
9.471. We therefore consider that the Europea n Union has failed to demonstrate that the state
and local cash flow subsidies, by virtue of operating to increase Boeing's cash flow, would be used
by Boeing to lower the prices of the 737 MAX and 737NG. There is no evidence before us from
which we could conclude that, absent the state and local cash flow subsidies, Boeing would have
been financially unable to engage in exactly the same pricing behaviour in which it engaged. 3428
There is accordingly no basis for finding that the state and local cash flow subs idies affect Boeing's
pricing behaviour, even in so -called price-sensitive sales campaigns and are thus a genuine cause
of serious prejudice in relation to Airbus single -aisle LCA . Accordingly, there is no basis for
cumulating the effects of these subsidie s with those of the Washington State B&O tax rate
reduction in the single-aisle market.
9.472. The Panel finds that the European Union has failed to establish that the state and
local cash flow subsidies are a genuine cause of any of the forms of serious prejudice
alleged in respect of the A320neo or A320ceo in the post-implementation period through
a price causal mechanism.
9.4.3.3 The post-2006 aeronautics R&D subsidies
9.473. The European Union argues that the post -2006 aeronautics R&D subsidies 3429 operate to
lower Boeing's pr icing of current LCA, such as the 737 MAX and 737NG, because they provide
Boeing with access to and use of research results and inputs that enable it to "continue maturing"
technologies for application to future generations of LCA without having to pay the U.S.
Government for such access and use.3430

3425 In this latter situation, it would also logically follow that the state and local cash flow subsidies could
not, on their own, constitute a genuine and substantial cause of adverse effects on Airbus' narrow-body,
single-aisle aircraft.
3426 European Union's first written submission, para. 1156; second written submission, para. 1080. See
also paras. 9.255 and 9.256 above.
3427 And correspondingly, that "untied" subsidies which have a close connection or "link" to the
production of other Boeing LCA at issue in this proceeding (i.e. the 787 and 777X), can also be considered to
have a genuine causal link to Boeing's pricing of those aircraft.
3428 We reiterate that the European Union does not attempt to demonstrate that Boeing's LCA pricing
would not be economically feasible absent the receipt of the state and local cash flow subsidies, which
represents a significant departure from the European Communities' case in the original proceeding, where it
sought to demonstrate that Boeing's pricing and product development decisions would have been
"unsustainable and financially irrational" absent Boeing's alleged receipt of the subsidies at issue. (See Panel
Report, US – Large Civil Aircraft (2nd complaint), paras. 7.1621, 7.1830, and 7.1831, and fn 3787).
3429 Other than the non-flight testing portion of the FAA aeronautics R&D subsidy above, fn 3149.
3430 European Union's response to Panel question No. 43, para. 280.

9.474. As previously explained in Section 9.3.2.2.3 in evaluating the effects of the post -2006
aeronautics R&D subsidies benefiting the 787 and 777X on the A350XWB, the European Union
considers that the post -2006 aeronautics R&D subsidies operate in a manner that is "identical to
the remaining state and local subsidies". 3431 The Panel has alre ady explained that the
European Union's argument that the post-2006 aeronautics R&D subsidies enabled Boeing to lower
its LCA prices would ultimately fail for the reasons that this same argument with respect to the
effects of the state and local cash flow subsidies on Boeing's prices also fails.3432
9.475. We therefore conclude that the European Union has failed to d emonstrate that the
post-2006 aeronautics R&D subsidies affected Boeing's pricing behaviour with respect to the 737
MAX and 737NG . Having failed to demonstrate that these subsidies affected Boeing's pricing
behaviour, there is no basis on which the subsidi es can be demonstrated to have caused the
various forms of serious prejudice alleged with respect to the A320neo and A320ceo.
9.476. The Panel finds that the European Union has failed to establish that the post -
2006 aeronautics R&D subsidies are a genuine cause of any of the forms of serious
prejudice alleged in respect of the A320neo or A320ceo in the post -implementation
period through a price causal mechanism.
9.4.3.4 Summary of conclusions on whether the post-2006 subsidies benefiting the 737
MAX and 737NG cause seri ous prejudice to the interests of the European Union, within
the meaning of Articles 5(c) and 6.3, in respect of the A320neo and A320ceo in the post-
implementation period, through a price causal mechanism
9.4.3.4.1 Washington State B&O tax rate reduction
9.477. The Panel has concluded that the Washington State B&O tax rate reduction , which is the
only tied tax subsidy alleged to benefit the 737 MAX and 737NG , affected Boeing's pricing
behaviour in five price -sensitive LCA sales campaigns in the 2007 -2012 period: Fly Dubai 2008,
Delta Airlines 2011, Icelandair 2013, Air Canada 2013, and Fly Dubai 2014.3433
Significant lost sales
9.478. Three of the five sales campaigns that the Panel finds are price-sensitive involved orders
that occurred in the post -implementation period: Fly Dubai 2014, Air Canada 2013 and Icelandair
2013. The Panel f inds that the Washington State B&O tax rate reduc tion contributed in a genuine
and substantial way to determining the outcomes of these campaigns. Accordingly , the effects of
the Washington State B&O tax rate reduction are lost sales of the A320neo and A320ceo in the Fly
Dubai 2014, Air Canada 2013 and Icelandair 201 3 sales campaigns. Each of these lost sales is
"significant", within the meaning of Article 6.3(c) of the SCM Agreement.
9.479. Therefore, the Panel finds that the Washington State B&O tax rate reduction is a genuine
and substantial cause of serious prejudice in the form of significant lost sales of A320neo and
A320ceo families of LCA in the post -implementation period, in respect of the sales campa igns for
Fly Dubai in 2014, Air Canada in 2013, and Icelandair in 2013.
Impedance, displacement (and threats thereof)
9.480. With the exceptions set forth in the next paragraph , the Panel is not satisfied that the
European Union has adequately substantiated its claims of impedance, displacement, or threats
thereof, of imports of Airbus single-aisle aircraft to the United States or of exports of Airbus single-
aisle aircraft to various third country markets. The Panel's previous finding that the Washington
State B&O tax rate reduction is a genuine and substantial cause of significant lost sales of Airbus

3431 European Union's first written submission, para. 1187. See also European Union's comments on
United States' response to panel question No. 158. Japan and Korea also advance arguments supporting the
analysis of R&D subsidies through a price causal mechanism. See paras. 9.285 and 9.286 above.
3432 See paras. 9.285 and 9.286 above.
3433 Following the approach of the Appellate Body to determining the impact of the tied tax subsidies on
Boeing's pricing behaviour in the original proceeding, LCA sales campaigns are considered price-sensitive
where it is demonstrated that Boeing was under particular pressure to reduce its prices in order to secure sales
and there were no other non-price factors that explain Boeing's success in obtaining the sale.

single-aisle aircraft in respect of certain price-sensitive LCA sales campaigns does not, on its own,
demonstrate impedance , displacement (or threat s thereof) of A irbus single -aisle imports or
exports to the geographic markets associated with those customers. Moreover, there would be
little to be gained by the Panel making a finding of impedance of imports or exports in relation
solely to lost sales that are already the subject of a finding of significant lost sales. The Panel
additionally rejects the proposi tion that in certain so -called "large volume" markets, it is
reasonable to expect that Boeing and Airbus, as duopolists, would have approximately 50%
market share each, so that significant departures from this allocation serve as additional evidence
that Airbus' single-aisle imports or exports are being impeded.
9.481. The threat of impeded imports of A320ceos into the United States market that arises from
the Delta Air lines 2011 lost sale, unlike the lost sale itself, arises in the post -implementation
period. In these circumstances, we consider it appropriate to make a finding in relation to the
threat of impedance of A320ceo imports to the United States market arising from this lost sale.
Additionally, the market share data for the third -country market of the United Arab Emirates
shows a clear trend in which Boeing's share of single -aisle deliveries grows at the expense of
Airbus' from 2017 to 2022, reversing a pattern in which Airbus had previously mostly maintained a
majority of deliveries from 2007 to 2016. Co nsidered in combination with the Panel's findings that
the Fly Dubai 2008 and 2014 sales campaigns were significant lost sale s which are the effects of
the Washington State B&O tax rate reduction, we conclude that the Washington State B&O tax
rate reduction is also a genuine and substantial cause of a threat of impedance of Airbus' exports
of single -aisle LCA to the U nited Arab Emirates market in the post -implementation period. We
therefore find that the effects of the Washington State B&O tax rate reduction are a threat of
impedance of imports of the A320ceo into the United States market and of exports of Airbus
single-aisle aircraft from the United Arab Emirates market.
9.482. Therefore, the Panel finds that the Washington State B&O tax rate reduction is a genuine
and substantial cause of serious prejudice to the European Union's interests, in the fo rm of a
threat of impedance of imports of the A320ceo into the United St ates market, and of exports of
Airbus single-aisle aircraft to the United Arab Emirates market, in the post-implementation period.
Significant price suppression
9.483. The European Union has failed to demonstrate that, but for the Washington State B&O tax
rate reduction, prices for the A320neo and A320ceo would be higher in the post -implementation
period than they actually are. The Panel is not persuaded that the evidence that the
European Union has provided regarding the divergences in movements between Airbus' single-
aisle prices and its input costs (represented by Airbus' price escalation), which were not updated
for the post -implementation period, or regarding the LCA sales campaigns that Boeing won,
demonstrates that Airbus' single-aisle LCA prices are lower than they would otherwise be, owing to
the Washington State B&O tax rate reduction. Moreover, the Pa nel considers that the
European Union has itself cast doubt upon the reliability of the data it has presented purporting to
demonstrate trends in Airbus air craft prices. Finally, the European Union has failed to adequately
address a non-attribution factor that the Panel considers could plausibly have affected prices of the
A320neo and A320ceo. Therefore, the European Union has failed to establish that the Was hington
State B&O tax rate reduction is a genuine and substantial cause of significant price suppression of
the A320neo or A320ceo, or threat thereof, in the post -implementation period, through a price
causal mechanism.
9.4.3.4.2 State and local cash flow subsidies
9.484. The European Union has failed to demonstrate that the state and local cash flow subsidies,
by virtue of operating to increase Boeing's overall cash flow, are a genuine cause of lower prices of
the 737 MAX and 737NG, absent any showing that Boeing's LCA pricing would not be economically
feasible absent the receipt of the state and local cash flow subsidies. Accordingly, there is no basis
for finding that the state and local cash flow subsidies affect Boeing's pricing behaviour, even in
so-called price-sensitive sales campaigns. Given that the European Union has failed to
demonstrate that the state and local cash flow subsidies affect Boeing's pricing behaviour, there is
no basis for cumulating the effects of these subsidies with those of the Washington State B&O tax
rate reduction in the single-aisle market.

9.4.3.4.3 Post-2006 aeronautics R&D subsidies
9.485. The European Union has failed to demonstrate that the post -2006 aeronautics R&D
subsidies, assuming the Panel were to accept that they operate in the same manner as the state
and local cash flow subsidies, are a genuine cause of lower prices of the 737 MAX and 737NG,
absent any showing that Boeing's LCA pricing wo uld not be economically feasible absent the
receipt of the state and local cash flow subsidies (and assuming for purposes of argument that the
post-2006 aeronautics R&D did operate in the same manner as the state and local cash flow
subsidies). Given that the European Union has failed to demonstrate that the post -2006
aeronautics R&D subsidies affect Boeing's pric ing behaviour, there is no basis for cumulating the
effects of these subsidies with those of the Washington State B&O tax rate reduction in the single -
aisle market.
9.4.4 Summary of f indings on whether subsidies benefiting the 737 MAX and 737NG
cause serious prejudice to the interests of the European Union in respect of the A320neo
and A320ceo in the post-implementation period
9.486. The Panel finds as follows:
a. The European Union has failed to establish that the pre -2007 aeronautics R&D subsidies
and certain post-2006 aeronautics R&D subsidies are a genuine and substantial cause of
any of the forms of serious prejudice alleged with respect to the A320neo in the
post-implementation period, through a technology causal mechanism.
b. The Washington State B&O tax rate reduction is a genuine and substantial cause of
serious prejudice in the form of:
i. significant lost sales of A320neo and A320ceo families of LCA in the
post-implementation period, in respect of the sales campaigns for Fly Dubai 201 4,
Air Canada 2013, and Icelandair 2013; and
ii. a threat of impedance of imports of the A320ceo to the United States market, and of
Airbus single-aisle exports to the United Arab Emirates market, in each case in the
post-implementation period.
c. The European Union has failed to establish that t he Washington State B&O tax rate
reduction is a genuine and substantial cause of serious prejudice in the form of
significant price suppression of the A320neo or A320ceo , or threat thereof, in the post-
implementation period, through a price causal mechanism.
d. The European Union has failed to establish that the effects of the state and local cash
flow subsidies, or of the post-2006 aeronautics R&D subsidies, are a genuine cause of
significant lost sales of the A320neo or A320ceo, impedance or displacement of Airbus
single-aisle LCA imports to the United States or of exports to third countries, or
significant price suppression with respect to the A320neo or A320ceo , or threats of any
of the foregoing, in the post-implementation period, through a price causal mechanism.
9.5 Overall conclusion as to whether the subsidies benefiting the 787 and 777X cause
serious prejudice to the interests of the European Union in respect of the A350XWB and
A330 in the post -implementation period, and whether the subsidies benefiting th e 737
MAX and 737NG cause serious prejudice to the interests of the European Union in
respect of the A320neo and A320ceo in the post-implementation period
9.487. The Panel concludes from its analysis in Sections 9.3 and 9.4 that:
a. The European Union has failed to establish that the subsidies granted or maintained by
the United States after the end of the implementation period and benefiting the 787 and
777X; namely, the pre-2007 aeronautics R&D subsidies, the tied tax subsidies, the state
and local cash flow subsidies, and the post -2006 aeronautics R&D subsidies, cause
serious prejudice to the interests of the European Union, within the meaning of

Article 5(c) and 6.3 of the SCM Agreement in respect of the A3 50XWB and A330, in the
post-implementation period.
b. The European Union has established that the Washington State B&O tax rate reduction
granted or maintained by the United States after the end of the implementation period
and benefiting the 737 MAX and 737 NG, causes serious prejudice to the interests of the
European Union, within the meaning of Articles 5(c) and 6.3 of the SCM Agreement , in
the form of : (i) significant lost sales of the A320neo and A320ceo families in the post -
implementation period in respect of the sales campaigns for Fly Dubai 201 4, Air Canada
2013 and Icelandair 201 3; and ( ii) a threat of impedance of impor ts of the A320ceo to
the United States market and of exports of Airbus single-aisle aircraft to the United Arab
Emirates. In this resp ect, the United States has failed to take appropriate steps to
remove the adverse effects , within the meaning of Article 7.8 of the SCM Agreement ,
and has failed to comply with the DSB recommendations and rulings in the original
proceeding in this dispute.
c. The European Union has failed to establish that the pre -2007 aeronautics R&D subsidies,
the state and local cash flow subsidies and the post -2006 aeronautics R&D subsidies
cause serious prejudice to the interests of the European Union, within the meaning of
Article 5(c) and 6.3 of the SCM Agreement , in respect of the A320neo and A320 ceo, in
the post-implementation period.
10 WHETHER THE UNITED STATES GRANTS OR MAIN TAINS SUBSIDIES INCO NSISTENT
WITH ARTICLES 3.1(A) AND (B) AND 3.2 OF T HE SCM AGREEMENT AND ARTICLE III:4
OF THE GATT 1994
10.1 Introduction
10.1. In this Section of the Report, the Panel evaluates the European Union's claims that after the
end of the implementation period the United States grant s or maintain s subsidies that are
inconsistent with Articles 3.1(a) and (b) and 3.2 of the SCM Agreement and Article III:4 of the
GATT 1994.3434
10.2. We recall that in Section 7 of this Report we ma ke rulings that these claims are within the
Panel's terms of reference, but that they are within the scope of this proceeding only with respect
to certain of the measures challenged by the European Union. As a result of our ruling regarding
the measures with respect to which these claims are within the scope of this proceeding , the
European Union may validly make claims under Articles 3.1(a), 3.1(b) , and 3.2 of the SCM
Agreement and under Article III:4 of the GATT 1994 in respect of the South Carolina measures
that are otherwise within the Panel's terms of reference, the FAA aeronautics R&D measure, and
the post-2006 NASA and DOD aerona utics R&D measures. The European Union may also validly
make claims under Articles 3.1(a) and 3.2 of the SCM Agreement in respect of the FSC/ETI
measures.3435
10.2 Whether the United States grants or maintains s ubsidies prohibited by
Articles 3.1(a) and 3.2 of the SCM Agreement
10.2.1 Main arguments of the parties and third parties
10.3. The European Union claims that " {t}he United States is granting or maintaining subsidies
contingent/conditioned in law or in fact upon actual or anticipated export , which are thus
prohibited b y Articles 3.1(a) and 3.2 , and footnote 4 , of the SCM Agreement". 3436 The

3434 While paragraph 32 of the European Union's panel request alleges that the measures in items I.A
through I.G are inconsistent with Articles III:1, III:4, and III:5 of the GATT 1994, in its first and second written
submissions, the European Union's claims in relation to Article III of the GATT 1994 are limited to alleged
inconsistency with Article III:4 of the GATT 1994. (See European Union's first written submission,
paras. 777-788; and second written submission, paras. 851-864). The European Union therefore appears not
to pursue its other claims under Article III of the GATT 1994.
3435 See para. 7.438 above.
3436 European Union's first written submission, para. 737.

European Union submits that: (a) the FSC/ETI measures 3437 and the South Carolina income tax
apportionment method provided for in the Income Allocation and Apportionment Agreement
entered into between South Carolina and Boeing as of 1 January 2012 3438 are subsidies that are
"contingent/conditioned in law upon export"3439; and (b) all measures at issue in this proceeding
are subsidies that are "contingent/conditioned in fact upon export".3440
10.4. The European Union argues that it has demonstrated in this proceeding that the FSC/ETI
measures continue to provide subsidies to Boeing and that the United States has therefore failed
to withdraw the subsidy , within the meaning of Article 7.8 of the SCM Agreement. The
European Union also recalls that the original panel found that the FSC/ETI measures were
export-contingent subsidies to Boeing's LCA divi sion, prohibited under Articles 3.1(a) and 3.2 of
the SCM Agreement. As the tax exemptions that continue to be pro vided through the FSC/ETI
measures ultimately derive from precisely the same legislation that has previously been found to
be contingent upon export performance, the violation of Article 3.1(a) of the SCM Agreement
persists.3441 In response to the United Stat es' arguments that the relevant legislation has been
terminated and that the United States has confirmed that Boeing has not used FSC/ETI tax
benefits after 2006, the European Union argues that asserting that Boeing did not "use" the tax
benefits necessarily implies that the benefit was conferred on Boeing by the relevant measures at
issue, since otherwise the opportunity to "use" the benefit would never arise. The European Union
thus considers that whether Boeing has "used" the FSC/ETI tax benefits after 2 006 is irrelevant to
the question of whether a prohibited export subsidy "exists". 3442 The European Union also
reiterates its view that the United States has failed to adequately substantiate its assertion that
Boeing has not used the FSC/ETI tax benefits after 2006.3443
10.5. With respect to the Income Allocation and Apportionment Agreement between Boeing and
South Carolina, the European Union argues that, in derogation from the normal rule under South
Carolina law, the apportionment method to which Boeing is entitle d excludes sales of Boeing LCA
delivered in South Carolina from being considered as South Carolina sales, on the condition that
they are destined for export markets outside the United States, thus reducing Boeing's income tax
liability. As such, the measur e is contingent in law upon export performance and, as a
consequence prohibited by Articles 3.1(a) and 3.2, footnote 4, and Annex I(e) of the SCM
Agreement.3444 The European Union furthermore notes that by merely arguing that there is no
subsidy with respect to the income tax apportionment method because there is no financial
contribution or benefit, the United States fails to respond to the European Union's argument that
the measure is contingent upon export. Consequently, if the Panel agrees with the Europea n Union
that there is a subsidy, it must necessarily find that such a subsidy is contingent upon export and
therefore prohibited.3445
10.6. In support of its claim that the United States is granting or maintaining subsidies
"contingent/conditioned in fact, upon export", prohibited by Articles 3.1(a) and 3.2, and footnote 4
of the SCM Agreement, the European Union makes the followi ng arguments. First, the
United States is granting or maintaining subsidies to Boeing LCA "{a}s found in the original
proceedings, and as demonstrated in section V of this submission" 3446. Second, the evidence
demonstrates that both "the ratio of actual sales of Boeing LCA" and "the ratio of anticipated sales
of Boeing LCA" are skewed towards exports. 3447 Third, the subsidies at issue are geared to induce

3437 See Section 8.2.5 above.
3438 See Section 8.2.8.9 above.
3439 European Union's first written submission, section VI.A.2(a). (emphasis original)
3440 European Union's first written submission, section VI.A.2(b). (emphasis original)
3441 European Union's first written submission, paras. 743-746; second written submission,
paras. 794-796.
3442 European Union's second written submission, paras. 797 and 798 (referring to United States' first
written submission, para. 678).
3443 European Union's second written submission, paras. 799-801.
3444 European Union's first written submission, paras. 749 and 750; second written submission,
paras. 804-806.
3445 European Union's second written submission, para. 807 (referring to United States' first written
submission, para. 677).
3446 European Union's first written submission, para. 751.
3447 European Union's first written submission, paras. 752-756; second written submission,
paras. 811-817; Summary of Actual Boeing LCA Export Sales as a Percentage of Total Sales, (Exhibit EU-563);
Summary of Anticipated Boeing LCA Export Sales as a Percentage of Total Sales, and Supporting Boeing

or incentivize the skewing of Boeing LCA sales towards exports because the United States favours
exports and conditions Boeing's behaviour by encouraging and directing Boeing to favour exports
and by rewarding Boeing when it complies. 3448 In support of its position, the European Union
submits an exhibit containing what it describes as "a series of representative examples of
statements attributable to the United States or Boeing and extracted from the documents relating
to the subsidies, which stateme nts refer expressly to exports, or a proxy for exports". 3449
According to the European Union, these statements speak to the structure, design , and operation
of the subsidies, and are in the nature both of encouragement and direction going forward, as well
as of reward for past export performance. 3450 Fourth, the skewing of Boeing's LCA sales towards
exports is not reflective of the conditions of supply and demand that would exist in the absence of
the subsidies. This is because it would be highly implausible t hat the behaviour of the
United States and Boeing has had no impact on the distribution of sales between the domestic and
export markets. Absent the subsidies, the share of sales accounted for by exports would
necessarily be diminished in some measure. In the original proceeding a finding was made that the
launch of certain aircraft would not have occurred or would have been delayed in the absence of
the subsidies. This implies at a minimum that the actual and anticipated development of Boeing
and its sales have been accelerated by the subsidies.3451
10.7. With respect to the European Union's claim that the FSC/ETI measures are subsidies
contingent in law upon export performance and thus inconsistent with Articles 3.1(a) and 3.2, the
United States argues that it enacted legislation terminating the FSC/ETI tax benefits and confirmed
that Boeing did not use FSC /ETI tax benefits after 2006. 3452 The United States considers that the
European Union's claim that the Income Allocation and Apportionment Agreement between Boeing
and South Carolina is a subsidy contingent in law upon export performance and thus inconsistent
with Articles 3.1(a) and 3.2 is based on a misunderstanding of South Carolina tax law. Indeed, the
European Union has failed to establish a prima facie case that t he Agreement confers a specific
subsidy to Boeing, within the meaning of Article 1, let alone a subsidy that is contingent on export
performance, within the meaning of Article 3.1(a). 3453 Even if the European Union could
demonstrate the existence of a subsidy , it must also demonstrate that the granting of the subsidy
is conditioned on export performance, which it cannot.3454
10.8. With respect to the European Union's claim of de facto export contingency under
Articles 3.1(a) and 3.2, the United States argues that the European Union fails to make a prima
facie case that the United States presently provides Boeing with subs idies prohibited under
Articles 3.1(a) and 3.2 of the SCM Agreement. Indeed, the European Union fails to specify with
any particularity how the allege d subsidies are in fact contingent on export performance. Instead
of relying on any explicit link between export behaviour and an y alleged subsidy, the
European Union's position is based on the assertions that Boeing's export sales are increasing as a
percentage of its total sales, and that a selection of statements, unrelated to any particular
measure at issue, demonstrates that the United States has conditioned Boeing's behaviour to
favour exports. These statements concerning the importance of exports to the U.S. economy are
unremarkable, and certainly do not allow the United States to understand how the Kansas IRBs,
for example, induce Boeing to skew sales in favour of exports.3455
10.9. Brazil argues that the determination of whether a subsidy is contingent in fa ct upon export
performance should be based on an examination of the total configuration of facts surrounding the
granting of a subsidy rather than only on an examination of sales ratios. The fact that a finding of

Current Market Outlooks, (Exhibit EU-564); and Summary of Airbus Global Market Forecasts, and
Corroborating Data on Anticipated Boeing LCA Export Sales, (Exhibit EU-565).
3448 European Union's first written submission, paras. 757 and 758; second written submission,
paras. 818-827; and Illustrative Statements Relating to De Facto Export Contingency of U.S. Subsidies,
(Exhibit EU-566).
3449 European Union's first written submission, para. 757; and Illustrative Statements Relating to De
Facto Export Contingency of U.S. Subsidies, (Exhibit EU-566).
3450 European Union's second written submission, 824-834 (referring to United States' first written
submission, para. 674; and Illustrative Statements Relating to De Facto Export Contingency of U.S. Subsidies,
(Exhibit EU-566)).
3451 European Union's first written submission, paras. 760 and 761.
3454 United States' second written submission, para. 636.
3455 United States' first written submission, para. 674; second written submission, paras. 627-630.

de facto export contingency must involve a n examination of "the total configuration of the facts
constituting and surrounding the granting of the subsidy, none of which is likely to be decisive in
any given case" means that a comparison of sales ratios cannot be decisive or required as a
necessary element of proof. Brazil considers that the Appellate Body's analysis in EC and certain
member States – Large Civil Aircraft confirms that the evidence for demonstrating de facto export
contingency does not require in whole or in part reliance on an analysis of sales ratios.3456
10.10. Canada submits that the European Union has failed to demonstrate that subsidies granted
by the United States are contingent in fact upon export performance a nd thus in violation of
Article 3.1(a) of the SCM Agreement. Canada notes that the test established by the Appellate Body
for determining whether a subsidy is contingent in fact upon anticipated exportation is whether
"the granting of the subsidy {is} geared to induce the promotion of future export performance by
the recipient". This standard is met "when 'the subsidy is granted so as to provide an incentive to
the recipient to export in a way that is not simply reflective of the conditions of supply and
demand in the domestic and export markets undistorted by the granting of the s ubsidy'".3457 In
this context, the Appellate Body has explained that an assessment of whether the granting of a
subsidy is in fact tied to anticipated exportation could be based on a comparison of the ratio of
anticipated export sales to domestic sales of the subsidized product that would result from the
granting of the subsidy with the ratio of export sales to domestic sales of that product in the
absence of the subsidy.3458
10.11. In light of the guidance provided by the Appellate Body, Canada argues that the
European Union has failed to demonstrate that subsidies to Boeing are in fact tied to anticipated
exportation for three main reasons. First, the European Union presents charts showing export
sales as a percentage of total sales but does not provide baseline data demonstrating the extent to
which Boeing would be expected to export in the absence of the subsidies. 3459 Second, the
European Union does not demonstrate that increased exports as a percentage of total sales are
due to subsidies and not merely reflective of a change in market conditions. In fact, the evidence
submitted by the European Union suggests that it is more likely a change in market conditions
rather than subsidization that accounts for the increase in export sales relative to domestic
sales.3460 Third, the European Union fails to explain how the factual circumstances surrounding the
granting of the subsidies support a finding of de facto export contingency. The statements relied
upon by the European Union as evidence of a U.S. policy of favouring exports do not prove that
the subsidies were geared to induce export performance.3461
10.12. Japan recalls that the appropriate legal standard for determining whether a subsidy is de
facto export contingent is whether "the granting of the subsidy is geared to induce the pr omotion
of future export performance by the recipient", which standard is met "when the subsidy is
granted so as to provide an incentive to the recipient to export in a way that is not simply
reflective of the conditions of supply and demand in the domesti c and export markets undistorted
by the granting of the subsidy". Whether a subsidy is geared to induce the promotion of future
export performance " must be inferred from the total configuration of the facts constituting and
surrounding the granting of the subsidy", including the design and structure of the measure, the
modalities of the operation set out in the 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. 3462 A comparison of the ratio of anticipated export
sales to domestic sales of a subsidized product to the ratio of export sales and domestic sales in
the absence of the subsidy may be one of the "facts constituting and surrounding the granting of
the subsidy" but cannot in and of itself be determinative of whether a given subsidy is de facto
export contingent. In this respect, Japan considers that the state ments submitted by the
European Union in support of its de f acto export contingency claim do not demonstrate an

3456 Brazil's third-party submission, paras. 72-83 (citing Appellate Body Report, Canada – Aircraft,
para. 76).
3457 Canada's third-party submission, para. 5 (quoting Appellate Body Report, EC and certain member
States – Large Civil Aircraft, paras. 1044 and 1045).
3458 Canada's third-party submission, para. 6 (quoting Appellate Body Report, EC and certain member
3459 Canada's third-party submission, paras. 10-12.
3460 Canada's third-party submission, paras. 13 and 14.
3461 Canada's third-party submission, paras. 15 and 16.
3462 Japan's third-party submission, paras. 28 and 29 (quoting Appellate Body Report, EC and certain
member States – Large Civil Aircraft, paras. 1044-1047 (emphasis added by Japan)).

incentive to skew anticipated sales towards exports. 3463 Japan considers that to accept that de
facto export contingency can be established solely on the basis of this anticipate d ratio test would
create leg al uncertainty and make Members with small domestic markets more vulnerable to
findings of de facto export contingency than Members with larger domestic markets.3464
10.2.2 Evaluation by the Panel
10.13. The issue before us is whether the United States is granting or mai ntaining subsidies
contingent on export performance, in contravention of Articles 3.1(a) and 3.2 of the SCM
Agreement.
10.14. We recall that our preliminary ruling in Section 7.6 means that the European Union may
validly make claims under Articles 3.1(a) and 3.2 of the SCM Agreement only in respect of the
post-2006 NASA and DOD aeronautics R&D measures, the FAA aeronautics R&D measure, the
FSC/ETI measures, and the South Carolina measures that are otherwise within the Panel's terms
of reference.3465 Where we find, in Section 8 of this Report, that any measure in respect of which
the European Union may validly make claims under Articles 3.1(a) and 3.2 of the SCM Agreement
is not a subsidy, within the meaning of Article 1 of the SCM Agreement, there obviously is no basis
for a finding that the measure is inconsistent with Article 3.1(a) as a subsidy that is contingent in
law or in fact upon export performance. For example, with regard to the two measures that the
European Union alleges are s ubsidies contingent in law upon export performance, namely the
FSC/ETI measures and the South Carolina Income Allocation and Apportionment Agreement, we
find, in Sections 8.2.5 and 8.2.8.9 of this Report, that these measures do not constitute subsidies
to Boeing after the end of the implementation period. Since the measures are not subsidies to
Boeing, they cannot be subsidies to Boeing contingent in law (or in fact) upon export performance.
10.15. Therefore, o ur examination in the remainder of this Section concerns any measures in
respect of which the European Union's claims under Articles 3.1(a) and 3.2 of the SCM Agreement
are within the scope of this proceeding and which we find to be subsidies, includi ng subsidies not
found to be specific under Articles 2.1 or 2.2.3466
10.16. In this respect, we recall the relevant findings made in Section 8.2 of the Report:
a. Post-2006 NASA procurement contracts, cooperative agreements , and Space Act
Agreements confer subsidies to Boeing that are specific , within the meaning of Article
2.1(a) of the SCM Agreement.3467
b. Post-2006 DOD assistance instruments confer subsidies to Boeing that are specific ,
within the meaning of Article 2.1(a) of the SCM Agreement.3468
c. The Boeing CLEEN Agreement involves subsidies to Boeing that are specific , within the
meaning of Article 2.1(a) of the SCM Agreement.3469
d. The direct transfer of funds by South Carolina to Boeing to compensate Boeing for a
portion of the costs to constr uct the Gemini facilities is a subsidy to Boeing. The subsidy
is specific, within the meaning of Article 2.1(c) , insofar as the transfer involved funds
generated by the issuance of air hub bonds . The subsidy is not specific , within the
meaning of Article 2 .1, insofar as the transfer involved funds generated by the issuance
of economic development bonds.3470

3463 Japan's third-party submission, paras. 31 and 32.
3464 Japan's third-party submission, paras. 35-37.
3465 See para. 7.438 above.
3466 Article 2.3 of the SCM Agreement provides that "{a}ny subsidy falling under the provisions of
Article 3 shall be deemed to be specific". A subsidy not found to be specific under Articles 2.1 or 2.2 can be
found to be specific (and thereby be subject to the provisions of Part III or V of the SCM Agreement pursuant
to Article 1.2), if it is a prohibited subsidy, within the meaning of Article 2.3 of the SCM Agreement.
3467 See para. 8.231 above.
3468 See para. 8.469 above.
3469 See para. 8.565 above.
3470 See para. 8.850 above.

e. The Project Emerald F ILOT Agreement and the Boeing F ILOT Agreement constitute
subsidies to Boeing but are not specific , within the meaning of Article 2.1 of the SCM
Agreement.3471
f. The MCIP job tax credits are subsidies to Boeing but are not specific under Articles 2.1 or
2.2 of the SCM Agreement.3472
g. The LCF property tax exemption is a subsidy to Boeing that is specific , within the
meaning of Article 2.1(c) of the SCM Agreement.3473
h. Sales and use tax exemptions on aircraft fuel, computer equipment , and construction
materials are subsidies to Boeing that are specifi c, within the meaning of
Article 2.1(c).3474
i. The Boeing workforce programme is a subsidy to Boeing but is not specific under
Article 2.1(c) of the SCM Agreement.3475
10.17. Articles 3.1(a) and 3.2 of the SCM Agreement read as follows:
3.1 Except as provided in the Agreement on Agriculture, the following subsidies,
within the meaning of Article 1, shall be prohibited:
(a) subsidies contingent, in law or in fact{*}, whether solely or as one
of several other conditions, upon export performance, including
those illustrated in Annex I{*};
…
3.2 A Member shall neither grant nor maintain subsidies referred to in paragraph 1.
{*fn original}4 This standard is met when the facts demonstrate that the granting of a subsidy,
without having been made legally contingent upon export performance, is in fact tied to actual or
anticipated exportation or export earnings. The mere fact that a subsidy is granted to enterprises
which export shall not for that reason alone be considered to be an export subsidy within the
meaning of this provision.
{*fn original}5 Measures referred to in Annex I as not constituting export subsidies shall not be
prohibited under this or any other provision of this Agreement.

10.18. Article 3.1(a) of the SCM Agreement has been subject to interpretation by the Appellate
Body and several panels. In particular, the Appellate Body has explained that the word
"contingent" in Article 3.1(a) means "conditional" or "dependent for its existence on something
else", and that the legal standard for export cont ingency expressed in Article 3.1(a) is the same
for both de jure and de facto contingency.3476
10.19. With respect to the evidence required to demonstrate export contingency, the Appellate
Body has found that the evidence that may demonstrate de jure export contingency is different
from the evidence that may reveal de facto export contingency. De jure contingency "can be
demonstrated on the basis of the very words of the relevant legislation, regulation or other legal
instrument constituting the measure". Nonetheless, de jure export contingency does not have to
be set out expressly, but can also be derived by "necessary implication" fr om the wording of a
legal instrument. 3477 By contrast, the evidence needed to establish de facto export contingency
goes beyond a legal instrument and includes a variety of factual elements concerning the granting
of the subsidy in a specific case. In this respect, the Appellate Body has stated the following:

3471 See para. 8.908 above.
3472 See para. 8.933 above.
3473 See para. 8.1017 above.
3474 See para. 8.1059 above.
3475 See para. 8.1074 above.
3476 Appellate Body Report, Canada – Aircraft, paras. 166 and 167. See also Appellate Body Report, EC
and certain member States – Large Civil Aircraft, para. 1037.
3477 Appellate Body Report, Canada – Autos, para. 100. See also Appellate Body Report, EC and certain
member States – Large Civil Aircraft, para. 1038.

Proving de facto export contingency is a much more difficult task. There is no single
legal document which will demonstrate, on its face, that a subsidy is "contingent … in
fact … upon export performance" . Instead, the existence of this relationship of
contingency, between the subsidy and export performance, must be inferred from the
total configuration of the facts constituting and surrounding the granting of the
subsidy, none of which on its own is likely to be decisive in any given case.3478
The factors to be considered as part of an analysis of "the total configuration of the facts
constituting and surrounding the granting of the subsidy" include the design and structure of a
measure, its modalities of operation and relevant factual circumstances that provide context for an
understanding of the measure's design, structure and modalities of operation.3479

10.20. The Appellate Body has noted that the ordinary meaning of the word "tie" in the first
sentence of footnot e 4 is to "limit or restrict as to … conditions". The Appellate Body has thus
found that to satisfy the standard for de facto export contingency "a relationship of conditionality
or dependence" must be demonstrated between the subsidy and "actual or antici pated exportation
or export earnings". 3480 With respect to anticipated exportation or export earnings in particular,
the Appellate Body has further observed that the meaning of the word "anticipated" in footnote 4
is "expected", and that "{w}hether exports were anticipated or 'expected' is to be gleaned from an
examination of objective evidence". The Appellate Body has stressed, however, that the use of this
word does not transform the standard for "contingent … in fact" into a standard that is satisfied by
merely ascertaining "expectations" of exports on the part of the granting authority. The Appellate
Body has explained that, although a subsidy "may well be granted in the knowledge, or with the
anticipation, that exports will result", "that alone is not suff icient, because that alone is not proof
that the granting of the subsidy is tied to the anticipation of exportation".3481
10.21. The Appellate Body has emphasized that "merely knowing that a recipient's sales are
export-oriented does not demonstrate, without more, t hat the granting of a subsidy is tied to
actual or anticipated exports." Rather, "the export orientation of a recipient may be taken into
account as a relevant fact, provided that it is one of several facts which are considered and is not
the only fact sup porting a finding." 3482 The Appellate Body has explained that the relationship of
conditionality that must be found between the granting of a subsidy and anticipated exportation in
order to find that a subsidy is tied to anticipated exportation "can be establ ished by recourse to
the following test: is the granting of the subsidy geared to induce the promotion of future export
performance by the recipient?".3483 Thus:
{T}he standard for de facto export contingency under Article 3.1(a) and footnote 4 of
the SCM Agr eement would be met when the subsidy is granted so as to provide an
incentive to the recipient to export in a way that is not simply reflective of the
conditions of supply and demand in the domestic and export markets undistorted by
the granting of the subsidy.3484
10.22. The Appellate Body also observed in this connection that:
Moreover, where relevant evidence exists, the assessment could be based on a
comparison between, on the one hand, the ratio of anticipated export and domestic

3478 Appellate Body Report, Canada – Aircraft, para. 167. See also Appellate Body Report, EC and certain
member States – Large Civil Aircraft, para. 1038. (emphasis original)
3479 Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 1046, 1050, and
1056 (quoting Appellate Body Report, Canada – Aircraft, para. 167).
3480 Appellate Body Report, Canada – Aircraft, para. 171. See also Appellate Body Report, EC and certain
member States – Large Civil Aircraft, para. 1037.
3481 Appellate Body Report, Canada – Aircraft, para. 172 (emphasis original). See also Appellate Body
Report, EC and certain member States – Large Civil Aircraft, para. 1037.
3482 Appellate Body Report, Canada – Aircraft, para. 173. See also Appellate Body Report, EC and certain
member States – Large Civil Aircraft, para. 1039.
3483 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1044.
3484 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1045.

sales of the subsidized product that would come about in consequence of the granting
of the subsidy, and, on the other hand, the situation in the absence of the subsidy.3485
10.23. Finally, the Appellate Body, in EC and certain member States – Large Civil Aircraft ,
cautioned against undue relian ce on government intent in determining whether a subsidy is de
facto contingent on export performance:
{W}e note that the Appellate Body and panels have, on several occasions, cautioned
against undue reliance on the intent of a government behind a measure to determine
the WTO-consistency of that measure. The Appellate Body has found that "the intent,
stated or otherwise, of the legislators is not conclusive" as to whether a measure is
consistent with the covered agreement. In our view, the same understandin g applies
in the context of a determination on export contingency, where the requisite
conditionality between the subsidy and anticipated exportation under Article 3.1(a)
and footnote 4 of the SCM Agreement must be established on the basis of objective
evidence, rather than subjective intent. We note, however, that while the standard for
de facto export contingency cannot be satisfied by the subjective motivation of
granting government, objectively reviewable expressions of a government's policy
objectives for granting a subsidy may, however, constitute relevant evidence in an
inquiry into whether a subsidy is geared to induce the promotion of future export
performance by the recipient.3486
10.24. We consider that the European Union has failed to establish that any of the measures with
respect to which its claims are within the scope of this proceeding and which we find to be a
subsidy is contingent in fact upon export performance .3487 This is because the European Union
does not provide an adequate analysis of "the total configuration of the facts constituting and
surrounding the granting of the subsidy", including the design and structure of the measures, their
modalities of operation and relevant factual circumstances that provide context for an
understanding of the measures' design, structure, and modalities of operation.3488 The generalized
nature of the European Union's assertions is inconsistent with the guidance provided by the
Appellate Body regarding the evidence necessary to establish the existence of a subsidy contingent
in fact upon export performance. The relevant sections of the European Union's submissions do not
provide any discussion of any individual measure alleged to be a subsidy contingent upon export
performance. The European Union states that " {a}s found in the original proceedings, and as
demonstrated in Section V of this submission, the United States is granting or maintaining
subsidies to Boeing LCA"3489 but it does not provide any factual analysis of any particular measure
to show how that measure is gear ed to induce the promotion of future export performance. The
European Union asserts that actual and anticipated sales of Boeing are skewed towards exports
and that "the subsidies are geared to induce or incentivise this skewing because the United States
favours exports, and conditions Boeing's behaviour by encouraging and directing Boeing to favour
exports and by rewarding Boeing when it complies" .3490 However, the statements the
European Union submits in support of this assertion 3491 do not address any of the me asures in
sufficient detail to enable an understanding of its design, structure, and modalities.
10.25. Thus, for example, the document provided by the European Union (Illustrative Statements
Relating to De Facto Export Contingency of U .S. Subsidies) include s the following statements
relating to various NASA programmes:
With competition from foreign competitors greatly increasing, affordable, innovative
technology is critically needed to help preserve the U.S. aeronautics industry market

3485 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1047. (emphasis
original)
3486 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1050. (emphasis
original, fns omitted)
3487 As noted above, we find that two measures which the European Union alleges are contingent in law
upon export performance are not subsidies to Boeing and therefore cannot be subsidies that are inconsistent
with Article 3.1(a).
3488 See para. 10.19 above.
3489 European Union's first written submission, para. 751.
3490 European Union's first written submission, p. 321, item (iv).
3491 Illustrative Statements Relating to De Facto Export Contingency of U.S. Subsidies, (Exhibit EU-566).

share, jobs, and balance of trade. Exports in large commercial transports make a
significant contribution to the U.S. balance of trade.
The President, Congress and the NASA Administrator are emphasizing the value of
NASA's research and technology base to U.S. industry in helping to increase industrial
competitiveness, provide jobs and improve the quality of life and the balance of trade.
The taxpayers' investment in NASA is an investment in the international
competitiveness of U.S. industry through partnerships that build upon NA SA's
research and make it available to U.S. industry.
Maintenance of the United States aircraft industry's market position is critical for the
preservation of high paying skilled jobs, a capable industrial base, and balance of
trade.
Boeing is the world' s largest producer of commercial transport aircraft, maintaining a
market share of over 57% for the world and over 80% for the United States. This
provides a large benefit to the US. economy. Approximately 75% of Boeing sales are
exports, helping to reduce the US. trade deficit. Every $1 billion in US . airplane sales
creates about 30,000 labor years of work, of which 87% is performed in the US.
The aerospace industry is a major contributor to the balance of trade and the balance
of trade has an effect on the U.S. standard of living.
As mentioned earlier, NASA's aeronautics customers play major roles in the economic
growth and national security of the United States. In 1994 (a year of record low
performance) the aerospace industry, primarily aeronautics, ge nerated $112 billion in
sales, over $38 billion in exports, and over $25 billion in positive balance of trade.
Appearing before the US House of Representatives, Wesley Harris, NASA's Associate
Administrator, testified that the objective of the NASA AST Program was to provide
"U.S. industry with a competitive edge to recapture market share {and} maintain a
strongly positive balance of trade".
By the mid-1980s, there was yet another argument for continued government support
of aeronautical research : the dim inishing level of U.S. industrial competitiveness in
the global market … Leaders in government, industry, academia and the media all
began stress that to preserve the U.S. lead in aeronautics and, indeed, the U.S.
balance of trade, the country had to accor d a much higher priority to aeronautical
research and development.3492
10.26. Other statements in this document are even more general in nature. Overall, we agree
with Canada's characterization of the statements in this document:
The statements of Boeing employees and U.S. government officials merely reflect that
Boeing is considered to generate high -value technology through research and
development, that it is a large exporter of products making an important contribution
to the United States' trade balance, that e xports are important because they generate
employment and that the U.S. government values Boeing's contribution as an
exporter of high -technology products. These statements do not, however, prove that
the subsidies were geared to induce export performance.3493
10.27. While the European Union asserts that these statements "also speak to the structure,
design and operation of the subsidies" 3494, it fails to connect any of these statements with any
particular measure and explain how they demonstrate that the measure is con tingent in fact upon
export performance. Instead, the European Union argues that "{t}aken as a whole , this evidence

3492 Illustrative Statements Relating to De Facto Export Contingency of U.S. Subsidies, (EU-Exhibit-566),
p. 4. We also note that most statements reproduced in this document that relate to NASA aeronautics R&D
programmes pertain to a period well before the expiry of the implementation period in this proceeding.
3493 Canada's third-party submission, para. 16.
3494 European Union's first written submission, para. 757.

demonstrates a US policy of favouring exports". 3495 In our view, statements at this level of
generality regarding the existence of a "US policy of favouring exports", unsubstantiated by
measure-specific analysis of design, structure and modalities of operation of particular measures,
cannot support a finding of de facto export contingency. In sum, we find that, as stated by the
United States, "th e EU fails to specify with any particularity how the alleged subsidies are in fact
contingent on export performance".3496
10.28. Finally, insofar as the European Union's argument is based on data purporting to show that
the ratios of Boeing's actual and anticipated export sales to total sales have increased over time,
we note that the European Union fails to compare the anticipated export ratio that would come
about in consequence of the granting of the subsidy with the situation in the absence of the
subsidy.3497
10.29. For these reasons, to the extent that we have ruled that the European Union's
claims under Articles 3.1(a) and 3.2 are within the scope of this proceeding , we reject
these claims as unfounded because: (a) certain measures challenged by the European
Union are not subsidies provided to Boeing after the end of the implementation period;
and (b) where we find that the measures at issue are subsidies provided to Boeing after
the end of the implementation period, the European Union has failed to establish that
any of these subsidies is contingent in fact upon export performance.
10.3 Whether the United States grants or maintains subsidies prohibited by
Articles 3.1(b) and 3.2 of the SCM Agreement
10.3.1 Main arguments of the parties and third parties
10.30. The European Union claims, with respect to all measures challenged in this proceeding,
that "{t}he United States is granting or maintaining subsidies contingent/conditioned in fact upon
the use of domestic over imported goods, which are thus prohibited by Articles 3.1(b) and 3.2 of
the SCM Agreement ".3498 In support of this claim, the European Union makes the following
arguments. First, "{a}s found in the original proceedings, and as demonstrated in Section V of this
submission, the United States is granting or maintaining subsidies to Boeing".3499 Second,
pursuant to the subsidies, Boeing is to produce goods, of U.S. domestic origin, destined to be used
in the manufacture of Boeing LCA, to the exclusion of imported goods. 3500 Third, pursuant to the
subsidies, Boeing is to maintain employment levels in the United States that cannot be sustained
without the use of U.S. domestic goods. 3501 Fourth, pursuant to the subsidies, Boeing is to locate
substantial development and production activities in the United States, which necessarily implies
the use o f U.S. domestic goods. 3502 Finally, the United States favours the use of U.S. domestic
goods and labour, and conditions Boeing's behaviour by encouraging and directing Boeing to
favour U.S. domestic goods and labour, rewarding Boeing when it complies. 3503 Thus, the
European Union considers that, taken as a whole, or in any permutation, the facts and evidence
demonstrate that the granting or maintaining of the subsidies, without having been made legally
contingent/conditional upon the use of domestic over imported goods, is nevertheless tied to the
use of domestic over imported goods, and that the subsidies are thus contingent/conditioned in
fact upon the use of domestic over imported goods, and are prohibited by Articles 3.1(b) and 3.2
of the SCM Agreement.3504

3495 European Union's first written submission, para. 758.
3496 United States' first written submission, para. 674. Also see Canada's third-party submission,
paras. 15 and 16; and Japan's third-party submission, paras, 29 and 32.
3497 Appellate Body Report, EC and certain member States – Large Civil Aircraft, para. 1047.
3498 European Union's first written submission, para. 764.
3499 European Union's first written submission, para. 768.
3500 European Union's first written submission, para. 769; and Illustrative Statements Relating to De
Facto Contingency on the Use of Domestic Over Imported Goods, (Exhibit EU-583).
3501 European Union's first written submission, para. 770; Illustrative Statements Relating to De Facto
Contingency on the Use of Domestic Over Imported Goods, (Exhibit EU-583).
3502 European Union's first written submission, para. 771; Illustrative Statements Relating to De Facto
Contingency on the Use of Domestic Over Imported Goods, (Exhibit EU-583).
3503 European Union's first written submission, para. 772; and Illustrative Statements Relating to De
Facto Contingency on the Use of Domestic Over Imported Goods, (Exhibit EU-583).
3504 European Union's first written submission, para. 776.

10.31. The United States argues with respect to the European Union's claim of de facto
contingency of all challenged subsidies under Articles 3.1(b) and 3.2 that the European Union fails
to make a prima facie case that the United States presently provides Boeing with subsidies
prohibited under Articles 3.1(b) and 3.2. Indeed, the European Union fails to identify a single
measure that confers a subsidy contingent on the use of domestic over imported goods. Rather
than look to the text or operation of any particular measure, the European Union offers a collection
of miscellaneous statements (ranging from statements by the U.S. President to statements by low-
level county and municipal officials ), unrelated to any particular measure, which, according to the
European Union, have conditioned Boeing's behaviour to use domestic over imported goods. These
statements are unremarkable and fail to demonstrate contingency within the meaning of Article
3.1(b). At most, they suggest that Boei ng makes products in the United States and e mploys
workers there, and that some in the United States like the fact that they do.3505
10.32. Brazil notes that the European Union relies on the same evidence in support of its claims
under Article 3.1(b) and Article III:4 of the GATT 1994 and argues that while bo th provisions
address discriminatory conduct, they differ in scope and substantive obligations. Thus, a violation
of Article 3.1(b) of the SCM Agreement does not necessarily and directly imply a violation of
Article III:4 of the GATT 1994. Brazil also considers that the Illustrative Statements Relating to De
Facto Contingency on the Use of Domestic Over Imported Goods submitted by the European Union
are of limited probative value, particularly given the lack of any specific evidence relating to how
each mea sure either is conditioned upon the use of domestic over imported goods or acts to
accord less favourable treatment to imported products.3506
10.33. Canada argues that whereas the prohibition in Article 3.1(b) of the SCM Agreement covers
situations where the granting of a subsidy is contingent on the recipient purchasing domestic over
imported goods, the European Union's position in this proceeding improperly expands the scope of
Article 3.1(b) to cover subsidies contingent on the recipient producing a particular int ermediate
good.3507 Nothing in the GATT 1994 or the SCM Agreement prohibits a Member from making the
granting of a subsidy contingent on a recipient producing goods in its territory. In fact, GATT
Article III:8(b) explicitly allows WTO Members to provide subs idies only to their domestic
producers. A producer of a final good that is required to produce an intermediate good is also a
producer of the intermediate good. 3508 Furthermore, Canada argues that the GATT and the SCM
Agreement do not limit a subsidizing Memb er's ability to define the level of production for subsidy
eligibility purposes. As part of that discretion, a Member may explicitly require the production of an
intermediate good and may also implicitly require the production of an intermediate good by
requiring a subsidy recipient to produce a final good or use a particular level of labour in a way
that cannot be accomplished without producing an intermediate good. If a Member could not
require the production of an intermediate good, that Member's ability to condition the provision of
a subsidy on a production requirement would be significantly curtailed because the production
requirement would then have to be limited to simple assembly operations.3509
10.34. In this respect, Canada argues that the European Union's position that a subsidy requiring
the production of an intermediate good to be used in the production of a final good is contingent
upon the use of a domestic over an imported good , contrary to Article 3.1(b) is incorrect, as
demonstrated by the Appellate Body decision in Canada – Autos. In assessing whether a measure
providing Canadian automobile manufacturers with an import duty exemption contingent inter alia
upon a Canadian value added requirement violated Article 3.1(b) of the SCM Agreement, the
Appellate Body found that the Canadian value added requirement would violate Article 3.1(b) only
if it required the manufacturer to use domestic goods. The Appellate Body did not consider that a
requirement to use domestic labour, regardless of whether that requ irement implied the
production of intermediate goods would violate Article 3.1(b).3510

3505 United States' first written submission, para. 676 (referring to European Union's first written
submission, para. 773); second written submission, paras. 631-633.
3506 Brazil's third-party submission, paras. 60-70.
3507 Canada's third-party submission, para. 20.
3508 Canada's third-party submission, para. 21.
3509 Canada's third-party submission, para. 22.
3510 Canada's third-party submission, paras. 24 and 25.

10.3.2 Evaluation by the Panel
10.35. We examine the European Union's claims under Article s 3.1(b) and 3.2 insofar as we have
determined these claims to be within the scope of this pro ceeding.3511 We recall that our
preliminary ruling in Section 7.6.2 means that the European Union may validly make claims under
Articles 3.1(b) and 3.2 of the SCM Agreement (and Article III:4 of the GATT 1994) only in respect
of the post-2006 NASA and DOD aeronau tics R&D measures, the FAA aeronautics R&D measure,
and the South Carolina measures that are otherwise within the Panel's terms of reference. 3512
Where we f ind, in Section 8 of this Report, that any measure in respect of which the European
Union may validly make claims under Articles 3.1(b) and 3.2 of the SCM Agreement is not a
subsidy within the meaning of Article 1 of the SCM Agreement, there obviously is no basis for a
finding that the measure is inconsistent with Article 3.1(b) as a subsidy that is contingent in law or
in fact upon the use of domestic over imported goods.
10.36. Therefore, o ur examination in the remainder of this Section concerns any measures in
respect of which we have ruled that the European Union's claim under A rticles 3.1(b) and 3.2 of
the SCM Agreement are within the scope of this proceeding and which we find to be subsidies,
including subsidies not found to be specific under Articles 2.1 or 2.2.3513
10.37. Article 3.1(b) of the SCM Agreement reads as follows:
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.

10.38. The term "contingent" has the same meaning in Article 3.1(b) as in Article 3.1(a). 3514 A
subsidy is prohibited under Article 3.1(b) if it is conditional, i.e. dependent for its existence on the
use of domestic over imported goods. Article 3.1(b) applies to both c ontingency in law and
contingency in fact. 3515 While the Appellate Body has not yet discussed the question of the
evidence required to establish that a subsidy is contingent in fact upon the use of domestic over
imported goods, we can see no logical reason wh y the Appellate Body's pronouncements on the
evidence required to establish de facto contingency under Article 3.1(a) would not also apply to
Article 3.1(b).
10.39. As in the case of the European Union's claim that the subsidies at issue in this proceeding
are c ontingent in fact upon export performance, we consider that the European Union fails to
adequately support its claim that the subsidies at issue are contingent in fact upon the use of
domestic over imported goods through a proper analysis of the particular measures at issue. With
respect to none of these measures does the European Union attempt to support its claim through
an analysis of "the total configuration of the facts constituting and surrounding the granting of the
subsidy", including design, nature , and operation of the measure. Instead, the European Union
submits a document entitled Illustrative Statements Relating to De Facto Contingency on the Use
of Domestic Over Imported Goods3516 containing "a series of extracts from the documents relating
to the subsidies" and argues that the statements in this document "refer expressly or by
implication to the fact" that "Boeing is to produce certain goods in the United States", "Boeing is to
maintain certain employment levels in the United States", "Boeing is t o locate substantial
development or production activities in the United States" and "refer expressly to the use of US
domestic goods or labour, or a proxy thereof". 3517 In fact, however, the European Union does not

3511 See para. 10.2 above.
3512 See para. 7.438 above.
3513 See para. 10.16 above.
3514 Appellate Body Report, Canada – Autos, para. 123.
3515 Appellate Body Report, Canada – Autos, para. 143.
3516 Illustrative Statements Relating to De Facto Contingency on the Use of Domestic Over Imported
Goods, (Exhibit EU-583).
3517 European Union's first written submission, paras. 769, 770, 771, and 772.

explain how these Illustrative Statements ac tually support these assertions in respect of any
particular measure. We note that many of these statements are quite general in nature and don't
pertain to the design, nature and operation of particular measures.
10.40. Thus, for example, with regard to NASA aer onautics R&D measures, the document
Illustrative Statements Relating to De Facto Contingency on the Use of Domestic Over Imported
Goods includes the following statements:
With competition from foreign competitors greatly increasing, affordable, innovative
technology is critically needed to help preserve the U.S. aeronautics industry market
share, jobs and balance of trade.
In discussing the future of aeronautics in the US, Senator George Allen (VA), Chair of
the Senate Science , Technology and Space Subcommi ttee, commented: "So, the
question is: does the United States intend to respond to this competitive challenge
from the Europeans , and if so, when and how? I recognize that the aviation -related
manufacturing sector is a net exporter, representing many good -paying jobs for our
fellow Americans. A loss of these jobs has a direct impact on the quality of life for our
constituents."
The President, Congress, and the NASA Administrator are emphasizing the value of
NASA's research and technology base to U.S. indust ry in helping to increase industrial
competitiveness, provide jobs and improve the quality of life and the balance of trade.
The taxpayers' investment in NASA is an investment in the international
competitiveness of U.S. industry through partnerships that build upon NASA's
research and make it available to U.S. industry.
Maintenance of the United States aircraft industry's market position is critical for the
preservation of high paying skilled jobs, a capable industrial base, and balance of
trade.3518
10.41. We fail to see how statements of this general nature demonstrate that the particular
post-2006 NASA aeronautics R&D subsidies are in fact conditioned upon the production of certain
goods in the United States, the maintenance of certain employment levels in the Un ited States or
the location of substantial development or production activities in the United States or that these
subsidies expressly refer to the use of domestic goods or labour, as arg ued by the
European Union. Moreover, even assuming these assertions a re factually correct with respect to
these measures, the European Union has not explained why this would be sufficient to conclude
that the measures are contingent upon the use of domestic over imported goods and thereby
inconsistent with Article 3.1(b). Thus, the European Union contends on the basis of the Illustrative
Statements in its Exhibit that "Boeing is to produce certain goods in the United States, which are
thus goods of US origin, and which are destined to be used in the manufacture of Boeing LCA , to
the exclusion of imported goods". The European Union does not state the legal basis for its
apparent view that if the recipient of a subsidy "is to produce certain goods in the Un ited States"
and these goods "are destined to be used in the manufacture of Boeing LCA", the subsidy is
thereby contingent upon "the use of domestic goods over imported goods".
10.42. With respect to several other measures the statements in the document Illustrative
Statements Relating to De Facto Contingency on the Use of Domestic Over Imported Goods are
somewhat more directly related to the particular measures than in the case of the NASA
aeronautics R&D measures. In particular, the document contains statements pertaining to some of
the South Carolina measures that we find to be subsidies in Section 8.2.8 of this Report. In respect
of some of those South Carolina measures, the evidence in this document indicates that they are
subject to conditions relating to levels of employment and/or i nvestment or the location of
production, as also discussed elsewhere in this Report. In contrast, we see no statements that
refer expressly to the use of domestic U.S. goods as a condition of eligibility for these subsidies.
The European Union does not exp lain with respect to any particular measure why the existence of
such conditions relating to employment, investment or location of production means that the

3518 Illustrative Statements Relating to De Facto Contingency on the Use of Domestic Over Imported
Goods, (Exhibit EU-583), pp. 6 and 7.

measure is in fact contingent upon the use of domestic over imported goods within the meaning of
Article 3.1(b) of the SCM Agreement.
10.43. For these reasons, to the extent that we have ruled that the European Union's
claims under Articles 3.1(b) and 3.2 are within the scope of this proceeding , we reject
these claims as unfounded because: (a) certain measures challenged by the
European Union are not subsidies provided to Boeing after the end of the
implementation period; and (b) where we f ind the measures to be subsidies provided to
Boeing after the end of the implementation period , the European Union has fai led to
establish that any of these subsidies is contingent in fact upon the use of domestic over
imported goods.
10.4 Whether the United States is maintaining measures inconsistent with Article III:4
of the GATT 1994
10.44. The European Union submits that the United States maintains measures inconsistent, in
law or in fact, with Article III:4 of the GATT 1994. This claim concerns all measures challenged in
this proceeding.3519 The European Union argues that t hrough the subsidies granted or maintained
by the United States , it grants less favourable treatment to imported parts and materials capable
of being used in the production of Boeing LCA, when compared with domestic parts, with respect
to the internal sale, offering for sale, purchase, transportation, distribution or use. As with its claim
under Article 3.1(b) of the SCM Agreement, the European Union's claim under Article III:4 of the
GATT 1994 is based on its arguments, and evidence in support thereof, that Boeing is to produce
goods, of U.S. domestic origin, destined to be used in the manufacture of Boeing LCA, to the
exclusion of imported goods; that Boeing is to maintain employment levels in the United States
that cannot be sustained without the use of U.S. domestic products or materials; that Boeing is to
locate su bstantial development and production activities in the United States, which necessarily
implies the use of U.S. domestic products or materials; and that the United States favours the use
of U.S. domestic products or materials and labour, and conditions Boe ing's behaviour by
encouraging and directing Boeing to favour U.S. domestic goods and labour, rewarding Boeing
when it complies. 3520 The measures at issue are applied so as to afford protection to domestic
production of parts and materials capable of being us ed in the production of Boeing LCA, and are
therefore inconsistent with Article III:4 of the GATT 1994.3521
10.45. The United States rejects the European Union's argument that all measures challenged in
this proceeding are also inconsistent with Article III:4 of the GATT 1994. Indeed, the United States
argues that it is impossible to discern the legal or factual basis for this claim, as it consists entirely
of a cross-reference to the European Union's factual and legal arguments regarding Article 3.1(b)
of the SCM Agreement, which applies an entirely different legal standard. This approach of treating
two separate provisions of the covered agreements as being essentially the same fails to meet the
European Union's burden of proof to establish an inconsistency with Art icle III:4 of the
GATT 1994.3522 Furthermore, the exhibit that the European Union relies on in its Article 3.1(b)
claim and references in its Article III:4 claim, consisting of statements by federal, state, and local
officials, entirely fails to explain the a lleged connection between the statements and the factual or
legal conclusions it asks the Panel to draw. At most, these statements suggest that Boeing makes
products in the United States and employs workers there, and that some in the United States like
the fact that they do.3523
10.46. We note that in support of its claim under Article III:4, the European Union makes the
same factual assertions and relies upon the same evidence as in res pect of its claim under
Article 3.1(b) of the SCM Agreement. We thus reject the European Union's claim for the
same reasons that we have rejected its claim under Article 3.1(b). First, the European
Union fails to substantiate its factual assertions through a sufficiently detailed
discussion of the particular measures at issue . Second , the European Union does not
provide sufficient reasoning to explain how these factual assertions, even assuming they

3519 European Union's first written submission, para. 786.
3520 European Union's first written submission, para. 787; second written submission, para. 862.
3521 European Union's first written submission, para. 788; second written submission, para. 863.
3522 United States' second written submission, paras. 638-640.
3523 United States' second written submission, para. 640 (referring to Illustrative Statements Relating to
De Facto Contingency on the Use of Domestic Over Imported Goods, (Exhibit EU-583)).

were correct, would warrant a fin ding of inconsistenc y with Article II I:4 of the
GATT 1994.
10.5 Conclusion
10.47. We conclude that:
a. To the extent that we have ruled that the European Union's clai ms under Articles 3.1(a),
3.1(b) and Article 3.2 of the SCM Agreement are within the scope of this proceeding,
these claims are unfounded because: (i) certain measur es challenged by the
European Union are not subsidies provided to Boeing after the end of the implementation
period; and (ii) where we f ind that the measures at issue are subsidies provided to
Boeing after the end of the implementation period, the European Union has failed to
establish that any of these subsidies is contingent in fact upon export performance or
upon the use of domestic over imported goods.
b. To the extent that we have ruled that the European Union's claims under Article III :4 of
the GATT 1994 are within the scope o f this proceeding, the European Union has failed to
establish that any of the measures at issue is inconsistent with Article III:4 of the
GATT 1994.
11 CONCLUSIONS AND RECOMMENDATIONS
11.1. We recall that our task in this proceeding under Article 21.5 of the DSU is to resolve a
"disagreement as to the existence or consistency with a covered agreement of measures taken to
comply with the recommendations and rulings" of the DSB. The European Union claims that the
United States has failed to implement the DSB recommendations in US – Large Civil Aircraft (2 nd
complaint) to withdraw the subsidies or take appropriate steps to remove the adverse effects,
pursuant to Article 7.8 of the SCM Agreement. The European Union also claims that the measures
at issue in this proceeding are inconsisten t with Articles 3.1(a), 3.1(b), and 3.2 of the SCM
Agreement and Article III:4 of the GATT 1994. The United States maintains that it has complied
fully with the DSB recommendations and rulings by either withdrawing the relevant subsidies or
taking appropriate steps to remove their adverse effects.
11.2. In this Section of the Report, we provide a summary of the conclusions we have reached in
the preceding Sections and formulate our overall conclusion as to whether the United States has
failed to comply with the DSB recommendations and rulings.
Rulings on the terms of reference and scope of the proceeding
11.3. In Section 7 of this Report, the Panel has considered a large number of questions arising out
of a request of the United States that the Panel rule that certain measures, and claims of the
European Union with regard to certain measures, are outside the Panel's terms of reference
because the European Union's panel request does not satisfy the requirements of Article 6.2 of the
DSU; and that certain measures, and cl aims of the European Union with regard to certain
measures, are outside the scope of this compliance proceeding.3524
11.4. In respect of whether certain measures, and claims with respect to certain measures, are
outside our terms of reference for purposes of Articl e 6.2 of the DSU, we have made the following
rulings:
a. the European Union's claims under Articles 3.1(a), 3.1(b), and 3.2 of the SCM
Agreement, and under Article III :4 of the GATT 1994, are within the Panel's terms of
reference3525;

3524 See para. 7.1 above.
3525 The Panel's ruling that the European Union's claims under Articles 3.1(a), 3.1(b), and 3.2 of the
SCM Agreement, and under Article III of the GATT 1994, are within its terms of reference is without prejudice
to its further rulings, in para. 11.6 below, as to whether these claims in respect of certain measures are
nevertheless outside the scope of this compliance proceeding.

b. the South Carolina Phase II measures are outside the Panel's terms of reference, owing
to the failure of the European Union's panel request to m eet the requirements of
Article 6.2 of the DSU in respect of such measures; and
c. the Washington State tax measures, as amended by SSB 5952 , are outside the Panel's
terms of reference, owing to the failure of the European Union's panel request to meet
the requirements of Article 6.2 of the DSU in respect of such measures.
11.5. In respect of whether certain measures are outside the scope of this compliance proceeding,
we have made the following rulings:
a. the following measures are within the scope of this compliance proceeding:
i. the Washington State B&O tax credits for preproduction/aerospace product
development3526; the Washington State B&O tax credit f or property taxes and
leasehold excise taxes 3527; the Washington State sales and use tax exemptions for
computer software, hardware, and peripherals ; and the City of Everett B&O tax rate
reduction;
ii. DOD procurement contracts funded under the 23 original RDT&E program elements;
iii. DOD procurement contracts HR0011-06-C-0073 and HR -0011-08-C-0044 SOW and
assistance instruments HR0011 -06-2-0008, FA8650 -07-2-7716, and
HR0011-10-2-0001 funded under the Materials Processing Technology Project of the
Materials and Biological Technology program element;
iv. the provision of access to DOD equipment and employees through the post -2006
DOD procurement contracts and assistance instruments funded under the 23 original
RDT&E program elements and the "additional" program elements that we have found
to be within the scope of this proceeding;
v. the FAA aeronautics R&D measure; and
vi. the South Carolina Project Gemini measures and the Project Emerald measures.
b. the following measures are outside the scope of this compliance proceeding:
i. the Washington State JCATI measure;
ii. Air Force Contract F19628-01-D-0016 funded under the DRAGON Project of the
Airborne Warning and Control System (AWACS) (PE 0207417F) program element; Air
Force Contract FA8625-11-C-6600 funded under the KC -46, Next Generation Aerial
Refueling Aircraft (PE 0605221F) program element ; and measures funded under the
Multi-Mission Mari time Aircraft (P -8A) (PE 0605500N) program element, including
Navy contracts N00019-04-C-3146, N00019-09-C-0022, and N00019-12-C-01123528;
and
iii. the provi sion of access to DOD equipment and employees through the pre -2007
procurement contracts and assistance instruments funded under the 23 original
RDT&E program elements.
11.6. In addition to the above, with respect to whether claims of the European Union with reg ard
to certain measures are outside the scope of this compliance proceeding , we have made the
following rulings:

3526 Including amendments thereto pursuant to SSB 6828.
3527 Including amendments thereto pursuant to HB 2466.
3528 The Panel has also ruled that claims concerning the Technology Transfer program element, the IP
ManTech program element and the Long Range Strike Bomber program element are not further considered in
this proceeding because the Panel is not satisfied of the existence of any procurement contracts or assistance
instruments with Boeing which the European Union identifies as relevant to its claims which are funded through
these program elements.

a. the European Union is precluded from bringing claims under Articles 3.1(a) and 3.2 of
the SCM Agreement against the following four original Was hington State tax measures
enacted under HB 2294: the Washington State B&O tax rate reduction; the Washington
State B&O tax credits for preproductio n/aerospace product development 3529; the
Washington State B&O tax credit for property taxes 3530; and the Washington State sales
and use tax exemptions for computer hardware, peripherals, and software.
b. the European Union is precluded from bringing claims under Article s 3.1(b) and 3.2 of
the SCM Agreement, and under Article III:4 of the GATT 1994, in respect of the following
four original Washington State tax measures enacted under HB 2294: the Washington
State B&O tax rate reduction; the Washington State B&O tax credits for
preproduction/aerospace product development3531; the Washington State B&O tax credit
for property t axes3532; and the Washington State sales and use tax exemptions for
computer hardware, peripherals, and software; as well as the FSC/ETI measures.
c. the European Union is precluded from bringing claims under Articles 3.1(a), 3.1(b), and
3.2 of the SCM Agreement and under Article III:4 of the GATT 1994 in respect of:
i. the City of Everett B&O tax rate reduction, the tax abatements related to the City of
Wichita IRBs, and the pre -2007 NASA Space Act Agreements and DOD procurement
contracts at issue in the original proceeding; and
ii. the pre-2007 NASA procurement contracts and DOD assistance instruments at issue
in the original proceeding, as amended by the respective Boeing Patent Licence
Agreements.
Conclusions with respect to whether the United States has failed to wi thdraw the
subsidy within the meaning of Article 7.8 of the SCM Agreement
11.7. With respect to the European Union's claim that the United States has failed to withdraw the
subsidy within the meaning of Article 7.8 of the SCM Agreement , the Panel concludes as follows in
Section 8 of this Report:
a. with regard to pre-2007 NASA and DOD aeronautics R&D subsidies that were the subject
of the DSB recommendations and rulings, the European Union has established that the
modifications made by the United States through the Boeing Patent Licence Agreements
to the terms of the pre -2007 NASA procurement contracts and DOD assistance
instruments do not constitute a withdrawal of the subsidy within the meaning of
Article 7.8 of the SCM Agreement and that the United States, having taken no action in
respect of pre-2007 Space Act Agreements, has failed to withdraw the subsidy within the
meaning of Article 7.8 of the SCM Agreement.
b. with regard to the post -2006 measures of the United States challenged in this
proceeding, the European Union has established that the following measures involve
specific subsidies within the meaning of Articles 1 and 2 of the SCM Agreement, and that
by granting or maintaining these specific subsidies after the end of the implementation
period, the United St ates has failed to withdraw the subsid y within the meaning of
Article 7.8 of the SCM Agreement:
i. certain transactions between NASA and Boeing pursuant to post -2006 NASA
procurement contracts, cooperative agreements, and Space Act Agreements, with
respect to which we are unable to estimate the amount of the subsidy on the basis of
the evidence on the record, but consider the United States' estimate of the amount
of the financial contribution at [***] between 2007 and 2012 to be a credible
estimate;

3529 Including amendments thereto pursuant to SSB 6828.
3530 Including amendments thereto pursuant to HB 2466.
3531 Including amendments thereto pursuant to SSB 6828.
3532 Including amendments thereto pursuant to HB 2466.

ii. certain transactions between DOD and Boeing pursuant to post-2006 DOD assistance
instruments, with respect to which we are unable to estimate the amount of the
subsidy on the basis of the evidence on the record, but consider the United States'
estimate of the amount of the financial contribution at [***] between 2007 and
2012 to be a credible estimate;
iii. transactions pursuant to the Boeing CLEEN Agreement with respect to which we are
unable to estimate the amount of the subsidy on the basis of the evidence on the
record, but consider the European Union's estimate of the amount of the financial
contribution at USD 27.99 million between 2010 and 2014 to be a credible estimate;
iv. Washington State B&O tax rate reduction for the aerospace industry, in the amount
of USD 325 million between 2013 and 2015;
v. Washington State B&O tax credits for preproduction/aerospace product development,
as amended by section 7 of SSB 6828, in the amount of [***] between 2013 and
2015;
vi. Washington State B&O tax credit for property taxes, as amended by HB 2466 to
include leasehold excise taxes, in the amount of [***] between 2013 and 2015;
vii. Washington State sales and use tax exemptions for computer software, hardware,
and peripherals, in the amount of [***] between 2013 and 2015;
viii. City of Everett B&O ta x rate reduction, in the amount of USD 54.1 million between
2013 and 2015;
ix. payments made by South Carolina pursuant to commitments made in the Project
Gemini Agreement to compensate Boeing for a portion of the costs incurred by
Boeing in respect of the con struction of the Gemini facilities and infrastructure
through air hub bond proceeds, in the amount of USD 50 million;
x. South Carolina property tax exemption for Boeing's large cargo freighters, in the
amount of USD 25.82 million between 2013 and 2015; and
xi. South Carolina sales and use tax exemptions for aircraft fuel, computer equipment ,
and construction materials, in the amount of USD 2. 25 million between 20 13 and
2015;
c. the European Union has failed to establish that the following measures involve specific
subsidies within the meaning of Articles 1 and 2 of the SCM Agreement, and has
therefore failed to establish that by granting or maintaining these specific subsidies after
the end of the implementation period, the United States has failed to withdraw the
subsidy within the meaning of Article 7.8 of the SCM Agreement:
i. certain transactions between DOD and Boeing pursuant to pre -2007 and post -2006
DOD procurement contracts, on the grounds that, assuming arguendo that these
measures were to involve financial con tributions within the meaning of
Article 1.1(a)(1) of the SCM Agreement, they do not confer a benefit on Boeing
within the meaning of Article 1.1(b) of the SCM Agreement;
ii. tax exemptions and exclusions under FSC/ETI legislation and successor legislation,
on the grounds that the European Union has failed to establish that Boeing actually
received the FSC/ETI tax benefits after 2006, and that the measure therefore
involves a financial contribution within the meaning of Article 1.1(a)(1)(ii) of the SCM
Agreement;
iii. tax abatements provided through IRBs issued by the City of Wichita, on the grounds
that these tax abatements are no longer specific within the meaning of Article 2.1(c)
of the SCM Agreement and, as a result, the measure is no longer subject to the
provisions of the SCM Agreement on actionable subsidies;

iv. South Carolina sublease of the Project Site, on the grounds that the European Union
has failed to establish that the sublease involves a subsidy to Boeing;
v. South Carolina provision of Gemini and Emerald f acilities and infrastructure, on the
grounds that the European Union has failed to establish that these measures involve
financial contributions within the meaning of Article 1.1(a)(1)(iii) of the SCM
Agreement;
vi. South Carolina fee -in-lieu-of taxes arrangem ents set forth in the Boeing F ILOT
Agreement and Project Emerald F ILOT Agreement, on the grounds that these
arrangements are not specific within the meaning of Article 2 of the SCM Agreement;
vii. South Carolina corporate income tax credits in connection with the designation of the
Project Gemini and Project Emerald portions of the Project Site as part of the same
multi-county industrial park, on the grounds that the tax credits are not specific
within the meaning of Article 2 of the SCM Agreement;
viii. South Carolin a Income Allocation and Apportionment Agreement, on the grounds
that the European Union has failed to establish that the agreement involves a
financial contribution within the meaning of Article 1.1(a)(1)(ii) of the SCM
Agreement; and
ix. South Carolina workforce recruitment, training and development programme, on the
grounds that the programme is not specific within the meaning of Article 2 of the
SCM Agreement.
Conclusions with respect to whether the United States has failed to take appropriate
steps to remov e the adverse effects within the meaning of Article 7.8 of the SCM
Agreement
11.8. With respect to the European Union's claim that the United States has failed to comply with
its obligation to take appropriate steps to remove the adverse effects within the mean ing of
Article 7.8 of the SCM Agreement, the Panel concludes as follows in Section 9 of this Report:
a. the European Union has failed to establish that the effects of certain aeronautics R&D
subsidies and other subsidies are a genuine and substantial cause o f significant lost
sales, significant price suppression, impedance of imports to the United States market or
impedance of exports to various third country markets, or threats of any of the
foregoing, within the meaning of Articles 5(c) and 6.3(a), (b) , and (c) of the SCM
Agreement in respect of the A350XWB in the post-implementation period;
b. the European Union has failed to establish that the original adverse effects of the pre -
2007 aeronautics R&D subsidies in respect of the A330 and Original A350 continue in the
post-implementation period as significant price suppression of the A330 and A350XWB,
significant lost sales of the A350XWB, or a threat of impedance of exports of the
A350XWB in the twin -aisle LCA market, within the meaning of Articles 5(c) and 6.3( a),
(b), and (c) of the SCM Agreement in the post-implementation period;
c. the European Union has established that the effects of the Washington State B&O tax
rate reduction are a genuine and substantial cause of significant lost sales within the
meaning of Articles 5(c) and 6.3(c) of the SCM Agreement of A320neo and A320ceo
families of LCA in the single -aisle LCA market, in respect of the sales campaigns for Fly
Dubai in 2014, Air Canada in 2013, and Icelandair in 2013, in the post -implementation
period;
d. the European Union has established that the effects of the Washington State B&O tax
rate reduction are a genuine and substantial cause of a threat of impedance of imports
of the A320ceo to the United States single -aisle market, and a threat of impedance of
exports of Airbus single -aisle LCA in the United Arab Emirates third country market ,
within the meaning of Articles 5(c) and 6.3(a) and (b) of the SCM Agreement in the
post-implementation period; and

e. the European Union has failed to establish that the effect s of the pre-2007 aeronautics
R&D subsidies and the post -2006 subsidies are a genuine and substantial cause of
significant price suppression of the A320neo or A320ceo, impedance of imports of the
A320neo or A320ceo to the United States market , or displacement and impedance of
exports of the A320neo or A320ceo to the third country markets of Australia, Brazil,
Canada, Iceland, Indonesia, Malaysia, Mexico, Norway, Russia, and Singapore, within
the meaning of Articles 5(c) and 6.3(a), (b), and (c) of the SCM Agreement, or threats of
any of the foregoing, in the post-implementation period.
Conclusions with respect to whether the United States ac ts inconsistently with
Articles 3.1 and 3.2 of the SCM Agreement and Article III:4 of the GATT 1994
11.9. With respect to th e European Union's claims under Articles 3.1 and 3.2 of the SCM
Agreement and Article III:4 of the GATT 1994 , the Panel concludes as follows in Section 10 of this
Report:
a. to the extent that the Panel has found that the claims are within the scope of this
proceeding, and that the measures at issue are subsidies within the meaning of Article 1
of the SCM Agreement, the European Union has not established that the subsidies are
inconsistent with Articles 3.1(a) and 3.2 or 3.1(b) and 3.2 of the SCM Agreement; and
b. to the extent that the Panel has found that the claims are within the scope of the
proceeding, the European Union has not established that the measures at issue are
inconsistent with Article III:4 of the GATT 1994.
Conclusion with respect to whether the United States has complied with the DSB
recommendations and rulings
11.10. In light of the foregoing, we conclude that by continuing to be in violation of Articles 5(c)
and 6.3(a), (b), and (c) of the SCM Agreement, the United States has failed to comply with th e
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".
11.11. Under Article 3.8 of the DSU, in cases where there is an infrin gement of the obligations
assumed under a covered agreement, the action is considered prima facie to constitute a case of
nullification or impairment. We conclude that, to the extent that the measures at issue are
inconsistent with the SCM Agreement, they have nullified or impaired the benefits accruing to the
European Union under that Agreement.
11.12. We therefore conclude that the United States has failed to implement the DSB
recommendations and rulings to bring its measures into conformity with its obligations under the
SCM Agreement. To the extent that the United States has failed to comply with the DSB
recommendations and rulings in the original dispute, those recommendations and rulings remain
operative.

APPENDIX 1
BCI APPENDIX
Introduction
1. The parties ha ve submitted a number of collaborative R&D agreements in this proceeding as
evidence of private collaborative R&D arrangements which are alleged to serve as relevant
market benchmarks for determining whether certain of the aeronautics R&D measures before
the Panel confer a benefit on Boeing. In this Appendix, we set forth our evaluation of the
allocation of intellectual property rights and rights resulting therefrom (i.e. licence rights)
under these collaborative R&D arrangements. We discuss five separate g roupings of these
private collaborative R&D agreements.
2. The first comprises the six BCI contracts between Boeing as commissioning party, and
research institutes and for -profit entities as commissioned party , that were submitted in the
original proceeding (designated by the Appellate Body as Contracts A through F). These
contracts were the basis for the Appellate Body's conclusion, in the context of completing the
analysis, that the allocation of patent rights under the NASA procurement contracts and DOD
assistance instruments was more favourable to Boeing as commissioned party than the
corresponding allocations to the commissioned parties in Contracts A through F.
3. The second consists of a total of 18 private, commercial collaborative R&D agreements
submitted by the United States' and European Union's technology licensing experts. The United
States' expert, Louis P. Berneman, identified six private collaborative R&D agreements, five of
which were drawn from his search of the Recap database, as examples of act ual,
market-based arm's-length R&D collaborations in the biopharmaceutical industry. 1 The search
criteria were: (a) co -development; (b) collaboration; (c) joint venture; or (d) research. 2 The
sixth is a Services Agreement between Plug Power Inc. and the Ge neral Electric Company. 3
The European Union's expert, Richard A. Razgaitis, identified a further 12 private, commercial
collaborative R&D agreements covering the same industry by replicating Berneman's Recap
database search criteria but restricting the dat e range from January 2007 to September 2012.
From the results, he then narrowed his focus to agreements that produced non -confidential
values for R&D expenditures and which he considered were "reasonably comparable in
business purpose and structure to the U.S. Government R&D contracts with Boeing that are at
issue in this dispute".4
4. The third comprises two private collaborative R&D agreements identified by Mr Razgaitis
in which the commissioning party is not a commercial actor, but a not -for-profit foundation
(which does not have a commercial interest in the intellectual property rights resulting from
the research), also in the biopharmaceutical industry and identified as part of the Recap
database search.
5. The fourth is the standard terms and conditions of t he Wichita State University
National Institute for Aviation Research (NIAR ) in respect of industry research
collaborations in which NIAR is the commissioned party.5
6. The fifth is a research and technology framework agreement between Airbus SAS and
an unnamed university, in which Airbus is the commissioning party.

1 Berneman explains that Recap is a commercially available subscription database which contains
records of R&D collaborations, licences, and other alliances in the biopharmaceutical industry, including those
between commercial firms. (Berneman Declaration, (Exhibit USA-322) (BCI), para. 18 and fn 15).
2 Berneman explains that he additionally focused on alliances entered into when the research project
was in relatively early stages, focusing on alliances classified by Recap as "discovery", "lead molecule",
"formulation" or "preclinical". (Berneman Declaration, (Exhibit USA-322) (BCI), para. 18 and fn 15).
3 Services Agreement between Plug Power Inc. and General Electric Company (17 March 2000) (Plug
Power-GE Contract), (Exhibit USA-354).
4 Razgaitis Declaration, (Exhibit EU-1262) (BCI), para. 54.
5 NIAR is the largest university aviation R&D institution in the United States. It provides research,
design, testing, and certification services to the aviation manufacturing agencies, government agencies,
educational entities, and other entities. (Statement of J. Tomblin, Executive Director of the National Institute
for Aviation Research, (Exhibit USA-263)).

7. In the context of our discussion of these categories of collaborative R&D agreements, we also
refer to the expert opinions of both Mr Berneman and Mr Razgaitis where appropriate.
[***6 ***7 ***8 ***9 ***10 ***11 ***12 ***13 ***14 ***15 ***16 ***17 ***18 ***19 ***20
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The 18 private, commercial collaborative R&D agreements identified by Berneman and
Razgaitis
28. As previously n oted, the United States' expert, Mr Berneman, and the European Union's
expert, Mr Razgaitis, each discussed [***] as well as identifying a number of additional
private, commercial collaborative R&D agreements in the biopharmaceutical industry. 38 Both

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38 Mr Berneman identified the following six private, commercial collaborative R&D agreements: (1)
Collaborative Pronet Research and Licence Agreement between Myriad Genetics, Inc. and Monsanto Company
(11 November 1989) (Monsanto-Myriad Contract), (Exhibit USA-351); (2) Sponsored Research Agreement
between Pfizer, Inc. and T Cell Sciences, Inc. (1 August 1989) (Pfizer-T Cell Sciences Contract), (Exhibit
USA-353); (3) Collaboration Agreement between American Home Products Corporation and Athena
Neurosciences, Inc. (1 April 1995) (American Home-Athena Neurosciences Contract), (Exhibit USA-355); (4)
Agreement between Bayer AG and Oxford GlycoSciences (UK), Inc. (7 March 2000) (Bayer-Oxford Glyco
Sciences Contract), (Exhibit USA-352); (5) Research Collaboration and Option Agreement between Emisphere
Technologies, Inc. and Eli Lilly and Company (26 February 1997) (Lilly-Emisphere Contract), (Exhibit
USA-356); (6) Plug Power-GE Contract, (Exhibit USA-354). Mr Razgaitis identified an additional 12: (1) License
Agreement between Sangamo BioSciences, Inc. and Sigma-Aldrich Co. (10 July 2007) (Sigma-Sangamo
Contract), (Exhibit USA-376); (2) Collaboration and License Agreement between Isis Pharmaceuticals, Inc. and
Bristol-Myers Squibb Company (8 May 2007) (BMS-Isis Contract), (Exhibit USA-378); (3) Research
Development and License Agreement between Aveo Pharmaceuticals, Inc. and Schering Corporation (23 March
2007) (Schering-Aveo Contract), (Exhibit USA-377); (4) Co-Development and Commercialization Agreement
between Astellas Pharma, Inc. and Maxygen, Inc. (18 September 2008) (Astellas-Maxygen Contract), (Exhibit
EU-1328); (5) License and Collaboration Agreement between Aventis Pharmaceuticals, Inc., Sanofi-Aventis
Amerique du Nord and Regeneron Pharmaceuticals, Inc. (28 November 2007) (Aventis-Regeneron Contract),
(Exhibit USA-497); (6) Collaborative Research and License Agreement between Archemix Corp. and Merck,
KGaA (17 January 2007) (Merck-Archemix Contract), (Exhibit USA-379); (7) Collaboration and License
Agreement between Synta Pharmaceuticals Corp and F. Hoffmann-La Roche, Ltd. (23 December 2008)
(Roche-Synta Contract), (Exhibit USA-375); (8) Collaborative Research and License Agreement between

experts appear to agree generally that overall, these private collaborative R&D agreements
reflect commissioning and commissioned parties bargaining at arm's length to reach a
market-based apportionment of relevant technology and intellectual property rights as well as
associated licence rights in their contracts.39
29. Mr Berneman opines, with respect to the six private, commercial collaborative R&D
agreements that he discusses, that there is no single competitive or market outcome with
respect to the intellectual p roperty allocation terms of collaborative R&D agreements. 40
Moreover, he notes that rights to make, use and sell products covered by inventions and
knowledge conceived and reduced to practice in the course of R&D collaboration (i.e.
commercial use rights gr anted by licences) may be as important as the ownership of
intellectual property. The scope of the rights granted by a licence will vary according to the
R&D collaboration and the needs, wants, and situation of the parties, but can involve
exclusivity, ter ritory, duration, as well as consideration such as up -front payments and
royalties. Collaborative R&D arrangements can also include provisions regarding rights to use
data resulting from the collaboration internally, and potentially for future research.41
30. Mr Razgaitis considers, on the basis of the 12 private, collaborative R&D agreements that he
identifies in which the commissioning party is a commercial actor, that the "market -typical"
R&D contracting arrangements range from the commissioning party owning all of the
foreground intellectual property, to a right to receive multiples of the total R&D funding level,
to a combination of non -exclusive and exclusive rights to the foreground intellectual property,
together in some cases with the right to sublicense to third parties in exchange for intellectual
property payments such as royalties.42
31. Our review of the six private, commercial collaborative R&D agreements identified by Mr
Berneman, and the 12 identified by Mr Razgaitis, indicates that the allocation of intellectual
property rights varies from being exclusively held either by the commissioned or
commissioning party, to being held by the party whose employees made the invention or
jointly held in case of joint inventions. With respect to related licence ri ghts, where the
commissioning party does not already own the intellectual property rights 43, it automatically
receives in the overwhelming majority of cases an exclusive, royalty -bearing licence in
foreground intellectual property for commercial use purpose s (typically including the right to
sublicense).44 In addition to the above, many contracts also provide for the grant of a

Icagen, Inc. and Pfizer, Inc. (13 August 2007) (Pfizer-Icagen Contract), (Exhibit EU-1330); (9) License and
Collaboration Agreement between Gilead Sciences, Inc., Gilead Sciences Limited and Tibotec Pharmaceuticals
(16 July 2009) (Gilead-Tibotec Contract), (Exhibit USA-374); (10) Collaboration and License Agreement
between Acadia Pharmaceuticals, Inc. and Meiji Seika Kaisha, Ltd. (24 March 2009) (Meiji-Acadia Contract),
(Exhibit EU-1292); (11) Collaboration and License Agreement between Hoffman-La Roche, Inc. and Metabasis
Therapeutics, Inc. (7 August 2008) (Roche-Metabasis Contract), (Exhibit EU-1331); (12) Master Laboratory
Services Agreement between Intercept Pharmaceuticals and WIL Research Laboratories LLC (2 October 2007),
attachment C to Razgaitis Declaration, (Exhibit EU-1262) (BCI).
39 Berneman Declaration, (Exhibit USA-322) (BCI), para. 18; and Razgaitis Declaration, (Exhibit
EU-1262) (BCI), para. 49.
40 Berneman Declaration, (Exhibit USA-322) (BCI), para. 64.
41 Berneman Declaration, (Exhibit USA-322) (BCI), paras. 10-17.
42 Razgaitis Declaration, (Exhibit EU-1262) (BCI), para. 61.
43 That is all 18 contracts discussed in this Section except the Intercept Pharmaceuticals-WIL Contract
(Razgaitis Declaration, (Exhibit EU-1262) (BCI), attachment c), in which the commissioning party owns all
collected data, discoveries, inventions and improvements arising from any commissioned research and the
commissioned party retains only its background intellectual property rights related to testing methods,
practices, and procedures. (Ibid. section 8(a)).
44 Gilead-Tibotec Contract, (Exhibit USA-374), section 9.1(a) – commissioning party automatically
receives co-exclusive, royalty-free licence to commercialize combination product, and exclusive, royalty-free
licence to exploit certain other products; Pfizer-T Cell Sciences Contract, (Exhibit USA-353), Exclusive patent
licence agreement, pdf p. 38, section 2, and Exclusive technology licence agreement, pdf p. 62, section 2; Plug
Power-GE Contract, (Exhibit USA-354), section 4(b); Sigma-Sangamo Contract, (Exhibit USA-376), section 2;
Bayer-Oxford Glyco Sciences Contract, (Exhibit USA-352), section 3.1; BMS-Isis Contract, (Exhibit USA-378),
sections 2.1 and 5.4; Schering-Aveo Contract, (Exhibit USA-377), section 6.1; Merck-Archemix Contract,
(Exhibit USA-379), sections 7.2 and 7.1.1; Roche-Synta Contract, (Exhibit USA-375), section 6.2;
Pfizer-Icagen Contract, (Exhibit EU-1330), section 3.4; Astellas-Maxygen Contract, (Exhibit EU-1328),
section 9.1.3; Aventis-Regeneron Contract, (Exhibit USA-497), sections 4.1 and 4.3; Meiji-Acadia Contract,
(Exhibit EU-1292), section 4.1(a); Roche-Metabasis Contract, (Exhibit EU-1331), section 4.2; and Monsanto-
Myriad Contract, (Exhibit USA-351), sections 3.3 and 2.3(b) – option to gain exclusive, royalty-bearing,

non-exclusive, royalty free licence in relevant intellectual property for research and
development purposes. The few contracts that d o not mandate the automatic grant of such
licences include, at minimum, an option to negotiate for an exclusive licence 45, and/or a right
of first refusal to such a licence.46
32. In other words, regardless of the allocation of ownership over inventions arising from
collaborative R&D, the overwhelming majority of the 18 private, commercial collaborative R&D
agreements identified by Messrs Berneman and Razgaitis grant the commissioning party the
exclusive right to commerciali ze foreground intellectual property, an d conversely exclude the
commissioned party from commercially exploiting such intellectual property. [***].
33. The United States also notes that certain of the private, commercial collaborative R&D
agreements identified by Mr Razgaitis contain significant fie ld of use restrictions on the
commissioning party's ability to commercialize the foreground intellectual property. 47
According to the United States, this demonstrates that commercial commissioning parties
sometimes face more significant limitations on the u se of their licences than does the U.S.
Government under the NASA and DOD contracts and agreements at issue in this proceeding.
As Mr Razgaitis observes in response, field of use and territorial limitations represent the
primary commercial opportunity that the commissioning party (and licensee) anticipates, given
the subject R&D and its business capabilities and priorities. As the vast majority of the 18
contracts under review demonstrate, field of use and territorial limitations appear to be typical
in tec hnology licences, and are the result of negotiation between the parties. 48 Despite the
inclusion of such limitations, we observe that, unlike for the government use licences retained
by NASA and DOD, in the vast majority of the private, commercial collabora tive R&D
agreements before us , the commissioned party's capability of commercially exploiting an
invention will be considerably affected by the fact that the commissioning party usually obtains
either the patent or an exclusive licence or, at minimum, an o ption to negotiate an exclusive
licence to the foreground intellectual property that allows for its commercial exploitation by the
commissioning party in a given field and territory.
Collaborative R&D agreements involving non-commercial actors
34. Among the ex amples of collaborative R&D agreements from the biopharmaceutical industry
identified by Mr Razgaitis are two in which the commissioning parties are non -commercial
entities. We discuss these separately from those discussed in the preceding subsection of th is
Appendix because the commissioning parties are pursuing public interest -motivated objectives
in commissioning the research without themselves being engaged in the commercialization of
any resulting invention.
35. The first is an agreement between a limited liability company49 formed by a not -for-profit
foundation as the commissioning party, in which a commissioned party is engaged to develop
a pharmaceutical treatment for a medical condition. 50 The commissioning party is not granted
ownership of any intellect ual property rights or licence rights. However, in the event that the

worldwide, commercial use licence is subject to exercise of option by commissioning party and to payment of
pre-determined licence fees.
45 American Home-Athena Neurosciences Contract, (Exhibit USA-355) – the option to acquire exclusive,
royalty-bearing, worldwide, commercial use licence is subject to parties negotiating any undefined terms in
good faith (section 6); and Lilly-Emisphere Contract, (Exhibit USA-356) – the option to acquire an exclusive,
worldwide, commercial use licence appears to be subject to terms set out in a "Form of License Agreement" in
Exhibit B to the agreement, not included as evidence in this proceeding (section 2.1).
46 American Home-Athena Neurosciences Contract, (Exhibit USA-355), section 6(k); and Lilly-Emisphere
Contract, (Exhibit USA-356), section 3.
47 United States' response to Panel question No. 27, paras. 108-112. The United States refers to eight of
the private collaborative R&D agreements identified by Mr Razgaitis that appear to contain field of use
limitations: (1) Meiji-Acadia Contract, (Exhibit EU-1292); (2) Roche-Metabasis Contract, (Exhibit EU-1331); (3)
Gilead-Tibotec Contract, (Exhibit USA-374); (4) Roche-Synta Contract, (Exhibit USA-375); (5) Sigma-Sangamo
Contract, (Exhibit USA-376); (6) Schering-Aveo Contract, (Exhibit USA-377); (7) BMS-Isis Contract, (Exhibit
USA-378); and (8) Merck-Archemix Contract, (Exhibit USA-379).
48 Razgaitis Declaration, (Exhibit EU-1262), (BCI) paras. 28 and 81.
49 A limited liability company, or LLC, is a business entity that is a U.S.-specific form of private limited
company, which is generally treated as a pass-through entity for federal income tax purposes.
50 Sponsored Research Collaboration Agreement between Dart Therapeutics, LLC, and CombinatorX, Inc.
(11 November 2007), attachment B to Razgaitis Declaration, (Exhibit EU-1262) (BCI).

commissioned party sells or licences a product resulting from the research, it must repay the
R&D funds it received to the commissioning party. In addition, the commissioned party is
obligated to make certain milestone payments at periodic intervals from its commercial sales.
Should the commissioned party decide to discontinue the development of any candidate drug
without licensing its rights to a third party, the commissioning party may exercise its rights to
be granted an exclusive, sublicensable fully paid licence in all intellectual property rights to
develop, make, use and sell the discontinued drug candidate.51
36. The second is a sponsored research agreement involving the same not -for-profit foundation,
this time as the commissioning party itself. Under this agreement, the commissioning party
again sponsors a commissioned party to search for a cure for a particular medical condition.
The agreement entitles the commissioning party to be re paid the R&D funds it expended in
sponsoring the research in the event that the commissioned party successfully commercializes
the foreground intellectual property.52 In addition, should the commissioned party abandon its
commercialization efforts for reasons other than safety or efficacy, the commissioning party is
entitled to obtain an exclusive licence to the foreground and background intellectual property
and licence such rights on a royalty -bearing basis to third parties, subject to royalty -sharing
with the commissioned party.53
37. Both of these agreements, while involving the same not-for-profit foundation as commissioning
party, nevertheless provide some evidence that a commissioning party that is acting for public
interest reasons and that: (a) does not itself have a commercial use for the foreground
intellectual property; and (b) does not itself have a direct interest in commercializing the
results of the research for a commercial purpose, will still seek to include a provision that
enables it to recover the funding that it provided. It will also retain an option to an exclusive,
fully paid licence in order to enable the commercialization of the products resulting from the
research collaboration. This puts the commissioning party in collaborative R&D agre ements
involving non-commercial actors in a more favourable position from that of the commissioning
party in the NASA procurement contracts and DOD assistance instruments, as the
commissioning party in the former ensures a reimbursement of its investment i n case of
successful commercialisation of inventions resulting from the R&D, as well as an option to an
exclusive, fully paid licence to any intellectual property resulting from the R&D, should the
commissioned party decide to discontinue the project.
[***54 ***55 ***56 ***57 ***58 ***59 ***60 ***61 ***62 ***63 ***64 ***65 ***66 ***67 ***68
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51 Sponsored Research Agreement Dart LLC-CombinatorX Inc, Attachment B to Razgaitis Declaration,
(Exhibit EU-1262) (BCI), article 7.
52 Sponsored Research Agreement between Avi Biopharma Inc. and Charley's Fund, Inc.
(12 October 2007), (Exhibit EU-1332), article 4.3.
53 Sponsored Research Agreement between Avi Biopharma Inc. and Charley's Fund, Inc.
(12 October 2007), (Exhibit EU-1332), article 9.1.
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APPENDIX 2
HSBI APPENDIX

[[HSBI]]